As the relationship between Korea and China strengthens and the importance of Chinese market rapidly grows, this report analyzes the Chinese tax system and administration to address tax problems Korean companies are facing when they invest in China. The report can be summarized as follows:

First, we must understand the Chinese perspective that tax system is one of the most important policy means to achieve national goals, an expression of national rights and interests, and belongs to the deeds of national governing.

Second, we must predict future tax reforms properly and take appropriate measures.

Third, we must find ways to reduce taxes by understanding of the current Chinese tax system and administration, and various preferential tax policies.

Fourth, we must pay continuous attention to the preferential tax policies for foreign investments. China has recently promoted preferential tax policies for high-tech industries such as IT & BT and the field of infrastructure.

Fifth, we must understand the recent changes in the partial return system of VAT and take appropriate actions under the given situation.

Sixth, it is expected that the quasi-tax (SHOU FEI) will be imposed on all companies for a considerable period of time. We must take this into account at the investment preparation stage. If an investment has already been made, we must actively seek ways to reduce its burden.

Seventh, as the State Administration of Taxation is strengthening its transfer pricing system and preparing relevant database, we must keep an eye on the transfer pricing system. In particular, Korean companies in China with their parent companies in Korea must be prepared for potential tax audit, so that they can prove that the transactions are made according to the arm's length principle.