In the past, domestic enterprises and foreign-invested enterprises in China were taxed under different enterprise income tax laws. Since China had accessed to the World Trade Organization (WTO) at the end of 2001, China government passed the Law of the People’s Republic of China on Enterprise Income Tax (New EIT Law) on March 16, 2007 and came into force on January 1, 2008. The New EIT Law unified the enterprise tax law applicable to both domestic enterprises and foreign-invested enterprises.
The New EIT Law canceled preferential tax policies under the Old EIT Law, owned by foreign-invested enterprises. The characteristics of the New EIT Law are: (1) broad tax base; (2) simple tax rate (3) changed preferential tax policy; (4) tighter administration of tax levying and collection.
Our study aims at that the announcement of the EIT Law, for the capital market if the performance of Taiwanese enterprise of stock prices generates significant abnormal return. Second, we observe the stock prices of Taiwanese manufacturing industry how to change under the New EIT Law. Third, we also observe used to enjoy preferential zones tax rates under the Old EIT Law and those Taiwanese enterprises’ stock price how to change.
Our analysis finds evidence that the New EIT Law is bad news for Taiwanese enterprises and really generates abnormal return on Taiwan stock market. We also find that manufacturing industry view the New EIT Law as bad news. For that result we indirectly support that tax preferential policies is definitely an important factor for Taiwanese manufacturing industry about deciding whether or not to invest in China. Since the New EIT Law has granted tax preferential treatment on an industry basis rather than on a location basis, for those zones used to enjoyed preferential tax rates under the Old EIT Law also regard the New EIT Law as bad news.

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