New Taxes on Foreign Companies Another Challenge to Profitability in China
Some veterans of trying to make Chinese operations profitable call it death by a thousand cuts. No one stab kills profitability. But the sum of mini-wounds can be financially fatal or coma inducing.
In 2010 China's State Council allowed large municipal governments to collect from wholly and partly foreign owned enterprises and from foreign individuals local education surcharges (LES) and urban construction taxes (UCT). The cities of Qingdao, Shanghai and Shenzen and Guangdong Province are retroactively applying these new taxes that total as much as 9 percent, back to January 1, 2011. The national LEC tax surcharge will be 3 percent when it goes into effect.
CFO's of US businesses with Chinese operations should take into account this spreading additional tax. Beijing is considering how much and when to impose LES and UCT, as are other cities.
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Joseph J. Dehner Joe Dehner concentrates his practice on multinational business and securities disputes. He counsels a wide variety of companies, domestic and foreign, on issues confronting global business, including transnational investment, mergers and acquisitions, joint ventures, customs and trade issues, international business structures, distribution and agency agreements and the resolution of international disputes.