UK companies residing in China are set to have their tax bills increased following the introduction of corporate tax reforms by the Chinese Government.

The new regulations, aimed at levelling the playing field between domestic and overseas companies, also encourage high-tech and environmentally-friendly industries into the country.

Stephen Weatherseed, head of the Grant Thornton UK China Group, which advises UK companies conducting business in China, said that in most cases a new 25 per cent corporate tax rate now applied across the board for both international and domestic companies.

"While this represents a reduction from the previous rate of 33 per cent, some overseas companies operating in China are used to 15 per cent, or less, and many others were granted tax holidays and other incentives.

"In many cases overseas companies have been paying no corporate tax at all for several years," he said.

New overseas companies setting up in China will now pay 25 per cent corporate tax on their Chinese operations - exactly the same as their domestic counterparts.

"International companies already set up can continue to use tax holidays for a limited period, but they too will soon be paying corporate tax at 25 per cent," he added.

The legislative changes, however, provide relief for certain sectors of the business spectrum.

Mr Weatherseed said that incentives previously aimed at encouraging foreign investment were now being pushed towards hi-tech and environmentally-friendly companies.

These include a 15 per cent tax rate for hi-tech firms, both domestic and international, as well as generous tax breaks for research and development and environmental spending.

The corporate tax reforms are thought to be a response to China's growing trade imbalance and the social and environmental issues coming out of this economic growth.

"The phenomenal explosion of the Chinese economy is well-known," said Mr Weatherseed.

"The associated impact of this growth on pollution, and on increasing social imbalance, has also been widely publicised. The Chinese Government has made clear its intentions to address these concerns and the tax changes are aimed at doing just this."

He added that China no longer needed to encourage overseas investment as much and was focused on measured growth, domestic firms and hi-tech industries.