KEY POINTS:
Before we launch into the tax challenge let's pause and celebrate what could be one of the most significant agreements New Zealand makes in this century with a huge "well done" to all those involved.
As our Prime Minister aptly said, this agreement is not just about the removal of tariff barriers, it is a platform for growing the value of what we do with China.
Translated this all means we need to stop being spectators and work out how to make money out of this opportunity.
Some have launched into China with gusto, dazzled by the fastest-growing economy with its emerging middle class and rising affluence, only to retreat with less money and a damaged ego.
Realistically assessing your opportunities in China means you need to factor into the equation taxes.
Even those who are well established should re-evaluate their tax profile as both China and New Zealand have recently implemented some of the most radical tax changes both countries have seen in the last 30 years.
The New Zealand changes are well known, with the drop in our corporate tax rates, research and development grants, and foreign investment fund rules - so the list goes on. Also on the agenda are major changes to our controlled foreign company rules.
Previously, a tax holiday in China simply meant you paid tax in New Zealand. Under the current proposals that should be in place by next year, offshore subsidiaries who are conducting an active business will be exempt from tax in New Zealand.
Before you get too excited, the Chinese Government has also changed its tax rules and is moving to a unified tax rate of 25 per cent with a 20 per cent rate for companies that qualify as having small profits.
China used to tax its domestic companies at a higher rate than its foreign-owned companies and certain foreign investors were able to qualify for tax holidays of up to five years with special exemptions where the profits were reinvested.
In line with the Chinese Government's policy of moving up the value chain, the focus is now on developing high-value technology businesses, environmentally friendly businesses and energy-saving industries.
This has resulted in a move from a geography-based incentive system to an industry-focused system.
Despite this, all is not lost. Those who have already qualified for tax incentives such as tax holidays, rate reductions or preferential tax rates will be subject to a grandfathering process, where the changes will be phased in over the next three to five years.
For those who have not started their tax holidays due to accumulated losses, the holiday is deemed to have started from 1 January 2008.
Then there are new incentives for those who are in value-added type of businesses such as high-tech, renewable energy and other environmentally friendly type businesses. Enterprises that purchase special equipment to protect the environment, reduce the consumption of energy or water, or increase manufacturing safety can claim a percentage of the investment in equipment as a tax credit.
Other preferences will be retained for venture capital enterprises or for those engaged in state-encouraged infrastructure facilities, agriculture, forestry, stock breeding, fishing or salvage and recycling activities.
There are also superannuation deductions for compensation paid to disabled or other employees that the government mandates.
Getting your profits out of China has also changed. Previously, if you had the right approvals, dividends could be repatriated without withholding tax. Withholding tax is now payable.
In line with the rest of the world, China is also moving to crack down on tax arrangements that are designed to avoid tax. It is beefing up its efforts in enforcing transfer pricing rules, along with introducing controlled foreign corporation rules, thin capitalisation rules and tax residency rules.
To coin a phrase, the last thing you can afford to do is be lax on your tax.
The old rules of negotiating your China tax bill have gone and have been replaced by a much more aggressive approach.
Overall, this is not just about income tax, individual tax issues need to be part of the review as things like split contracts to minimise the amount of personal tax paid in China are also in the spotlight.
We have not even touched on VAT and other taxes which most know present yet another layer of challenge.
All this adds up to a warning that there are potential hazards that could soon erode any benefits you have from operating in China.
The overhaul and changing tax environment in both the Chinese and New Zealand tax systems presents both challenges and opportunities for investors.
The proverb is "a journey of 1000 days begins with one step". Keep this in mind when contemplating the opportunities that China does offer. Take advice and go for it, there is no point in complaining you have missed out on your deserved Lotto win if you failed to buy a ticket.
* Joanna Doolan is a tax partner with Ernst & Young and Florence Wong is a senior manager with Ernst & Young.