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Special treatment in taxation is over

Foreign-funded companies will no longer be exempted from city maintenance and construction taxes beginning today in a decision by the Chinese government.

China will begin collecting city maintenance and construction taxes and education-supporting taxes from foreign companies, and individuals with commercial interests in the country, effective Dec. 1, 2010.

From the middle of 1980s, domestic companies have been paying city maintenance and construction taxes and education-supporting taxes, which their foreign counterparts, including solely foreign-funded companies and joint ventures, were not required to pay.Since China's reform and opening-up, China has provided preferential policies in order to attract foreign investment to boost growth. Foreign-funded companies actually have enjoyed special treatment in terms of land use and taxation.

"China's domestic enterprises have been paying these taxes for decades while foreign companies haven't. The country now seeks a unified taxation standard, this is an improvement and will create a more sound investment climate," said   Zhang Hanya, chairman of the Investment Association of China (NASDAQ:IAC).

This is not the first change of the kind to China's taxation laws in recent years. China unified income tax rates for both domestic and foreign-funded companies at 25 percent on January 1, 2008, with the previous rate for domestic firms at 33 percent and that for foreign firms at 15 percent.

The government is phasing in the increases over five years, with foreign companies paying 18-percent in 2008, 20 percent in 2009, 22 percent in 2010, 24 percent in 2011 and 25 percent from 2012, although some discrepancies may exist due to local government preferences.

Currently, China has a 7 percent rate for the city and construction maintenance taxes at the municipal level, 5 percent at county level, and 1 percent at other lower levels, while the rate for education-supporting taxes is 3 percent.