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China Tax Administration Guide (8) - Tax Incentives

China Tax Administration Guide (8) - Tax Incentives


8.1 Basic Regulations


8.1.1 The State shall, in accordance with its industrial policies, guide the orientation of foreign investment and encourage the establishment of enterprises with foreign investment which adopt advanced technology and equipment and export all or the greater part of their production.


(ZHU XI LING [45] 1991.4.9)


8.1.2 Foreign investment enterprises encouraged by the State which request preferential treatments in relation to enterprise Income Tax shall be treated in accordance with the relevant laws and administrative regulations promulgated by the State.


(GUO WU YUAN LING [85] 1991.6.30)


8.2 Lowering Tax Levy Tax Rates


8.2.1 The Income Tax on enterprises with foreign investment established in special economic zones, foreign enterprises which have establishments or sites in special economic zones engaged in production or business operations, and enterprises with foreign investment of a production nature in economic and technological development zones shall be levied at the reduced rate of 15%.


(ZHU XI LING [45] 1991.4.9)


8.2.2 ′Special Economic Zones′ refer to the Special Economic Zones in Shenzhen, Zhuhai, Shantou and Xiamen and Hainan Special Economic Zone, specified by the relevant legislation or with the approval of State Council. ′Economic and Technological Development Zones′ refers to economic and technological development zones approved by State Council in the coastal Port Cities.


(GUO WU YUAN LING [85] 1991.6.30)


8.2.3 ′Assessment of Enterprise Income Tax at the reduced rate of 15%′ is limited to incomes obtained by enterprises from production or business operations in the respective areas as specified in Paragraph 1, Article 7 of the Tax Law.


(GUO WU YUAN LING [85] 1991.6.30)


8.2.4 Income Tax on enterprises with foreign investment of a production nature established in coastal economic open zones, or in the old urban districts of cities where the special economic zones or the economic and technological development zones are located, shall be levied at the reduced rate of 24%.


(ZHU XI LING [45] 1991.4.9)


8.2.5 ′Coastal Economic Open Zones′ refers to the cities, counties and districts designated as Coastal Open Economic Zones by State Council.


(GUO WU YUAN LING [85] 1991.6.30)


8.2.6 ′Assessment of Enterprise Income Tax at the reduces rate of 24%′ is limited to income obtained by enterprises from production or business operations in the areas specified in Paragraph 2, Article 7 of the Tax Law.


(GUO WU YUAN LING [85] 1991.6.30)


8.2.7 Income Tax on enterprises with foreign investment in coastal economic open zones, old urban districts of cities where the special economic zones or the economic zones or the economic and technological development zones are located, or other regions defined by State Council within the scope of energy, communications, harbour, wharf or other projects encouraged by the State, may be levied at the reduced rate of 15%. The specific rules shall be formulated by State Council.


(ZHU XI LING [45] 1991.4.9)


8.2.8 ′Assessment of Enterprise Income Tax at the reduced rate of 15%′ in Paragraph 3, Article 7 of the Tax Law is applicable to the following projects:


A. Enterprises with foreign investment of a production nature established in the Coastal Open Economic Areas, the Special Economic Zones, or in the old urban districts of cities where the Economic and Technological Development Zones are located, and engaged in the following projects:


a. technology intensive or knowledge intensive projects;


b. projects with foreign investment of US$30 million and more, and with a long payback period ;


c.energy, transportation and port construction projects.


B. Chinese-foreign equity joint ventures engaged in port and dock construction.


C. Foreign banks, branches of foreign banks, banks with Chinese and foreign joint investment, and other financial institutions established in the Special Economic Zones and other areas approved by State Council, with the capital put up by the foreign investor or operating funds appropriated by the head office totaling US$ 10 million or more; and with the period of operation exceeding ten years


D. Production enterprises with foreign investment established in Shanghai Pudong New Area, and enterprises with foreign investment engaged in energy and transport construction projects such as airports, ports, railways, highways and power stations.


E. Enterprises with foreign investment recognized as new and high-technology enterprises, which are established in the New and High-Technology Industrial Development Zones approved by State Council; and enterprises with foreign investment recognized as new-technology enterprises established in Beijing New-technology Industrial Development Experimental Zones.


F. Enterprises with foreign investment engaged in projects encouraged by the State and established in other areas designated by State Council.


Enterprises with foreign investment engaged in industries that fall under Item 1 of this Article shall, after applying to the State Administration of Taxation for approval, pay Enterprise Income Tax at the reduced rate of 15%.


(GUO WU YUAN LING [85] 1991.6.30)


8.2.9 On the matter of taxation incentives for Chinese foreign equity joint ventures building ports or docks


If foreign companies, enterprises or individuals (hereinafter referred to as ′foreign partners′) set up Chinese-foreign joint ventures (hereinafter referred to as ′joint ventures′) with Chinese companies or enterprises in the People・s Republic of China to build ports and docks, besides the preferential policies provided in the laws and regulations regarding joint ventures, the following preferential regulations shall be carried out for such joint ventures since their investment is large, the construction period is long and the capital profit margin is low.


A. The joint venture is permitted to exist for a longer period, which may be longer than 30 years; the period to be determined by all sides of the joint venture through negotiation. The period may still be lengthened upon approval, by the Ministry of Foreign Economics and Trade or government bodies entrusted by the Ministry, of the application presented by the joint venture, if all the sides agree to lengthen the period when the contract comes to an end.


B. Recovery of the investment may be carried out by the enterprise by accelerated depreciation of fixed assets upon approval, by the Ministry of Finance of the People・s Republic of China, of the application examined and verified by the local taxation authorities to which the application is presented by the joint venture.


Customs duty and Industrial and Commercial Consolidated Tax shall be exempt if the joint venture imports materials, loading and unloading equipment, transport vehicles and other production facilities necessary for building docks with the funds covered in the total investment.??


C. The joint venture shall pay Income Tax at the tax rate of 15%. Any newly established joint venture scheduled to operate for a period of not less than 15 years, from the year in which it begins to make profit, shall be exempted from Income Tax from the first to the fifth years, and allowed 50% reduction from the sixth to the tenth years upon approval of the joint venture・s application by the tax authorities in the relevant provinces, autonomous regions and municipalities directly under State Council.


D. The period for tax exemption and reduction, as stipulated in the previous section, may be lengthened upon approval of the Ministry of Finance of the People・s Republic of China, if the joint venture still has difficulty in tax payments upon expiration of the period for Enterprise Income Tax exemption and reduction.


The exemption from and reduction of local Income Tax for the joint ventures shall be decided by the People・s Governments in the provinces, autonomous regions or municipalities where the joint ventures are located.


E. Income Tax shall not be levied on the profit, allocated to the foreign partners of the joint ventures, to be exempt outside China.


F. The rate standards such as that for loading and unloading at the dock built by the joint venture shall be decided by the joint venture itself, then reported to the responsible government body responsible for the joint ventures and the local responsible price administration for their record.


G. If the foreign partner of the joint venture invests the allocated profit in a new joint venture to build up new berths or docks and the operation period of the new joint venture is not less than 5 years, 40% of the already paid Income Tax on the profit invested in the new joint venture shall be returned upon approval by the taxation authorities of the application presented by the foreign partner.


H. The joint venture is permitted to engage in projects with less investment, short construction period and high capital profit margin as its sideline. The existing regulations shall be adopted to deal with the relevant affairs.


I. The provisions mentioned above apply to companies, enterprises or individuals from Hong Kong or Macao who invest in establishment of joint ventures to build ports and docks.


(GUO FA [118] 1985.9.30)


8.2.10 According to Article 71 of the Detailed Rules, reduction of tax rates stipulated in the Tax Law only applies to income from production and operation carried out by enterprises with foreign investment in corresponding regions. Therefore, the Enterprise Income Tax and local Income Tax shall be calculated and levied at the tax rate stipulated in Article 5 of the Tax Law on any kind of income obtained by enterprises with foreign investment from sources outside China.


(GUO SHUI FA [039] 1993.7.14)


8.2.11 State Council decided that the policies for the coastal open cities shall be implemented for the new open cities consisting of the 5 cities along the Yangtze River: Chongqing, Yueyang, Wuhan, Jiujiang and Wuhu; 4 capital cities in border areas and coastal areas: Harbin, Changchun, Huhehaote and Shijiazhuang; 11 capital cities in inland areas: Taiyuan, Hefei, Nanchang, Zhengzhou, Changsha, Chengdu, Guiyang, Xi・an, Lanzhou, Xining and Yinchuan.


(GUO HAN [93] 1992.7.30)


8.2.12 ′Other regions approved by State Council′ in Item 3 of Section 1 in Article 73 and in Item 5 of Section 1 in Articles 75 of the Tax Law refers to the regions, besides the Special Economic Zones, where foreign financial institutions may be established upon approval of State Council. That is to say, all those regions or zones where foreign financial institutions may be established as approved by State Council may enjoy the tax incentives stipulated in Item 3 of Section 1 in Article 73 and Item 5 of section 1 in Article 75 of the Detailed Rules of the Tax Law.


(GUO SHUI HAN [138] 1995.4.3)


8.2.13 The enterprises which may enjoy tax incentives for particular projects shall be enterprises with foreign investment directly investing in building and operating particular projects, excluding the enterprises contracting civil work for the projects.


If the enterprises with foreign investment investing in and operating the particular projects conduct other usual projects as sidelines, the enterprises shall calculate and declare the incomes, costs and the corresponding taxable income from the particular and the usual projects separately, and enterprise Income Tax shall be calculated and paid according to the tax rates and the periods for tax exemption and reduction respectively, applying to the particular projects and the usual projects. For those enterprises who fail to accurately calculate and declare Enterprise Income Tax separately, or for those enterprises whose calculations and declaration the local responsible taxation authorities consider to be not sound, the local responsible taxation authorities shall calculate the Income Tax payable on the basis of the taxable incomes separately, according to the proportions of the business income derived from the particular projects and from the usual projects or according to other appropriate proportions.


(GUO SHUI FA [151] 1995.8.4)


8.3 Regulations on Fixed Term Reductions and Exemptions from Tax


8.3.1 Any enterprise with foreign investment of a production nature scheduled to operate for a period of not less than 10 years shall, from the year in which it begins to make profits, be exempted from Income Tax in the first and second years and allowed a 50% reduction in the third to fifth years. However, the exemption from or reduction of Income Tax for enterprises with foreign investment engaged in the exploitation of resources such as petroleum, natural gas, rare metals and precious metals shall be stipulated separately by State Council. Enterprises with foreign investment which have actually operated for a period of less than 10 years shall repay the amount of Income Tax already exempted or reduced.


(ZHU XI LING [45] 1991.4.9)


8.3.2 The ′period of operation′ in Paragraph 1, Article 8 of the Tax Law refers to the period starting from the day when an enterprise actually goes into production and operation (including trial production or operation)to the day the enterprise terminates its production and operation.


(GUO WU YUAN LING [85] 1991.6.30)


8.3.3 An enterprise applying for exemption from and reduction in enterprise Income Tax according to the provisions in Paragraph 1, Article 8 shall file with the local taxation authorities its line of business, the names of its major products and the period of operation, or reduction of Enterprise Income Tax shall not be allowed.


(GUO WU YUAN LING [85] 1991.6.30)


8.3.4 The relevant regulations promulgated by State Council before the entry into force of this Law, which provide preferential treatment in the form of exemption from or reduction of Income Tax for enterprises engaged in energy, communications, harbour, wharf and other major projects of a production nature, for a period longer than that specified in the preceding paragraph, or which provide preferential treatment in the form of exemption from or reduction of Income Tax for enterprises engaged in major projects of a non-production nature, shall remain applicable after this Law enters into force.


(ZHU XI LING [45] 1991.4.9)


8.3.5 The ′relevant regulations promulgated by State Council before the entry into force of this Law′ in Paragraph 2, Article 8 of the Tax Law refers to the following regulations concerning the exemption and reduction of enterprise Income Tax promulgated by State Council:


A. Chinese foreign equity joint ventures engaged in port and dock construction and with the operation period exceeding 15 years may, upon the approval of their applications by the taxation authorities at the level of province, autonomous region or municipality directly under State Council, in which the enterprises are located, enjoy exemption from Enterprise Income Tax from the first profit-making year to the fifth year, and reduction in Enterprise Income Tax by 50% from the sixth to the tenth year.


B. Enterprises with foreign investment established in Hainan Special Economic Zone and engaged in the construction of such infrastructure projects as airports, ports, docks, railways, highways, power stations, coal mines, water conservancy, etc., or in the development and operation of agriculture, and with the operation period exceeding 15 years may, upon approval of their applications by Hainan Provincial Taxation authorities, enjoy exemption from Enterprise Income Tax starting from the first profit-making year to the fifth year, and reduction in enterprise income tax by 50% from the sixth to the tenth year.


C. Enterprises with foreign investment established in Shanghai Pudong New Area and engaged in the construction of such energy and transportation projects as airports, ports, railways, highways and power stations, etc. and with the operation period exceeding 15 years may, upon approval of their applications by the Shanghai Municipal Taxation authorities enjoy exemption from Enterprise Income Tax from the first profit-making year to the fifth year, and reduction in Enterprise Income Tax by 50% from the sixth to the tenth year.


D. Enterprises with foreign investment established in the Special Economic Zones and engaged in service industries, and with the foreign investment exceeding US$5 million and the operation period exceeding 10 years may, upon approval of their applications by the relevant Special Economic Zone taxation authorities, enjoy exemption from Enterprise Income Tax for the first profit-making year, and reduction in Enterprise Income Tax by 50% for the second and third years.


E. Foreign banks, branches of foreign banks, banks with Chinese and foreign joint investment, and other financial institutions established in the Special Economic Zones and other areas approved by State Council with the capital put in by foreign investors, or the operating funds appropriated by the head offices of foreign banks to their branches, exceeding US$10 million, and with the operation period lasting 10 year and more may, upon approval of their applications by the relevant taxation authorities, enjoy exemption from Enterprise Income Tax for the first profit-making year and reduction in Enterprise Income Tax by 50% for the second and third years.


F. Chinese-foreign equity joint ventures recognized as new and high-technology enterprises and established in new and high-technology industrial development zones approved by State Council, with the operation period exceeding 10 years may, upon approval of their applications by the local taxation authorities, enjoy exemption from Enterprise Income Tax for the first and second profit-making years. For enterprises with foreign investment established in the Special Economic Zones, the preferential tax provisions of the Special Economic Zones and the Economic and Technological Development Zones shall remain applicable. For enterprises with foreign investment established in Beijing New-technology Industrial Development Experimental Zones, the preferential tax provisions of Beijing New-technology Industrial Development Experimental Zone shall be applicable.


G. Export-oriented enterprises with foreign investment may, upon the expiration of the tax exemption and reduction period as provided for in the Tax Law, enjoy a further 50% reduction in Enterprise Income Tax based on the rate stipulated by the Tax Law, if the value of their exported products of the year exceeds 70% of the total value of their products of the year. But for the Special Economic Zones and the Economic and Technological Development Zones and other export-oriented enterprises where Enterprise Income Tax has already been reduced to 15% and the above requirements are met, the Enterprise Income Tax shall be levied at 10%.


H. Technologically advanced enterprises with foreign investment may, upon the expiration of the Enterprise Income Tax exemption and reduction period as stipulated by the Tax Law, enjoy a further 50% reduction in Enterprise Income Tax for three years based on the rate stipulated by the Tax Law, if they remain technologically advanced enterprises.


I. Other regulations relating to the exemption and reduction of enterprise income tax will be promulgated, or have been approved for promulgation, by State Council.


In applying for Enterprise Income Tax exemption or reduction pursuant to the provisions of Item 6, Item 7 and Item 8 of this Article, enterprises with foreign investment shall submit the relevant certifying documents issued by the department responsible for examination and confirmation by the local taxation authorities.


(GUO WU YUAN LING [85] 1991.6.30)


8.3.6 The ′first profit-making year′ mentioned in Paragraph 1, Article 8 of the Tax Law and in Article 75 of these Rules refers to the first profit-making tax year after an enterprise goes into production and operation. An enterprise sustaining losses in the initial stage of its operation may carry them over and make them up in subsequent years in accordance with the provisions of Article 11 of the Tax Law. Its first profit-making year may be the year in which the enterprise begins to make profit after the losses are made up.


The period of Enterprise Income Tax exemption and reduction, as stipulated in Paragraph 1, Article 8 of the Tax Law and Article 75 of these Rules, shall be counted consecutively from the first profit making year and shall not be deferred due to losses incurred during the period.


(GUO WU YUAN LING [85] 1991.6.30)


8.3.7 For an enterprise which goes into operation in the middle of the year, if it makes profit in the same year while the actual period of operation is less than six months, it may choose to take the following year as the year to start enjoying exemption from or reduction in Enterprise Income Tax. However, income tax shall be levied in accordance with the Tax Law on the taxable income earned by the enterprise in that year.


(GUO WU YUAN LING [85] 1991.6.30)


8.3.8 Unless otherwise provided by State Council, the tax incentives of Paragraph 1, Article 8 of the Tax Law are not applicable to enterprises engaged in the exploitation of such natural resources as petroleum, natural gas, rare metals and precious metals.


(GUO WU YUAN LING [85] 1991.6.30)


8.3.9 Enterprises that have enjoyed Income Tax exemption and reduction pursuant to the provision in Paragraph 1, Article 8 of the Tax Law and Article 75 of these Rules, but whose actual operation falls short of the prescribed period, shall repay the exempted and reduced Enterprise Income Tax, except for those having sustained huge losses caused by natural disasters or accidents.


(GUO WU YUAN LING [85] 1991.6.30)


8.3.10 To encourage the trade and projects of enterprises with foreign investment, the People・s Governments of provinces, autonomous regions and municipalities directly under the Central Government, in accordance with their actual conditions, may decide to exempt or reduce local Income Tax.


(ZHU XI LING [45] 1991.4.9)


8.3.11 The Income Tax laws and regulations regarding enterprises with foreign investment shall not apply to enterprises whose stock ownership proportions owned by a foreign side or Chinese side cannot meet the requirement of those stipulated in the laws for enterprises with foreign investment after they are merged, divided or stock ownership of the enterprises are reorganized. Therefore tax collection shall be carried out for such enterprises according to the Income Tax laws and regulations applying to domestic Chinese enterprises except where there are other particular provisions in tax laws and regulations. The fixed term tax exemption and reduction already enjoyed by the enterprises before reorganization according to Article 8 of the Tax Law shall be dealt with differently in the following cases:


A. The provisions regarding repaying the exempt and reduced tax stipulated in Article 8 of the Tax Law shall not apply to enterprises from which the stock ownership held by foreign investors in their original enterprises was not withdrawn but put into merged enterprises, divided enterprises or kept in the enterprises in which the stock ownership reorganization has been carried out, whether the operation period of the enterprise before the stock ownership reorganization was long or short.


B. The foreign investors of the enterprise before the reorganization shall repay the exempt and reduced Enterprise Income Tax according to the provisions in Article 8 of the Tax Law if the foreign investors withdraw or transfer their stock ownership to the local investors during the reorganization of the enterprise and the actual operation of the enterprise before the reorganization falls short of the prescribed period for tax exemption and reduction.


(GUO SHUI FA [071] 1997.4.28)


8.3.12 Determination of the profit-making years of the equity joint ventures, contractual joint ventures and wholly foreign-owned enterprises whose construction and operation are carried out in phases.


For equity joint ventures, contractual joint ventures and wholly foreign-owned enterprises who enjoy tax exemption and reduction from the first profit-making year according to????〔1〕?? Article 5 of the "Income Tax Law on Chinese-foreign Equity Joint Venture" and????〔2〕?? Article 5 of the "Income Tax Law on Foreign Enterprises", the profit-making year shall be the year when the enterprises start production, operation (including trial operation and partial operation ) and make profits. Therefore, in principle, the equity joint ventures, the contractual joint ventures and wholly foreign-owned enterprises whose construction and operation are carried out in phases shall only enjoy tax exemption and reduction once, and there shall be no other tax exemption and reduction period for the part of the project constructed later. However, if the equity joint ventures, the contractual joint ventures and wholly foreign-owned enterprises make investments according to the amount stipulated in the approved contract (not including additional investments), and it is shown in the contract that the project needs to be constructed, put into production and operation in phases, and there are account books established respectively for the investments and expenses for the earlier finished phase and later finished phase and the revenue and income from production and operation made in the earlier phase and later phase, can be clearly calculated and separated; in this case the tax exemption and reduction period may be calculated separately upon approval of the enterprise・s application by the taxation authorities in the provinces, autonomous regions and municipalities directly under State Council.


(CAI SHUI WAI ZI [102] 1986.4.21)


Editor・s note


〔1〕There are similar provisions in Article 76 of the "Detailed Rules for Implementation of the Income Tax Law on Enterprises with Foreign Investment and Foreign Enterprise".


〔2〕There are similar provisions in Article 76 of the "Detailed Rules for Implementation of the Income Tax Law on Enterprises with Foreign Investment and Foreign Enterprise".


8.3.13 Tax incentives for new and high-technology enterprises


A. Enterprises with foreign investment recognized as new and high-technology enterprises, engaged in technology-intensive and knowledge-intensive projects, and established in the New and High-technology Industrial Development Zones determined by State Council in Coastal Open Economic Areas (including the old urban districts of the cities where the Special Economic Zones and Economic and Technological Development Zones are located) or the enterprises engaged in projects with foreign investment of US (30 million or more and with a long payback period, shall enjoy tax incentives applying to the enterprises in Coastal Open Economic Areas upon approval of the State Administration of Taxation.


B. The tax incentives shall be granted to enterprises with foreign investment recognized both as new and high-technology enterprises and as export-oriented enterprises according to Item 7 of Section 1 in Article 35 of the Detailed Rules of the Tax Law. However, an enterprise is permitted to make a choice to enjoy one kind of tax incentive but not both kinds of tax incentives, according to the provisions in Article 5 of "Implementation of the Tax Incentives Regarding ′Provisions for Encouraging Investment of Foreign Enterprise′ by State Council" issued on January 23, 1987 by the Ministry of Finance, if the enterprise is recognized both as an export-oriented enterprise and a technologically advanced enterprise.


(GUO SHUI FA [165] 1991.10.15)


8.3.14 Explanations of tax incentives applying to new and high-technology enterprises


A. The enterprises with foreign investment recognized as new and high-technology enterprises established in the New and High-technology Industrial Development Zones determined by State Council or recognized as new-technology enterprises established in Beijing New-technology Industrial Development Experimental Zones shall pay Enterprise Income Tax at the reduced rate of 15% from the tax year in which the enterprise is recognized as the new and high-technology enterprise or new-technology enterprises.


B. The production enterprises with foreign investment recognized as new and high-technology enterprises scheduled to operate for a period of not less than 10 years (not including new-technology enterprises established in Beijing New-technology Industrial Development Experimental Zones) may, from the year in which it begins to make profits, enjoy exemption from Income Tax for the first and second years and a 50% reduction from the third to fifth years.


C. Enterprises with foreign investment shall enjoy tax incentives for the remaining years in the tax exemption and reduction period if the tax year in which the enterprises with foreign investment are recognized as new and high-technology enterprises, is after the year when the enterprises begin to make profits, or the tax year, in which the enterprises with foreign investment in Beijing New-technology Industrial Development Experimental Zone are recognized as new-technology enterprises, is after the year when the enterprises begin production. If the enterprises with foreign investment are recognized as new and high-technology enterprises or new-technology enterprises after the tax exemption and reduction periods for enterprises with foreign investment come to an end, the enterprises with foreign investment shall no longer enjoy the fixed term tax exemptions and reductions applying to new and high-technology enterprises or new-technology enterprises.


(GUO SHUI FA [151] 1994.6.29)


Clarification is given as follows on the exemption from or reduction of Enterprise Income Tax on income from liquidation carried out by enterprises with foreign investment during the fixed term tax exemption and reduction period stipulated in Article 8 of the "Income Tax Law on Enterprises with Foreign Investment and Foreign Enterprises":


′Any production enterprise with foreign investment, scheduled to operate for a period of not less than 10 years, shall, from the year in which it begins to make profits, be exempt from Income Tax in the first and second years and allowed a 50% reduction from the third to fifth years′ in Article 8 of the Tax Law applies only to income derived from the production period, therefore, the exemption from and reduction of Income Tax stipulated in Article 8 of the Tax Law shall not apply to income from the liquidation carried out during the fixed term tax exemption and reduction period.


(GUO SHUI FA [008] 1993.6.15)


8.3.16 Determination of the actual date an enterprise goes into operation


The actual date an enterprise starts production or operations stipulated in Article 74 of the Detailed Rules of the Tax Law shall be the date when the enterprise with foreign investment particularly engaged in real estate development and operation obtains the first project for real estate development and operation. If the date for the enterprise to obtain the first project for real estate development and operation is before the date when the business license of the enterprise is signed and issued, then the latter date shall be the actual date when production or operations start as stipulated in Article 74 of the Detailed Rules of the Tax Law.


(GUO SHUI FA [153] 1995.8.3)


8.3.17 ′Enterprises with foreign investment established in the Shanghai Pudong New Area and engaged in the construction of such energy and transportation projects as airports, ports, railways, highways and power stations, etc.′ refers to those who directly invest in the above projects, not including those who contract the construction and installation of the above projects. Therefore, Shanghai Feilong International Engineering and Technology Company Limited contracting the construction projects for power, electronics and information communication, etc. shall not enjoy the relevant tax incentives according to Item 3 of Section 1 in Article 75 of the "Detailed Rules and Regulations for the Implementation of the Income Tax Law on Enterprises with Foreign Investment and Foreign Enterprises".


(GUO SHUI HAN [713] 1993.5.14)


8.3.18 If an enterprise with foreign investment begins to make profit in the same year as the enterprise goes into operation, then the year shall be regarded as the first profit-making year of the enterprise according to Section 1 of Article 8 in the Tax Law and according to Article 75 of the Detailed Rules of the Tax Law whether the actual operation period is long or short that year. In this case, the period of Enterprise Income Tax exemption and reduction shall be counted consecutively from this first profit making year and shall not be deferred due to losses incurred during the period, except for the cases described in Article 77 of the Detailed Rules in the Tax Law.


If an enterprise with foreign investment is the same as the case described in Article 77 of the Detailed Rules of the Tax Law, i.e., the enterprise goes into operation in the middle of the year, the actual period of operation is less than six months in that year and the enterprise chooses to pay Income Tax on the profit obtained in the year according to the provisions in the Tax Law, the period for Income Tax exemption and reduction shall be counted from the following year (not from the following profit-making year). Therefore, if the enterprise suffers a loss in the year following the first profit making year, it is not permitted to redetermine the first year for profit making or to recount the period for tax exemption and reduction.


(GUO SHUI FA [121] 1995.6.28)


8.3.19 Any enterprise with foreign investment which is engaged in agriculture, forestry or animal husbandry and any other enterprise with foreign investment which is established in remote underdeveloped areas may, upon approval, by the responsible department for tax affairs under State Council, of an application filed by the enterprise, be allowed a 15% to 30% reduction of the amount of income tax payable for a period of 10 years following the expiration of the period for tax exemption or reduction provided for in the preceding two paragraphs.


(ZHU XI LING [45] 1991.4.9)


8.4 Tax Refunds For Reinvestment


8.4.1 Any foreign investor in an enterprise with foreign investment which reinvests his share of profit from the enterprise directly into that enterprise by increasing its registered capital, or which uses the profit as capital investment to establish other enterprises with foreign investment to operate for a period of not less than 5 years shall, upon approval by the taxation authorities of an application filed by the investor, be refunded 40% of the Income Tax already paid on the reinvested amount. Where regulations of State Council provide otherwise in respect of preferential treatment, such regulations shall apply; if the investor withdraws his reinvestment before the expiration of a period of 5 years, he shall repay the refunded tax.


(ZHU XI LING [45] 1991.4.9)


8.4.2 ′Reinvest its share of profit directly′ in Article 10 of the Tax Law means that the profits earned by a foreign investor before being drawn from an enterprise with foreign investment shall be used directly to increase his registered capital, or to make direct capital investment in another Chinese-foreign joint venture after such profits are appropriated. In assessing the refundable tax amount in accordance with the provisions of Article 10 of the Tax Law, the said foreign investor shall provide a supporting document certifying the attributable year in which the profit was reinvested; where no supporting document can be provided, the local taxation authorities shall determine the year by appropriate methods.


Foreign investors shall, within one year from the date the funds are actually invested, apply to the original tax collecting authorities for a tax refund and submit a document certifying the amount and duration of the added or new capital investment .


(GUO WU YUAN LING [85] 1991.6.30)


8.4.3 ′Where regulations of State Council provide otherwise in respect of preferential treatment, such provisions shall apply′ in Article 10 of the Tax Law refers to the case in which a foreign investor, who makes direct re-investment in establishing or expanding an export-oriented enterprise or a technologically advanced enterprise in China or who reinvests profit from an enterprise in Hainan Special Economic Zone directly into enterprises engaged in infrastructure and agricultural development in Hainan Special Economic Zone, may get a full refund of Enterprise Income Tax paid on the re-invested amount, according to the relevant regulations of State Council.


In applying for a tax refund on reinvestment pursuant to the preceding paragraph, the said foreign investor shall, besides going through the procedures provided in Paragraph 2 and 3, Article 80 of these rules, submit a document issued by the relevant examination and confirmation department, certifying the relevant newly established or expanded enterprise as being an export-oriented or technologically advanced enterprise.


(GUO WU YUAN LING [85] 1991.6.30)


8.4.4 Where a newly established or expanded enterprise, in which a foreign investor makes reinvestment, fails to meet the standards of an export-oriented enterprise, or is no longer recognized as a technologically advanced enterprise within three years after it goes into production or operation, the foreign investor shall pay back 60% of the tax refunded.


(GUO WU YUAN LING [85] 1991.6.30)


8.4.5 ′Refund of the Income Tax paid on the reinvested amount′ shall be calculated according to the following formula:


tax refundable = reinvested amount〈{1 - [the original investment enterprise income tax rate + local Income Tax rate applicable to the enterprise]} x original Enterprise Income Tax rate applicable to the enterprise x refund rate.


(GUO WU YUAN LING [85] 1991.6.30)


8.4.6 An investment company whose total shares are held by foreign investors, may be regarded as a foreign investor if the investment company reinvests in China with the profit (dividends) allocated from the enterprise with foreign investment. Such an investment company shall enjoy a tax refund on the reinvestment according to the provisions in the Tax Law, the Detailed Rules and other relevant regulations.


(CAI SHUI ZI [083] 1995.1.13)


8.4.7 If foreign investors purchase shares of their own enterprise (including shares by stock rights) or of other enterprises with the profit (dividends) allocated from the enterprises with foreign investment or from joint stock enterprises, the tax incentives regarding tax refunds on the reinvestment stipulated in the Tax Law shall not apply.


(GUO SHUI FA [139] 1993.12.3)


8.4.8 If the foreign partner of a Chinese-foreign equity joint venture first remits the allocated profit outside China, saves it in foreign banks or applies it as working capital for trade, and then invests it in the Chinese-foreign equity joint venture, the provisions for the tax refund on reinvestment shall not apply.


(CAI SHUI WAI ZI [82] 1981.9.16)


8.4.9 On the matter of tax refunds for the investors in enterprises with foreign investment who reinvest


A. The ′period of operation′ in Article 10 of the Tax Law shall be counted according to the following principles: the period of operation shall be counted from the date when the reinvestment fund is actually invested, if foreign investors in enterprises with foreign investment directly reinvest the profit allocated from the enterprise into the same enterprise or into other enterprises with foreign investment who have already started production or operations (including trial production, trial operation); however, the period of operation shall be counted from the date when the new enterprise starts production or operation ( including trial production or trial operation), if the foreign investors reinvest in establishing new enterprises with foreign investment.


B. Foreign investors shall present documentary evidence to certify the tax year in which the profit for reinvestment occurs when foreign investors apply for a tax refund on reinvestment. If the foreign investors fail to provide documentary evidence, the taxation authorities shall determine the tax year in which the profit from the reinvestment occurs, by reckoning from the earliest tax year when the dividends payable or the part of the unallocated profit belonging to the foreign investors, occurs in the account before the annual reinvestment in the following years, and on that result they shall calculate Enterprise Income Tax.


C. Foreign investors shall not enjoy a tax refund on reinvestment with the income from liquidation in enterprises with foreign investment.


D. The foreign investors shall repay 60% of the tax refunded in the following cases:


a.the foreign investors reinvest to establish or expand an export-oriented enterprise and the enterprise does not meet the requirements for export-oriented enterprises within three years from the day when it begins production or operations or within the three years from the day when the reinvestment is made;


b.foreign investors reinvest to establish or expand a technologically advanced enterprise and the enterprise・s qualifications as a ′technologically advanced enterprise′ are cancelled within three years from the day when the enterprise starts production or operation, or when the reinvestment is made.


E. If the foreign investors make reinvestment in another place, the tax authorities, to which the foreign investors used to pay tax, shall grant a tax refund according to the provisions in Section 3 of Article 80 in the Detailed Rules, and also send the Tax Refund for Reinvestment of Foreign Investors in Another Place Certificate to the taxation authorities, to which the enterprise receiving the reinvestment pays tax (see the attached sample form). If the foreign investors are identified, upon examination and verification, by the tax authorities, to which the enterprise receiving the reinvestment pays tax, as those who withdrew the fund within the operation period, which is shorter than 5 years, counted from the year when the reinvestment was made as mentioned in Article 10 of the Tax Law, or as those who are in the same case as mentioned in Section 3 of Article 81 in the Detailed Rules, the foreign investors shall repay all or part of the tax refunded to the taxation authorities to which the enterprise receiving the reinvestment pays tax.


(GUO SHUI FA [009] 1993.6.15)


Appendix


Tax Refund for Reinvestment of Foreign Investors in Another Place Certificate


________Tax Office:


Foreign investor,________, of the enterprise,________ in our place reinvests the profit of ________an enterprise (technologically advanced enterprise, export-oriented enterprise)________ in your place on ________ (month)________(date)________(year). According to the relevant provisions in the Tax Law, our taxation authorities already carried out the tax refund at the refund rate of________, totaling ________yuan on ________(month) ________(date) ________(year).


Seal


_____(month)______ (date)______ (year)


(GUO SHUI FA [009] 1993.6.15)


8.4.10 The preferential regulations regarding a tax refund on the reinvestment stipulated in the "Income Tax Law of the People・s Republic of China on Enterprises with Foreign Investment and Foreign Enterprises" (hereinafter referred to as ′the Tax Law′) and in the Detailed Rules only apply to foreign investors. Enterprises with foreign investment in China who invest in other places as investors are not foreign investors. The preferential regulations regarding a tax refund on the reinvestment stipulated in the Tax Law and the Detailed Rules for foreign investors only apply to enterprises with foreign investment whose total shares are held by foreign investors and who are particularly engaged in investment business, since such enterprises with foreign investment may be regarded as foreign investors according to provisions of Section 2 in Article 1 of CAI SHUI ZI [083] 1994, "Notice on the Few Taxation Problems Regarding the Enterprises with Foreign Investment Engaged in Investment Business" issued by the Ministry of Finance and the State Administration of Taxation. No other enterprises with foreign investment shall enjoy relevant preferential regulations on tax refunds on the reinvestment stipulated in the Tax Law and the Detailed Rules.


(GUO SHUI HAN [154] 1995.4.12)


8.5 Other Tax Incentives


8.5.1 A tax exemption shall be granted for the property of the International Finance Corporation and for the following income or revenue obtained by the corporation in China:


A. profit allocated from the funded joint ventures and exempt abroad; income from stock transfer;


B. property (including real estate) in China and income from lease or transfer of the property;


C. interest from loans to Chinese companies and enterprises.


(CAI SHUI ZI [35] 1984.1.31)


8.6 The Scope of Enterprises of a Production Nature


8.6.1 ′Enterprises of a production nature′ in Paragraphs 1 and 2 of Article 7 and Paragraph 1 or Article 1 of the Tax Law refers to enterprises engaged in the following industries:


A.machine building and electronics industries;


B.energy industries (not including oil and natural gas exploitation);


C.metallurgical, chemical and building material industries;


D.light, textile and packaging industries;


E.medical apparatus and pharmaceutical industries;


F.agriculture, forestry, animal husbandry, fishery and water conservancy;


G.construction industry;


H.communications and transportation industries (not including passenger transportation);


I.development of science and technology, geological survey and industrial information consultancy that are directly at the service of production and maintenance and repair service for production equipment and precision instruments;


J.other industries that are recognized by the responsible department for taxation affairs under State Council.


(GUO WU YUAN LING [85] 1991.6.30)


8.6.2 An investment company engaged in the investment business and other businesses related to investment (including services such as management, training, agency, etc. for the enterprise receiving the investment), according to the relevant laws and regulations, is not a production enterprise as stipulated in Article 7 and Article 8 of the "Income Tax Law of the People・s Republic of China on Enterprises with Foreign Investment and Foreign Enterprises" and in Article 72 of the Detailed Rules, and shall not enjoy the tax incentives regarding production enterprises with foreign investment.


(CAI SHUI ZI [083] 1995.1.13)


8.6.3 Regulations on Determining Production Enterprises with Foreign Investment


The development of science and technology, geological surveys and industrial consultations directly serving production refer to: such development whose result may directly constitute technology for manufacturing products, or directly constitute technology for management of the flow of production; such surveys whose data may be directly used for development and utilization of all kinds of natural resources; and consultations and software development which are carried out specifically for the utilization of technology or for the development and utilization of natural resources. However, the development, surveys and consultations mentioned above do not include such services provided to various enterprises as accounting, auditing, legal services, asset appraisals, market information collecting and brokerage etc. as well as computer software development not serving technology or development and utilization of resources as mentioned above.


All enterprises with foreign investment, particularly engaged in sales of goods made from purchased goods in a simple way, e.g. the purchased goods are assembled, packaged, cleaned, selected or organized, etc, belong to those engaged in sales, if the goods on sale remain the same in shape, function and composition as when they were purchased. Therefore enterprises such as the following shall not be recognized as production enterprises with foreign investment: enterprises which sell goods simply repaired with the imported or purchased sets of appliances or equipment and parts; enterprises engaged in the sales of various purchased beverages and foods, which they simply bottle and package; and the trade providing such specific services as bottling and packaging.


If enterprises with foreign investment, previously recognized as production enterprises with foreign investment, do not conform to the principle of this notice, correction shall be made according to the principles in this notice. If taxation authorities find it difficult to make decisions in the future, they shall report the case to the State Administration of Taxation, who shall give an official written reply, after examination and verification of the case.


(CAI SHUI ZI [051] 1994.7.29)


8.6.4 Enterprises with foreign investment particularly engaged in the development and management of real estate, do not belong to production enterprises with foreign investment as defined in Article 7 and Article 8 of the Tax Law, and they shall not enjoy the tax incentives for production enterprises with foreign investment.


(GUO SHUI FA [153] 1995.8.3)


8.6.5 Confirmation of production enterprises with foreign investment


A. Enterprises with foreign investment professionally engaged in the following businesses may be recognized as production enterprises with foreign investment:


a.those engaged in engineering design and in providing labor services ( including consultation for such projects as construction, installation and assembling);


consultation includes technological assistance or guidance for the improvement of existing productive technology used for projects or used in enterprises, for improvement of business administration, for selection of technologies and for improvement of the function, efficiency and quality etc. of the existing manufacturing equipment or products of the enterprise;


b.those engaged in feeding, aquaculture (including aquatic farming), farming (including flowers raising), raising poultry, livestock, dogs and cats etc.;


c.those engaged in scientific research and development of manufacturing technology;


d.those engaged in directly providing users with warehousing and transport services with their own transport vehicles and storage facilities.


B. The enterprises with foreign investment professionally engaged in the following business shall not be regarded as production enterprises with foreign investment:


a.those engaged in indoor or outdoor preparation and decoration, or installation and set up of indoor appliances;


b.those engaged in advertisements, card and picture making as well as book and magazine issuing;


c.those engaged in food processing, mainly for sale at their own canteen or at their store front;


d.those engaged in the maintenance and repair of domestic appliances and repair of articles for daily use.


C. ′Maintenance and repair of production equipment and precision instruments′ mentioned in Item 9 of Section I in Article 72 of the Detailed Rules does not include the maintenance and repair of vehicles, electrical appliances, computer monitoring systems, ordinary instruments and ordinary meters.


(GUO SHUI FA [109] 1992.4.29)


8.6.6 The enterprises with foreign investment engaged in ′transport′ mentioned in Item 8 of Section 1 in Article 72 of the "Detailed Rules and Regulation for the Implementation of the Income Tax Law on Enterprises with Foreign Investment and Foreign Enterprises" include those engaged in the house moving and transport business, but does not include those engaged in the letter delivery (express) business.


(GUO SHUI HAN [383] 1994.7.4)


8.6.7 The enterprise with foreign investment engaged specifically in land leveling business for land development and house construction may be regarded as building enterprises defined in Item 7 of Article 1 in Article 72 of the "Detailed Rules and Regulation for the Implementation of the Income Tax Law on Enterprises with Foreign Investment and Foreign Enterprises" who may enjoy tax incentives applying to production enterprises with foreign investment.


(GUO SHUI HAN [388] 1994.7.6)


8.6.8 The ′enterprises with foreign investment particularly engaged in indoor or outdoor preparation and decoration, or installation and setting up of indoor appliances who shall not be regarded as production enterprises with foreign investment′ include:


A. enterprises engaged in installation of lifts and escalators;


B. enterprises engaged in rough preparation and installation of doors and windows etc. for buildings and structures.


(GUO SHUI HAN [389] 1994.7.6)


8.6.9 On the matter of how enterprises with foreign investment concomitantly engaged in production and in non-production types business, shall enjoy tax incentives


A. Enterprises with foreign investment, whose business scope as defined in the business license does not cover production, shall not be taken as production enterprises to enjoy relevant tax incentives, whatever proportion the enterprise・s production business takes in its actual operation.


B. The following tax incentives shall be granted to enterprises with foreign investment whose business scope as defined in the business license covers both production business and non-production business, or whose business scope as defined in the business license only covers the production business, but, who actually also conducts non-production business:


a.In the tax exemption and reduction period counted from the first profit making year of the enterprise according to the provisions in Article 8 of the Tax Law, the enterprise with foreign investment engaged in both production and non-production businesses may apply to the responsible taxation authorities in the year when the enterprise・s income from production business is over 50% of the total business income, to enjoy the corresponding tax exemption and reduction for the year, after examination and verification by the responsible taxation authorities; the enterprise shall not enjoy the corresponding tax exemption and reduction if income from production is not over 50% of the total business income for the year.


b.The enterprise with foreign investment, engaged in both production and non-production businesses and established in the areas where tax is levied at the reduced rate according to Article 7 of the Tax Law and the relevant regulations by State Council, shall enjoy the relevant tax reductions starting with the first year when income from production exceeds 50% of total income.


(GUO SHUI FA [209] 1994.9.19)


8.7 Comprehensive tax incentives for particular areas


8.7.1 (5 Special Economic Zones (covering 23 cities and counties)) and (32) Economic and Technological Development Zones


Shenzhen City, Zhuhai City, Shantou City, Xiamen City and Hainan Province (Haikou City, Sanya City, Tongshi City, Qionghai City, and Qiongshan, Wenchang, Anding, Wanning, Tunchang, Chengmai, Danxian, Lingao, Baoting, Ledong, Dongfang, Changjiang, Baisha, Qiongzhong, Lingshui Counties)


Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Minhang of Shanghai, Hongqiao of Shanghai, Caohejing of Shanghai, Ningbo, Wenzhou, Xiaoshan, Fuzhou, Guangzhou, Nansha, Dayawan, Zhanjiang, Kunshan, Yingkou, Weihai, Rongqiao, Dongshan, Shenyang, Harbin, Changchun, Hangzhou, Wuhan, Chongqing, Wuhu, Beijing, Urumqi.


Appendix 1


Temporary Regulations for Exemption from and Reduction of Enterprise Income Tax and Industrial and Commercial Consolidated Tax in the Special Economic Zones and 14 Coastal Cities With Ports Issued by the State Council of the People・s Republic of China


GUO FA [161] 1984.11.15


In order to promote foreign economic cooperation, technological communication, introduction of foreign investment and advanced technology to speed up the modernization of socialist construction in four special economic zones, i.e., Shenzhen, Zhuhai, Xiamen and Shantou, and 14 coastal cities with ports, i.e., Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang and Beihai Cities, China shall offer tax exemption from and reduction of Enterprise Income Tax and Industrial and Commercial Consolidated Tax for companies, enterprises and individuals from abroad and from Hong Kong and Macao (hereinafter referred to as ′foreign investors′) who invest in the above special economic zones and cities to establish Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises.


A. Special Economic Zones


a.Enterprise Income Tax shall be levied at the reduced tax rate of 25% for income from production and operation as well as from other sources obtained by Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises (hereinafter referred to as ′SEZ enterprises′) established in the special economic zones (hereinafter referred to as ′SEZ′). Of the enterprises:


Ⅰ. those engaged in industry, transport and communications, agriculture, forestry, animal husbandry, etc., scheduled to operate for a period of not less than 10 years shall, from the year in which it begins to make profits, be exempted from Income Tax in the first and second years and allowed a 50% reduction in the third to fifth years under approval of the enterprise・s application by the SEZ tax authorities.


Ⅱ. those engaged in service industries scheduled to operate for a period of not less than 10 years shall, from the year in which it begins to make profits, be exempt from Income Tax in the first year and allowed a 50% reduction in the second and third years if the investment made by the foreign investors is over US $5 million.


b.The SEZ People・s Government is authorized to make decisions on exemption from and reduction of local Income Tax for the SEZ enterprises if the tax incentives are considered necessary.


c.Tax shall be exempt on the profit to be sent abroad by foreign investors to whom the profit is allocated from SEZ Chinese-foreign equity joint ventures.


d.Income Tax shall be collected at the reduced rate of 10% on income from dividends, interest, rentals, royalties and other sources in SEZ obtained by foreign investors who have no establishments in China except where tax exemption are carried out according to the tax laws. The SEZ People・s Government shall make decisions on more favorable tax exemption and reduction for foreign investors who provide capital or equipment on terms preferential to China or who transfer advanced know-how.


e.For goods imported by the SEZ enterprises on which Industrial and Commercial Consolidated Tax shall be levied, Industrial and Commercial Consolidated Tax shall be exempt for machine equipment, raw materials, parts and components, traffic vehicles and other production goods essential for production. Industrial and Commercial Consolidated Tax shall be levied for traffic vehicles and durable consumer goods whose import is limited by the State. For various mineral oils, cigarettes, wines and other various daily life necessities imported, Industrial and Commercial Consolidated Tax shall be levied at 50% of the normal rate according to the Tax Law; while after the establishment of the "SEZ administration border line", Industrial and Commercial Consolidated Tax shall also be levied at 50% of the normal rate according to the Tax Law on various imported mineral oils, cigarettes and wines, while on all other imported goods, Industrial and Commercial Consolidated Tax shall be exempt. Industrial and Commercial Consolidated Tax shall be exempt on the reasonable quantity of cigarettes, wines, luggage, and goods for settling down taken by foreign investors into China for their own use.


f.Industrial and Commercial Consolidated Tax shall be exempt for all the products for export manufactured by SEZ enterprises except for the few products whose export is limited by the State or for which there are other special regulations.


g.For products manufactured by the SEZ enterprises and sold within the same SEZ, Industrial and Commercial Consolidated Tax shall be levied at 50% of the normal rate for various mineral oils, cigarettes and wine. The SEZ People・s Governments may also make decisions on their own as to collecting Industrial and Commercial Consolidated Tax at the normal or reduced rate on a few products, while for the other products, Industrial and Commercial Consolidated Tax shall be exempt.


h.Industrial and Commercial Consolidated Tax shall be reduced or exempt for SEZ enterprises according to the Tax law when the imported goods and products manufactured in SEZ are transported into inland areas on which Industrial and Commercial Consolidated Tax is exempt or reduced in SEZ. Industrial and Commercial Consolidated Tax shall be exempt on the personal luggage taken along by foreign investors into inland areas from SEZ.


i.Industrial and Commercial Consolidated Tax shall be levied on income from commerce, transport and communications, and services carried out by the SEZ enterprises according to the Tax Law. Industrial and Commercial Consolidated Tax shall be levied at 3% of the tax rate on income from banking and insurance. The SEZ People・s Government is authorized to make decisions on fixed term tax incentives of exemption from and reduction of Industrial and Commercial Consolidated Tax for the enterprises mentioned above at the beginning of their operation.


j.The exemption from and reduction of Industrial and Commercial Consolidated Tax and Enterprise Income Tax shall be carried out, with reference to the relevant regulations for SEZ, for Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises established in Hainan Administration Region of Guangdong Province.


B. Economic and Technological Development Zones in the 14 Coastal Cities with Ports.


a.Enterprise Income Tax shall be levied at the reduced tax rate of 15% on income from production, operation, etc. carried out by production Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises (hereinafter referred to as ′ETDZ enterprises′) established in Economic and Technological Development Zones (hereinafter referred to as ′ETDZ′). Those enterprises scheduled to operate for a period of not less than 10 years shall, from the year in which it begins to make profit, be exempt from Income Tax in the first and second years and allowed a 50% reduction in the third to fifth years upon approval of the enterprise・s application by the taxation authorities in the city.


b.The People・s Government of the city where ETDZ is located is authorized to make decisions on exemption from and reduction of local Income Tax for ETDZ enterprises if tax incentives are considered necessary.


c.Tax shall not be levied on the profit to be exempt abroad by foreign investors to whom the profit is allocated from ETDZ Chinese-foreign equity joint ventures.


d.Income Tax shall be levied at the reduced rate of 10% on income from dividends, interests, rentals, royalties and other sources in ETDZ obtained by foreign investors who have no establishments in China except for cases in which tax exemption shall be carried out according to the tax laws. The People・s Government of the city where ETDZ is located shall make decisions on more favorable tax exemption and reduction for foreign investors who provide capital or equipment on terms preferential to China or whose transferred know-how is advanced.


e.Industrial and Commercial Consolidated Tax shall be exempt on building materials, production equipment, raw materials, parts, components, traffic vehicles and office appliances etc. imported by ETDZ enterprises for their own use. The already exempt Industrial and Commercial Consolidated Tax on imported raw materials, parts and components shall be repaid if they are used by ETDZ enterprises to make products which are sold to inland areas.


f.Industrial and Commercial Consolidated Tax shall not be levied on products for export manufactured by ETDZ enterprises except for products whose export is limited by the State. As for products to be sold in inland areas, tax collection shall be carried out according to tax laws and regulations.


g.Industrial and Commercial Consolidated Tax shall not be levied, on documentary evidence issued by ETDZ Administration Committee, that a reasonable quantity of goods for settling in and a reasonable number of traffic vehicles are taken along for their own use by foreign investors or individuals working in ETDZ enterprises or living in ETDZ.


C.The Old Urban Districts of the 14 Coastal Cities with Ports and the Urban Districts of Shantou, Zhuhai and Xiamen Cities.


a. Enterprise Income Tax shall be collected at the reduced tax rate of 15% upon approval of the Ministry of Finance for the production Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises (hereinafter referred to ′OUD enterprises′) engaged in technology-intensive or knowledge-intensive projects, established in the old urban districts of the 14 coastal cities with ports or in the urban districts of Shantou, Zhuhai and Xiamen Cities (hereinafter referred to as ′OUD′), or for projects with foreign investment of US$30 million and more, and with a long payback period, or projects for energy, transportation and port construction.


Enterprise Income Tax shall be calculated and collected at 80% of the normal tax rate for OUD enterprises engaged in the following industries upon approval of the Ministry of Finance if the tax incentives mentioned above do not apply to them:


Ⅰ. machine building and electronic industries;


Ⅱ. metallurgical, chemical and building material industries;


Ⅲ. light, textile and packaging industries;


Ⅳ. medical apparatus and pharmaceutical industries;


Ⅴ. agriculture, forestry, animal husbandry, aquaculture and the related processing industries;


Ⅵ. building industry;


The exemption from and reduction of Enterprise Income Tax for OUD enterprises shall be carried out according to the above preferential tax rate with reference to the tax incentive period and the tax incentive coverage stipulated in the "Income Tax Law on Chinese-foreign Equity Joint Ventures" and the "Income Tax Law on Foreign Enterprises".


b.The People・s Government of the city is authorized to make decisions on exemption from and reduction of local Income Tax for OUD enterprises if tax incentives are considered necessary.


c.Income Tax shall be levied at the reduced rate of 10% on income from dividends, interest, rental, royalties and other sources in OUD obtained by foreign investors who have no establishments in China, except where tax exemption is carried out according to tax laws. The People・s Government of the city shall make decisions on more favorable tax exemption and reduction for foreign investors who provide capital or equipment on terms preferential to China or whose transferred know-how is advanced.


d.Industrial and Commercial Consolidated Tax shall not be levied on production equipment, operation equipment and building materials imported by OUD enterprises as investment or additional investment, nor on traffic vehicles and office appliances for the enterprises・ own use.


e.Industrial and Commercial Consolidated Tax shall be exempt on products for export manufactured by OUD enterprises except for products whose export is limited by the State. For products to be sold in the inland areas, tax collection shall be carried out according to tax laws and regulations.


f.Industrial and Commercial Consolidated Tax shall be exempt on raw materials, parts, components and packaging materials imported by OUD enterprises to manufacture products for export, while tax shall be collected according to tax laws and regulations on the imported materials to be used for products to be sold in inland areas.


g.Industrial and Commercial Consolidated Tax shall be exempt, on documentary evidence issued by the responsible department of the People・s Government of the city, that a reasonable quantity of goods for settling in and on a reasonable number of traffic vehicles are taken along for their own use by foreign investors or individuals working in OUD enterprises or living in OUD.


D. Effective Date


According to the temporary regulations in Attached Document 1, the exemption from and reduction of Income Tax shall come into effect in the tax year 1984, while the exemption from and reduction of the Industrial and Commercial Consolidated Tax shall come into effect on December 1, 1984.


Appendix 2


Explanation of a Few Points on Policies for Special Economic Zones, Economic and Technological Development Zones and Old Urban Districts by the Ministry of Finance


CAI SHUI ZI [084] 1985.3.21


A. Coverage of the " Provisional Regulations"


The Provisional Regulations shall be implemented only in the Special Economic Zones, Economic and Technological Development Zones and the Old Urban Districts of the 14 Coastal Open Cities established upon approval of State Council, or in the areas established upon special approval of State Council; the enterprises to which the Provisional Regulations apply are limited to the Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises established in the above zones; the taxes covered in the Temporary Regulations consist of Enterprise Income Tax, local Income Tax and Industrial and Commercial Consolidated Tax.


B. Definition of old urban districts


The old urban districts referred to in the Provisional Regulations are the urban districts of the 14 Coastal Open Cities approved by State Council, not including the counties or the towns in the counties under administration of the cities except for those particularly approved by State Council.


C. The clause involving taxation in the contracts signed by the enterprises with foreign investors before publication of the Provisional Regulations


The clauses concerning taxation in contracts by enterprises with foreign investors shall be in accordance with the tax laws and regulations. The Provisional Regulations shall be implemented from the date of its publication if the clauses concerning taxation in the contract signed by the enterprise with foreign investors before the publication of the Provisional Regulation are stricter than those in the Provisional Regulations. If the contract signed by both sides and the clauses therein are not in accordance with the tax laws and regulations and it is impractical to modify the contract, the enterprise may report the situation to the local taxation authorities for examination and verification. The local taxation authorities will in turn make reports to the taxation bureaus in the provinces, autonomous regions or municipalities for further examination and comments. After the publication of the Provisional Regulations, the clauses concerning taxation in the contract signed by the enterprise with foreign investors shall be put in accordance with the relevant provisions in tax laws and the Provisional Regulations.


D. Tax refunds on reinvestment of SEZ enterprises


According to the existing tax laws, only the foreign partner of Chinese-foreign equity joint venture who reinvests its share of profit from the joint venture, directly into that joint venture or into other Chinese-foreign equity joint ventures, the reinvestment period being no less than 5 years, shall, upon approval by the taxation authorities of application filed by the investor, be refunded 40% of Income Tax already paid on the reinvested amount. However, Income Tax already paid on the reinvested amount shall not be refunded to foreign investors who reinvest their share of profit from Chinese-foreign contractual joint ventures or from wholly foreign-owned enterprises in SEZ or inland areas, since there are no such terms concerning tax refunds in tax laws and the Provisional Regulations.


E. Tax refunds on withholding tax already levied according to the tax laws before publication of the Provisional Regulations


Exemption from and reduction of Income Tax mentioned in the ′exemption from and reduction of Income Tax shall be implemented from 1984 written in the Regulations′ in Article 4 of the Provisional Regulations only refers to the exemption from and reduction of Income Tax according to the Provisional Regulations at calculation and collection of Income Tax in the tax year 1984 for Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises established in SEZ, ETDZ and OUD of the 14 Coastal Open Cities. As for foreign companies, enterprises and other economic organizations outside China, withholding tax shall be collected according to the original regulations for income obtained from SEZ, ETDZ and OUD before the publication of the Provisional Regulations, there shall be no tax refunds on the income. After the publication of the Provisional Regulations, tax collection shall be carried out at the reduced tax rate according to the Provisional Regulations from the date of the publication, i.e., November 15, 1984.


F. Taxation in the case in which the head office of the enterprise is not at the same place as its business operation and working sites


Tax shall be levied, according to the relevant regulations, where the operation and working sites are located if the head office of the enterprise is in SEZ, ETDZ or OUD while its operation and working sites are located in other places, or if the head office of the enterprise is in a place other than SEZ, ETDZ and OUD while its operation and working sites are located in SEZ, ETDZ or OUD.


G. The rate of Industrial and Commercial Consolidated Tax paid by Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises established in SEZ, ETDZ or OUD


According to provisions in Document No.88 issued by the Ministry of Finance (83), tax shall be levied at the tax rate reduced to the same level as the existing rate of the Industrial and Commercial Tax if Industrial and Commercial Consolidated Tax is levied on Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises at a rate higher than the rate of the Industrial and Commercial Tax. The Industrial and Commercial Tax is already abolished after the replacement of profits with taxes. Therefore, tax shall be levied at the rates in Table of Tax Items and Tax Rates for Industrial and Commercial Consolidated Tax of "Regulations on the Industrial and Commercial Consolidated Tax (Draft)" for all Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises established by foreign investors in SEZ, ETDZ and OUD. Further fixed term tax reductions shall be carried out for enterprises who really have difficulty in tax payments, upon approval by the Ministry of Finance of the application of the enterprise, after it is examined and verified by the local tax authorities. Tax collection shall remain the same for the enterprises from whom the tax was levied already at the reduced rate according to the original regulations before the replacement of profits with taxes.


H. Taxation for the sales of products in SEZ manufactured by SEZ enterprises


Article 7 in the part of Special Economic Zones in the Provisional Regulations i.e. "For the products manufactured by the SEZ enterprises and sold within the same SEZ, Industrial and Commercial Consolidated Tax shall be levied at 50% allowed rate on various mineral oils, cigarettes and wines. The SEZ People・s Governments may also make decisions on their own as to collecting Industrial and Commercial Consolidated Tax at the normal or reduced rate for a few products, while for all the rest products, Industrial and Commercial Consolidated Tax shall be exempt" shall only be implemented after the establishment of the "SEZ administration border line", while before the establishment of the "SEZ administration border line" the relevant existing regulations are still in effect.


I. Taxation for the sales of products in inland areas manufactured or assembled by SEZ enterprises with imported raw materials, parts and components.


In addition to Industrial and Commercial Consolidated Tax collected on products leaving the factory according to tax laws and regulations, Industrial and Commercial Consolidated Tax on raw materials, parts and components already exempt at import shall be repaid for the sales of products in inland areas produced or assembled by SEZ enterprises with imported raw materials, parts and components.


J. Tax exemptions on durable consumer goods


Of the goods imported by SEZ enterprises before the establishment of the "administration border line", on machine equipment, raw materials, parts, components, traffic vehicles and other equipment essential for production, Industrial and Commercial Consolidated Tax shall be exempt. Industrial and Commercial Consolidated Tax shall be levied on durable consumer goods whose import is limited by the State according to tax laws and regulations.


′Durable consumer goods′ refer to goods whose import is limited by the State such as calculators, duplicating equipment for audio and video tapes, cores of tape recorders, bicycles, radio, electric fans, automobiles, motorcycles, electrical computers, TV sets, recorders, display tubes of TV sets, complete sets of camera shooting equipment and pickup cameras, washers, refrigerators, watches, cameras, etc.


K. Taxation on the export of complete sets assembled by SEZ enterprises with parts and components on which tax is already paid by the inland enterprises at import


The already paid Product Tax or Value-Added Tax by the inland enterprises shall not be repaid to them if the SEZ enterprises purchase the parts and components on which tax is already paid by the inland enterprises from the inland enterprises to assemble into complete sets for export.


8.7.2 277 Coastal Open Areas:


A. 14 Coastal Open Cities:


Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Nantong, Lianyungang, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang, Beihai (including Fangchenggang District) cities.


B. Coastal Economic Open Areas (260 cities and counties):


Liaoning Province (23 cities and counties)


Shenyang City


Wafangdian city, Zhuanghe city and Pulandian city of Dalian City


Donggou County, Fengcheng Man Autonomous County Dandong City


Gaizhou City, Dashiqiao City Yingkou City


Dawa County, Panshan County Panjin City


Xingcheng City, Jinxian County Jinzhou City


Haicheng City Anshan City


Liaoyang County, Dengta County Liaoyang City


SuizhongCounty Jinxi City


Hebei Province (14 cities and counties)


Changli, Funing and Lulong Counties of Qinhuangdao City


Fengnan, Luannan, Leting, Tanghai and Luanxian Counties??Tangshan City


Cangxian County, Qingxian County, Huanghua City, Haixing County (Cangzhou Prefecture) Cangzhou City


Tianjin Municipality (5 counties)


Wuqing, Ninghe, Baodi, Jinghai and Jixian Counties


Shandong Province (31 cities and counties)


Jinan City


Jiaozhou, Jiaonan, Laixi, Jimo and Pingdu cities of Qingdao City


Laiyang, Longkou, Zhaoyuan, Penglai and Laizhou Cities, Muping, Haiyang and Qixia counties of Yantai City


Wendeng City, Rongcheng City, Rushan County Weihai City


Zhucheng city, Qingzhou city, Changyi, Anqiu, Changle, Shouguang, Gaomi and Wupeng Counties Weifang City


Huantai County Zibo City


Rizhao City


Dongying City


Jiangsu Province (47 cities and counties )


Jiangning, Liuhe and Jiangpu counties Nanjing City


Donghai, Guanyun and Ganyu Counties of Lianyungang City


Tongzhou, Qidong and Rugao cities, Haimen, Rudong and Hai・an Counties of Nantong City


Changshu, Zhangjiagang, Wujiang and Kunshan Cities, Taichang and Wuxian


Counties Suzhou City


Jiangyin, Yixing and Xishan cities Wuxi City


Liyang, Wujin and Jintan Cities Changzhou City


Danyang city, Dantu, Yangzhong and Jurong Counties Zhenjiang City


Taizhou, Yizheng, Taixing, Jiangdu and Jingjiang cities, Hanjiang and Taixian


counties Yangzhou City


Dongtai city, Dafeng, Xiangshui, Sheyang and Binhai Counties Yancheng City


Zhejiang Province (34 cities and counties)


Yuyao, Cixi and Fenghua cities, Ninghai, Xiangshan and Yinxian counties of Ningbo City


Rui・an City, Dongqing, Pingyang, Gounan and Yongjia counties of Wenzhou City


Xiaoshan City, Yuhang, Fuyang, Linan and Tonglu counties??Hangzhou City


Deqing and Changxing counties Huzhou City


Shangyu City, Shaoxing and Shengxian counties Shaoxing City


Haining and Pinghu cities, Haiyan, Jiashan and Tongxiang counties Jiaxing City


Zhoushan City


Jiaojiang, Linhai and Huangyan Cities (Taizhou prefecture)


Fujian Province (37 cities and counties)


Fuqing City, Minhou, Changle, Lianjiang, Pingtan, Minqing, Luoyuan and Yongtai counties of Fuzhou City


Zhao・an, Yunxiao, Nanjing, Changtai, Pinghe, Hua・an, Longhai, Zhangpu and Dongshan counties Zhangzhou City


Jinjiang and Shishi cities, Hui・an, Nanan, Yongchun, Anxi and Dehua counties Quanzhou City


Putian and Xianyou counties Putian City


Tongan county of Xiamen City


Ningde and Fuan cities, Fuding and Xiapu counties (Ningde prefecture)


Sanming City


Longyan City


Nanping City


Guangdong Province (57 cities and counties)


Doumen county of Zhuhai City


Chenghai, Chaoyang and Nan・ao counties of Shantou City


Panyu City, Conghua, Zengcheng and Huaxian counties of Guangzhou City


Raoping and Chao・an counties Chaozhou City


Nanhai and Shunde city, Gaoming and Sanshui counties Foshan City


Xinhui and Taishan cities, Heshan, Enping and Kaiping counties Jiangmen City


Lianjiang, Suixi, Haikang, Xuwen and Wuchuan counties of Zhanjiang City


Gaoyao, Sihui and Guangning counties Zhaoqing City


Huiyang, Boluo and Huidong counties Huizhou City


Dianbai and Huazhou counties Maoming City


Lufeng, Haifeng and Luhe counties Shanwei City


Yangxi, Yangchun and Yangdong counties Yangjiang City


Jiedong, Jiexi, Puning and Huilai counties Jieyang City


Zhongshan City


Donggun City


Qingyuan City


Shaoguan City


Heyuan City


Meizhou City?お?


Guangxi Zhuang Autonomous Region (6 cities and counties):


Hepu county of Beihai City


Cangwu County,Yulin City (Yulin Prefecture),Qinzhou City, Fangcheng County (Qinzhou prefecture) Wuzhou City


Shanghai Municipality (6 counties):


Nanhui, Fengxian, Songjiang, Jinshan, Qingpu and Chongming counties


Nanjing-Zhenjiang-Yangzhou Region (3 cities):


Nanjing, Zhenjiang and Yangzhou cities


??Appendix 1


Regarding Policies and Measures in "Summary of the Symposium on Development of Yangtze River and Pearl River Deltas and Xiamen- Zhangzhou -Quanzhou Delta in the South Part of Fujian Province"


CAI SHUI ZI [148] 1985.6.5


The establishment of the economic open areas in Yangtze River and Pearl River Deltas and Xiamen-Zhangzhou-Quanzhou Delta in the South Part of Fujian Province shall be carried out from a small scale to a large scale i.e., from "small deltas" to "large deltas", from experimental areas to total regions. The ′experimental areas′ refer to the urban districts of Suzhou, Wuxi, Changzhou, Jiaxing, Quanzhou, Zhangzhou, Foshan and Jiangmen cities in the three small deltas or the towns where the People・s Governments of the counties are located, (or the key industrial satellite towns approved by the People・s Governments of provinces or municipalities) of the counties in the three small deltas appointed as key counties (the list of names is attached, including the counties under the administration of Shanghai Municipality and other cities or prefectures) in which production is arranged in the order of trade-industry-agriculture to promote export. ′The total area′ refers to the countryside under the administration of the cities and counties mentioned above where, with foreign investment, projects are carried out for introduction of agricultural technology, production bases for agricultural products are established and factories for preliminary processing of agricultural products are set up to promote export. Following the above principles may facilitate improved administration of foreign investment, the environmental protection and the reasonable layout of the construction of urban and rural areas, and may facilitate centralized-control of the funds to build up infrastructure to provide a perfect environment for investment and the gradual accumulation of experience to conduct work on a more solid basis.


The following policies and measures are to be implemented in the above areas:


A. The People・s Governments of cities directly under the administration of the provincial governments and those of some counties in these areas, shall be given more authority to check and approve projects with foreign investment for technological innovation in old enterprises and establishment of new factories. The limit for checking and approving projects regarding the total investment for each production project shall be decided by the People・s Government of provinces (municipalities) in accordance with the limits for checking and approval stipulated by the State. The largest investment within the limit of the authority shall not be higher than US$5 million for each project. The projects checked and approved in the above cities and counties shall be projects for which there is no need for the State to make plans for construction and production, for which there is no need for the State to serve as the exclusive seller or to give export quotas for the project. In addition, the project should be one in which the investment can be repaid independently or repaid by the local government based on the overall arrangement. The People・s Governments of provinces (municipalities) shall make detailed stipulations as to how the People・s Governments of the cities and counties check and approve such affairs related to the projects they checked and approved with their given authority, and which are limited by the People・s Governments of provinces (municipalities) as to the import of equipment, organization of delegations for investigation abroad and the agreement through negotiation with foreigners. The People・s Governments of provinces (municipalities) shall also make stipulations as to the limit of authority on the investment amount given to the people・s governments in the cities and counties regarding the checking and approval of non-production projects.


B. The relevant government bodies under State Council and the People・s Governments of relevant provinces and municipalities shall offer active support and give priority in funding, supplying of equipment, technical guidance, etc. to technological innovation in key industries and enterprises in areas engaged in promotion of export and foreign exchange earning. Exemption from Customs Duty and Products Tax or Value-Added Tax at import shall be carried out before 1990, no matter where the foreign exchange comes from, on such following products as key equipment, instruments and meters, etc. which can not be produced or the supply of which is not guaranteed in China, imported for the technological innovation by the enterprises in urban districts of the cities and the towns where the county governments are located (or in the key satellite towns approved by the people・s governments of the provinces or municipalities ) and as the seeds, sprouts breeders, feedings, drugs for animal protection, and essential machines and tools, etc., for plowing, planting, cultivation and agricultural produce processing imported for development of projects for processing agricultural produce for export in the countryside under the administration of the cities and counties.


C. Enterprise Income Tax may be levied at 80% of the normal tax rate for Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign owned enterprises engaged in production projects or scientific research projects established in old urban districts of the cities and in towns of the counties where the county governments are located (or in the key satellite towns approved by People・s Governments in provinces and municipalities); as to whether exemption from or reduction of local Income Tax is carried out or not, the People・s Governments of provinces or municipalities may decide.


In addition to other relevant State issued tax incentives, those mentioned above regarding tax incentives also apply to businesses carried out in the countryside under administration of such cities and counties, with investment directly made by foreign investors in agriculture, forestry, animal husbandry and aquaculture or to processing projects in the above businesses.


Enterprise Income Tax shall be levied at 15% of the tax rate upon approval by the Ministry of Finance for projects in energy, transport and ports and of technology-intensive or knowledge-intensive projects directly carried out with foreign investment, or for projects with foreign investment of US$30 million and more and with a long payback period. For such projects, exemption from tax shall be carried out for the remittance of the profit outside China legally allocated to foreign investors.


D. As for Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises in these areas, exemption from Customs duty and Product Tax or Value-Added Tax at import (note: Product Tax or Value-Added Tax shall be Industrial and Commercial Consolidated Tax) shall be conducted against documents issued by the responsible departments of the People・s Governments of provinces (municipalities) or cities directly under provincial governments on equipment, machines and construction materials imported as investment for the production and management of the enterprises, on raw materials, components, parts and packaging materials imported for manufacture of products to be exported, on traffic vehicles, office appliances (within reasonable quantity) imported for the enterprises・ own use, on the goods for settling in and on personal traffic vehicles imported by foreign investors and foreign employees. Exemption from export duties and the Industrial and Commercial Consolidated Tax for production shall be carried out for the export of products manufactured in these enterprises (not including products whose exports are limited by the State). The tax already exempt shall be repaid on the sales in China of the products manufactured with tax-exempt raw material, parts and components.


E. Decentralization of the right to conduct export. The right to export competitive products in the international market manufactured locally in these cities and counties (not including the products to be exported only by the State) shall be gradually decentralized to the corresponding provinces, cities or to the combinations of cities for them to take the responsibility for their own profits and losses on the basis of foreign exchange costs determined by the Ministry of Foreign Economics and Trade. The export quota needed shall be given by the provinces (or municipalities) within the quota amount allocated to the provinces by the Ministry of Foreign Economics and Trade. The relevant licenses shall be issued by the departments of foreign economics and trade in the provinces (municipalities) authorized by the Ministry of Foreign Economics and Trade according to the regulations.


Local companies in the Pearl River Delta may be organized to directly export fresh and live goods to Hong Kong and Macao by taking responsibility for their own profits and losses. The quota for fresh and live goods supplied to the markets in Hong Kong and Macao by Guangdong province may be brought under the control of the People・s Government of Guangdong Province. The quota for fresh and live goods exported by other provinces are still under the control of the Ministry of Foreign Economics and Trade. However, in quota allocation by the Ministry, priority shall be given to Guangdong Province according to the development of the production and export of such goods.


The People・s Governments in Jiangsu, Zhejiang, Fujian and Guangdong provinces may make approvals for foreign trade companies to be set up to conduct the export of local products according to the regulations, and may establish necessary foreign trade organizations outside China (not including Hong Kong and Macao).


F. To promote the manufacturing of export-oriented goods in coastal economic open areas, the Bank of China shall provide preferential loans for exchange to introduce advanced technology, equipment, fine species and breeding stocks for projects which are promising and able to gain foreign exchanges. State-owned enterprises may pay loans for exchange first with the profits newly derived from the projects, then pay Enterprise Income Tax, while the collective-owned enterprises shall have to pay loans according to the existing regulations of the State. The foreign exchange newly gained from the above projects may be used to repay the loan first, then to the State and the remainder will be retained.


G. When fine species and breeding stocks are introduced, to facilitate the quarantine of animals and plants in China, two islands (or two sandbars) may be selected in Guangdong, Fujian, Zhejiang or Jiangsu provinces each as isolating areas for setting up experimental farms to conduct trial planting of fine species and trial breeding of stocks, fine species and breeding stocks shall not be distributed widely until everything is assured. Since projects for trial planting and breeding belong to scientific and research projects, there will be no taxation within 5 years from the first profit making year.


H. Funds shall be collected from various channels to strengthen infrastructure construction. The cities directly under provincial governments in coastal economic open areas may issue special bonds and stocks locally, upon approval of the People・s Governments of the provinces and the People・s Bank of China, to collect available funds from the local people for infrastructure projects.


I. The checking and approval of people going abroad on business, the issuance of passports and granting of visas in cities directly under the provincial government in the above areas may be carried out, upon approval of the Ministry of Foreign Affairs, with reference to the relevant regulations for the 14 coastal Open Cities.


??Appendix 2


The Temporary Regulations for Exemption from and Reduction of Enterprise Income Tax and Industrial and Commercial Consolidated Tax to Encourage Foreign Companies to Invest in Coastal Economic Open Areas", issued by the Ministry of Finance of the People・s Republic of China


CAI XHUI ZI [091] 1988.6.15


A. Enterprise Income Tax shall be levied at the reduced tax rate of 15% upon approval of the Ministry of Finance for such production enterprises established in the Coastal Economic Open Areas with the investment of foreign investors (hereinafter referred to as′EOA enterprises′) as those engaged in technology-intensive and knowledge-intensive projects or those engaged in projects in which the investment by foreign investors is over US$30 million and with a long payback period or those engaged in projects for energy, transport and port construction.


Enterprise Income Tax shall be calculated and collected at 80% of the normal tax rate for the EOA enterprises engaged in the following industries (including scientific research projects) upon approval of the Ministry of Finance if the tax incentives mentioned above do not apply to them :


a. machine building and electronic industries;


b. metallurgical, chemical and building material industries;


c. light, textile and packaging industries;


d. medical apparatus and pharmaceutical industries;


e. agriculture, forestry, animal husbandry, aquaculture and the related processing industries;


f. building materials;


The exemption from and reduction of Enterprise Income Tax for the EOA enterprises shall be carried out according to the above preferential tax rate with reference to the tax incentive coverage, conditions and periods stipulated in the "Income Tax Law on Chinese-foreign Equity Joint Ventures", the "Income Tax Law on Foreign Enterprises" and the "Regulations to Encourage Foreign Investment by State Council".


B. The People・s Governments of the provinces, autonomous regions and municipalities are authorized to make decisions on exemption from and reduction of local income tax for EOA enterprises if the tax incentives are considered necessary.??


C. Income Tax shall be levied at the reduced rate of 10% on income from dividends, interest, rentals, royalties and other sources in Economic Open Areas obtained by foreign investors who have no establishments in China except where tax exemption are carried out according to tax laws. The People・s Governments of the provinces, autonomous regions and municipalities shall make decisions on more favorable tax exemption and reduction for foreign investors who provide capital or equipment on terms preferential to China or whose transferred know-how is advanced.


D. Industrial and Commercial Consolidated Tax shall be exempt on production equipment, operation equipment and building materials imported by EOA enterprises as investment or as additional investment as well as on traffic vehicles and office appliances imported for the enterprises・ own use.


E. Industrial and Commercial Consolidated Tax shall be exempt on products for export manufactured by EOA enterprises except for crude oil, finished oil and products whose export is limited by the State. As for products to be sold in the inland areas, tax collection shall be carried out according to tax laws and regulations.


F. Industrial and Commercial Consolidated Tax shall be exempt on raw materials, parts, components and packaging materials imported by EOA enterprises to produce products for export, while tax shall be collected according to tax laws and regulations on the imported materials to be used for products to be sold in the inland areas.


G. Industrial and Commercial Consolidated Tax shall be exempt on reasonable quantities of goods for settling in and a reasonable number of traffic vehicles taken along for their own use by foreign investors or individuals working in EOA enterprises or living in Economic Open Areas on documentary evidence issued by the responsible department of the People・s Government at the level of the cities directly under provincial government or at higher levels.


H. When fine species and breeding stocks are introduced, to facilitate the quarantine of animals and plants, two islands (or two sandbars) may be selected in Guangdong, Fujian, Zhejiang, Jiangsu or Shandong provinces each as isolating areas for setting up the experimental farms to conduct trial planting of fine species and trial breeding of stocks. Since projects for trial planting and breeding belong to scientific research projects, there will be no taxation within 5 years from the first profit making year.


8.7.3 25 Capital Cities of Provinces and Open Cities along Yangtze River


A. Capital Cities of Province (18 cities)


Shijiazhuang, Nanning, Harbin, Changchun, Huhehaote, Urumqi, Kunming, Zhengzhou, Taiyuan, Xi・an, Lanzhou, Xining, Yinchuan, Guiyang, Hefei, Nanchang, Changsha and Chengdu Cities


B. Open cities along Yangtze River (6 cities)


Wuhu, Jiujiang, Yueyang, Chongqing, Wuhan and Huangshi cities.


C. Beijing Municipality (1 city)


Appendix 1


Notice of State Council on Opening Chongqing City, etc.


GUO HAN [93] 1992.7.30


State Council has decided to open to the outside world another 5 cities along the Yangtze River i.e. Chongqing, Yueyang, Wuhan, Jiujiang and Who, another 4 provincial capital cities in bordering areas or coastal areas i.e., Harbin, Changchun, Huhehaote, Shijiazhuang, and another 11 inland provincial capital cities i.e., Taiyuan, Hefei, Nanchang, Zhengzhou, Changsha, Chengdu, Guiyang, Xi・an, Lanzhou, Xining and Yinchuan; for all the above cities, all the policies for coastal open cities shall be carried out. The import duties and Product Tax (Value-Added Tax) shall have been exempt by the end of 1995 on equipment imported for technological innovation projects, which are in conformity with the State・s industrial policies, in the above cities or on the processing equipment for development of export-oriented agriculture which cannot be fully supplied from within China.


Appendix 2


Notice of the State Administration of Taxation on Taxation Policies Concerning Foreign Investment in Newly Opened Capital Cities in Border, Coastal and Inland Areas and the Cities Along Yangtze River


GUO SHUI FA [218] 1992.9.18


A. Enterprise Income Tax shall be levied at the reduced tax rate of 24% for enterprises with foreign investment established in urban areas in the 18 capital cities in border, coastal and inland areas such as Urumqi city and the 5 cities along the Yangtze River (shortened to UA enterprises) if they are production enterprises. But upon approval of the State Administration of Taxation, taxation shall be collected at the reduced rate of 15% for the enterprises with foreign investment engaged in the following production projects:


a. technology-intensive and knowledge-intensive projects;


b. projects with foreign investment of US$30 million and more, and with a long payback period;


c. projects for energy, transport and port construction.


B. The People・s Governments of the cities are authorized to make decisions on exemption from and reduction of local Income Tax for UA enterprises if tax incentives are considered necessary.


C. Income Tax shall be levied at the reduced rate of 10% on income from dividends, interest, rentals, royalties and other sources in the urban areas of the open cities obtained by foreign investors who have no establishments in China except where tax exemption is carried out according to tax laws. The People・s Governments of the cities shall make decisions on more favorable tax exemption and reduction for foreign investors who provide capital or equipment on terms preferential to China or whose transferred know-how is advanced.


D. Industrial and Commercial Consolidated Tax shall be exempt on production equipment, operation equipment and building materials imported by UA enterprises as investment or additional investment as well as on traffic vehicles and office appliances for the enterprises・ own use.


E. Industrial and Commercial Consolidated Tax shall be exempt on products for export manufactured by UA enterprises except for crude oil, finished oil and products whose export is limited by the State. As for products to be sold in inland areas, taxation shall be carried out according to tax laws and regulations.


F. Industrial and Commercial Consolidated Tax shall be exempt on raw materials, parts, components and packaging materials imported by UA enterprises to manufacture products for export while the tax shall be collected according to


tax laws and regulations for imported materials to be used for products to be sold in the inland areas.


G.Industrial and Commercial Consolidated Tax shall be exempt on a reasonable quantity of goods for settling in and a reasonable number of traffic vehicles taken along for their own use by foreign investors or individuals working in UA enterprises or living in the urban areas of the open cities on the documentary evidence issued by the responsible departments of the People・s Governments of the cities.


H. The exemption from and reduction of Income Tax regarding enterprises with foreign investment mentioned above shall come into effect in the tax year 1992, while the exemption from and reduction of Income Tax regarding dividends, interest, rentals and royalties and Industrial and Commercial Consolidated Tax shall come into effect on September 1, 1992.


8.7.4 52 New and High-technology Industrial Development Zones


Beijing, Wuhan, Nanjing, Shenyang, Tianjin, Xi・an, Chengdu, Weihai, Zhongshan, Changchun, Harbin, Changsha, Fuzhou, Guangzhou, Hefei, Chongqing, Hangzhou, Guilin, Zhengzhou, Lanzhou, Shijiangzhuang, Jinan, Caohejing of Shanghai, Dalian, Shenzhen, Xiamen, Hainan, Suzhou, Wuxi, Changzhou, Foshan, Huizhou, Zhuhai, Qingdao, Weifang, Zibo, Kunming, Guiyang, Nanchang, Taiyuan, Nanning, Urumqi, Baotou, Xiangfan, Zhuzhou, Luoyang, Daqing, Baoji, Jilin, Mianyang, Baoding and Anshan.


Appendix 1


Notice of State Council on Approval of National New and High-technology Industrial Development Zones and Relevant Policies and Regulations


GUO FA [12] 1991.3.6


According to the "Decision of the Central Party Committee on Reform of Scientific and Technological System", new and high-technology industrial development zones have been established successively in big and middle-size knowledge-intensive and technology-intensive cities in many places as well as in coastal areas. As a result, the development of new and high-technological industry has been promoted in China. In order to implement the spirit of "continually carrying out the ′torch′ plan and conducting good work in the establishment of new and high-technology development zones" mentioned in the "Proposals of the Central Party Committee on Making 10 Year Plan and the Eighth Five-year Plan on the Development of National Economy and Society", and in order to speed up the development of new and high-technological industry, State Council made the decision to select a number of new and high-technology industrial development zones already established in various places as national new and high-technology industrial development zones, to which corresponding preferential policies shall be offered, following approval of the new-technology industrial development experimental zone in Beijing in 1988. The notice is made as follows:


A. State Council has approved the following 21 new and high-technology industrial development zones as national ones, which are already checked and determined by the State Scientific and Technological Commission:


Donghu New-technology Development Zone in Wuhan City, Pukou New and High-technology Export-oriented Development Zone in Nanjing City, Nanhu Scientific and Technological Development Zone in Shenyang City, New-technology Industrial Garden in Tianjin Municipality, New-technology Industrial Development Zone in Xi・an City, New and High-technology Industrial Development Zone in Chengdu City, Torch High-technology Industrial Development Zone in Weihai City, Torch High-technology Industrial Development Zone in Zhongshan City, Nanhu-Nanling New-technology Industrial Garden in Changchun city, High-technology Development Zone in Harbin City, Scientific and Technological Development Experimental Zone in Changsha City, Scientific and Technological Garden in Fuzhou City, Tianhe New and High-technology Industrial Development Zone in Guangzhou City, Scientific and Technological Industrial Garden in Hefei City, New and High-technology Industrial Development Zone in Chongqing City, New and High-technology Industrial Development Zone in Hangzhou City, New-technology Industrial Development Zone in Guilin City, High-technology Development Zone in Zhengzhou City, Ningwozhuang New-technology Industrial Development Experimental Zone in Lanzhou City, New and High-technology Industrial Development Zone in Shijiazhuang City, New and High-technology Industrial Development Zone in Jinan City.


B. Also recognized as national new and high-technology industrial development zones are Caohejing New-technology Development Zone in Shanghai Municipality, New and High-technology Industrial Garden in Dalian City, Scientific and Technological Industrial Garden in Shenzhen City, Torch High-technology Industrial Development Zone in Xiamen City, International Scientific and Technological Industrial Garden in Hainan Special Economic Zone, all of whom are established in economic and technological development zones or in special economic zones.


C. The State Scientific and Technological Commission is authorized by State Council to be in charge of checking and approving the coverage and areas of national new and high-technology industrial development zones and to be in charge of conducting administration and guidance of the above zones.


D. Please carry out the following three documents, the first two of which are drafted by the State Scientific and Technological Commission, the latter one drafted by the State Administration of Taxation, and all of which are approved by State Council: "Conditions and Procedures for Determining New and High-technology Enterprises in National New and High-technology Industrial Development Zones (Appendix 1), "Temporary Regulations on a Number of Policies for National New and High-technology Industrial Development Zones" (Appendix 2) and "Regulations on Taxation Policies for National New and High-technology Industrial Development Zones" (Appendix 3).


E. Except for the administration of scale of investment in fixed assets and the retention of a portion of the foreign exchange obtained from export, for which existing regulations are carried out, "Provisional Regulations for New-technology Industrial Development Experimental Zone in Beijing Municipality" shall be carried out for all the other affairs regarding administration in the New-technology Industrial Development Experimental Zone in Beijing Municipality.


Promotion of commercialization and industrialization of high-technology products by relying on the scientific and technological force in China is of great importance to adjustment of the industrial structure, encouragement of reform of traditional industries, improvement of labor productivity and to making goods more competitive in the international market. Leadership and support for the new and high-technology industrial development zones shall be strengthened by provinces and municipalities as well as Ministries and Commissions etc. according to relevant State policies to promote the healthy development of new and high-technology industries in China.


Appendix 2


Regulations on Taxation Policies for National New and High-technology Industrial Development Zones of the State


GUO FA [12] 1991.3.6


Article 1:The present Regulations were formulated to promote the healthy development of new and high-technology industries in China and to promote the construction of new and high-technology industrial development zones.


Article 2:The Regulations apply to enterprises confirmed as new and high-technology enterprises (hereinafter referred to as ′DZ enterprises′) in new and high-technology industrial development zones (hereinafter referred to as ′DZ′) established upon approval of State Council.


Article 3:The conditions and standards for determination of DZ and DZ enterprises, and the coverage of new and high technology and the coverage of products of new and high technology shall be decided according to the unified regulations made by the State Scientific and Technological Commission.


Article 4:Income Tax shall be levied at the reduced rate of 15% from the date when the enterprises are confirmed as DZ enterprises.


Article 5:Income Tax shall be levied at the reduced tax rate of 10% if the output value of exported products manufactured by DZ enterprises is over 70% of the total output value upon the verification of the taxation authorities.


Article 6:Exemption from Income Tax shall be carried out within two years from the year when the DZ enterprises, established upon approval of the enterprise・s application by the taxation authorities, goes into production.


The newly established Chinese-foreign equity DZ enterprises with an operating period exceeding 10 years may enjoy exemption from Income Tax for the two years beginning with the first profit making year, upon approval of their applications by the taxation authorities.


The two previous provisions do not apply to the DZ enterprises if they are enterprises with foreign investment within the area of the Special Economic Zones and the Economic and Technological Open Zones. For such enterprises the taxation policies applying to Special Economic Zones or Economic and Technological Open Zones shall be implemented.


Tax exemption and reduction shall be further carried out for a certain period for the enterprises who really encounter difficulty paying tax when the tax exemption period comes to an end.


Article 7:The exemption from Income Tax shall be carried out for DZ enterprises established with local investment, on their income from technology transfer and technological consultation, technological service and technological training related to the technology transfer, if the net income is less than 300000 RMB yuan. For those in excess of 300000 yuan, Income Tax shall be levied at the corresponding tax rate. On new and high-technology products belonging to those listed in the "Torch Plan", exemption from and reduction of Product Tax and Value-Added Tax shall be carried out, if such products can meet the requirement of the provisions regarding tax exemption and reduction for new products; and on the tax money derived from the tax exemption and reduction, Income Tax shall not be levied if such tax money is used specifically in technological development.


Article 8:The tax money derived from exemption from and reduction of tax for the DZ enterprises established with local investment shall be taken as the State Supporting Fund, for which a special accounting book shall be kept. It shall be specifically used for the development of new and high technology and products of new and high technology under the supervision of the relevant government bodies.


Article 9:Payment of Income Tax or profit shall be made following the payment of tax by the investors in DZ on the profit allocated from the joint venture according to relevant regulations applying to the enterprises in the place where the investors are located, if the DZ enterprises are joint-venture enterprises.


Article 10:The bonus tax shall be levied from all the DZ enterprises established with local investment, according to the existing regulations of the State. But the bonus tax shall not be levied on the following specific bonuses:


A. bonuses less than 15% of the total retained net income derived from technology transfer, technological consultation, technological service and technological training;


B. bonuses less than standard wages for 1.5 months handed to employees from export bounty according to the regulations of the State retained by new and high technological export-oriented enterprises;


C. other specific bonuses in conformity with State regulations.


If the sum of the annual tax free bonuses per employee mentioned in the above two items is less than the standard wages for 2.5 months, the tax exemption shall be calculated on the basis of the standard wages for 2.5 months. If it is over the wages for 2.5 months, calculations shall be made on the basis of the actual bonus amount.


Article 11:Construction Tax (or Investment Regulation Tax) shall be levied or exempt according to the State industrial policies on construction of houses, by DZ enterprises established with local investment, which are used for technological development, production and operation and which are built up with self-raised funds.


Article 12:The payment of loans by DZ enterprises shall all be conducted following collection of Income Tax.


Article 13:For the non-DZ enterprises in DZ, the Regulations shall not be implemented, but the existing tax policies of the State shall be followed. The Regulations shall not be implemented for enterprises previously recognized as DZ enterprises, but which have changed so much they are no longer able to meet the requirement of the conditions and standards for DZ enterprises.


Article 14:The former tax policies which conflict with the Regulations shall be annulled and the Regulations shall be carried out.


Article 15:The State Administration of Taxation is responsible for interpretation of the Regulations.


Article 16:The Regulations shall take effect on the date of State Council approval.


Appendix 3


Notice of the State Administration of Taxation on Implementation of Taxation Concerning Foreign Investment in "Regulations on Taxation Policies for National New and High-technology Industrial Development Zones"


GUO SHUI HAN [663] 1991.9.16


A. According to provisions in Section 4 of Article 6 in the Regulations, tax exemption and reduction shall be further carried out for a certain period for enterprises who encounter genuine difficulty in paying tax when the tax exemption period comes to an end and who are Chinese-foreign equity joint ventures recognized as new and high-technology enterprises in new and high-technology industrial development zones (shortened to DZ below) established upon approval of State Council. Such enterprises shall make application for tax incentives to the local taxation authorities for examination and verification, then the application shall be presented to the State Administration of Taxation for approval.


B. Enterprise Income Tax shall be levied at the reduced rate of 15% for enterprises with foreign investment recognized as new and high-technology enterprises established in DZ, from the tax year in which the enterprise is recognized as new and high-technology enterprise.


C. Enterprises with foreign investment recognized as new and high-technology enterprises in the national new and high-technology industrial development zones established upon approval of State Council shall be allowed to select one of either the tax incentives for economic open areas or the tax incentives for industrial development zones; if the new and high-technology industrial development zone is established within coastal economic open areas, the enterprises shall not enjoy both sets of tax incentives.


D. If the enterprises with foreign investment recognized as the new and high-technology enterprises established in DZ consider that accelerated depreciation is necessary for instruments and equipment used for the development of new and high-technology and manufacture of new and high-technology products, they shall make application to the local taxation authorities for examination and verification, then the application shall be presented to the State Administration of Taxation for approval.


Appendix 4


Temporary Regulations for the New Technology Industrial Development Experimental Zone in Beijing


GUO HAN [74] 1988.5.10


Article 1:These Regulations are formulated to promote the direct combination of science and technology with production, to promote the optimization of science and technology with other production elements, to promote the development of technology and the economy, and to support the establishment of the new technology industrial development zone.


Article 2:An export-oriented, open-to-the-outside-world new technology industrial development experimental zone (hereinafter referred to as ′EZ′) shall be established in the area with Zhongguancun street as the center, covering an area of 100 km2 within the Haidian District of Beijing Municipality.


The border line of EZ shall be planned and decided by the People・s Government of Beijing Municipality.


Article 3:The Regulations apply to technology-intensive and knowledge-intensive economic entities engaged in research, development, production and operation of one or more kinds of new technology and new-technology products.


The coverage of new technology and new-technology products shall be decided by the People・s Government of Beijing Municipality according to the directory made by the State Scientific and Technological Commission.


The proportion of new technological income, the proportion of the fund for development and that of the output value of the new products, in terms of the new-technology enterprises, shall be decided by the People・s Government of Beijing Municipality through discussion with the State Scientific and Technological Commission.


Article 4:The new-technology enterprises in EZ shall conduct registration at the Industrial and Commercial Administration Departments, according to the relevant regulations of the State, upon approval by the responsible departments appointed by the People・s Government of Beijing Municipality.


Article 5:The following tax incentives regarding tax exemption and reduction shall be implemented for the new-technology enterprises in EZ:


A. Income Tax shall be levied at the reduced tax rate of 15%. Income Tax shall be levied at the reduced tax rate of 10%, upon examination and verification by the taxation authorities, if the output value of exported products of the enterprise is 40% or more of its total output value for the year.


B. The exemption from Income Tax shall be carried out within the 3 years from the date when the new-technology enterprise is established. A 50% reduction of the tax rate stipulated in the above section shall be carried out from the fourth to sixth years upon approval of the departments appointed by the People・s Government of Beijing Municipality.


C. Upon approval of the People・s Government of Beijing Municipality, the enterprise need not buy the bonds for national key construction projects


D. Exemption from Construction Tax shall be carried out within the 5 years from 1988 for houses used in the production and operation for technological development, established with self raised funds.


The tax exemption and reduction mentioned above apply to enterprises with foreign investment which satisfy the requirements and the standards of new-technology enterprises established in EZ.


Article 6:The investment in infrastructure projects for production and operations in the new-technology enterprise in EZ shall not be calculated into fixed assets investments, if projects are carried out according to the unified construction plan. In this case, the procedure for checking and approval shall be simplified and priority shall be given to construction.


Article 7:An import permit is unnecessary for a new-technology enterprise in EZ to import raw materials, parts and components for manufacturing products for export. Customs shall check and accept according to the contract and the document of approval made by the department appointed by the People・s Government of Beijing Municipality. Upon approval of Customs, bonded warehouses and bonded factories may be set up in EZ, and Customs shall conduct supervision and administration of the imported raw materials, parts and components with reference to the supervision and administration for processing with imported materials; exemption from import duties and Product Tax or Value-Added Tax at import shall be carried out according to the actual processed quantity for export. The exemption from export duty shall be carried out for exported products. Bonded goods to be sold in China must have the approval of the department who has carried out the check and acceptance of the bonded goods, and permission of Customs. In addition, tax shall be levied according to relevant regulations. The document of approval or the import license shall be necessary according to relevant regulations for products whose import is limited by the State or for which an import permit is necessary.


Import duty shall be exempt for 5 years on the imported instruments and equipment which cannot be produced in China if they are used for research and development of new technology by the new-technology enterprises. However, the new-technology enterprises have to present documents of approval, made by the responsible department, to Customs for approval.


Customs may establish an office in EZ or dispatch a supervision group.


Article 8:All the tax money from the exemption from or reduction of taxes shall be taken as the "National Supporting Fund" for enterprises specific use in research and development of new technology and promotion of production. The tax money is not permitted to be used for welfare funds or employee bonuses.


Article 9:Banks shall support the new-technology enterprise in EZ with loans and shall set aside a certain amount from the paid back loans of technological innovation per year to be used for research and development of new technology. Priority in providing foreign exchange loans shall be given to export-oriented new-technology enterprises.


Within 3 years from the year when the Regulations come into effect, banks shall provide a certain amount of special loans per year to be used for the development and construction (including infrastructure construction) of new-technology enterprises in EZ. The special loans cannot be used for other purposes and the bank shall still provide loans for this purpose when the loans are paid back. The bank shall give the EZ a quota of long term bonds per year so that EZ may raise funds from society to support the research and development of new technology


The new-technology enterprise may pay the loans before tax payments, upon approval by the taxation authorities. The limitation on loans that they shall not be used until they have been on deposit in the bank for six months, does not apply to loans which are used for infrastructure construction.


The banks in EZ may draw a certain proportion of the income from interest to establish a risk fund for loans. Chinese-foreign equity risk investment companies may be established in EZ.


Article 10:Import and Export Companies for new-technology products shall be established in EZ, and, the People・s Government of Beijing Municipality shall give qualified new-technology enterprises the right to engage in foreign trade. They shall be responsible for their own profits and losses and shall fulfill the quota in the export plan. Such enterprises may set up branches outside China upon approval of relevant departments in China. The foreign exchange gained from export by the new-technology enterprises shall be totally retained in the enterprises for the first 3 years; from the fourth year, 20% of the foreign exchange shall be allocated to the local government while the remaining 80% may be retained by the enterprises.


Article 11:The People・s Government of Beijing Municipality shall check and approve the first trip abroad made by the commercial and technological personnel if there is more than one trip abroad within one year, since the new-technology enterprise in EZ has a lot of export business and foreign economic and technological communication. As for the subsequent trips, the enterprise shall make the examination and approval independently.


Article 12:Accelerated depreciation shall be adopted for instruments and equipment used for the development of new technology and new-technology products conducted by the new-technology enterprises in EZ.


Article 13:The new-technology enterprises in EZ may set trial prices for newly developed products independently. And the new-technology enterprises may also price new-technology products for which there is no unified price made by the State.


Article 14:Scientific and technological personnel in scientific and technological institutions, colleges and enterprises are encouraged to take part time jobs in new-technology enterprises in EZ. They are also encouraged to establish, take the lead in the establishment of, and contract all kinds of new-technology enterprises or they are encouraged to quit their jobs and work in the new-technology enterprises. The relevant departments shall offer support and help to protect their legal rights.


The new-technology enterprises are allowed to employ graduates from colleges and universities, postgraduates, overseas students and foreign experts.


Article 15:The exemption from the bonus tax shall be carried out for new-technology enterprises in EZ. Tax shall be levied on income of the employees in the enterprises, if the individual income reaches the amount on which tax liability arises.


Article 16:With the tax levied in 1987 as the base, all the excess tax money levied from new-technology enterprises in EZ shall be retained in Haidian District to be used in development and construction of EZ within the 5 years from 1987. The use of the tax money shall be brought under supervision of the taxation authorities and the financial departments in Beijing Municipality.


Article 17:The People・s Government of Beijing Municipality may formulate implementation regulations and specific regulations based on these Regulations.


Article 18:The Regulations shall come into effect on the date of promulgation.


8.7.5 13 coastal cities, counties and towns opening to the outside world


Heihe, Suifenhe, Hunchun, Manzhouli, Eren Hot, Yining, Tacheng, Bole, Pingxiang, Wanding and Hekou cities, Ruili county and Dongxing Town.


Appendix 1


Notice of State Council on Opening to the Outside World Another Four Cities on the Border Such as Heihe City


GUO HAN [21] 1992.3.9


State Council has decided to open to the outside world another four cities on the border, i.e., Heihe City and Suifenhe City in Heilongjiang Province, Hunchun City in Jilin Province and Manzhouli City in Inner Mongolia Autonomous Region.


After Heihe, Suifenhe, Hunchun and Manzhouli Cities on the border open to the outside world, they shall actively develop border trade and local trade with Russia and other countries in the CIS. They shall promote all kinds of economic cooperation such as investment cooperation, technological communication and labor service cooperation and they shall develop the processing industry and the tertiary industry to promote prosperity and stability in the border area.


In the four border cities, the following policies shall be carried out:


A. For border trade and foreign economic cooperation, "Proposals on Active Development of Border Trade and Economic Cooperation to Promote Prosperity and Stability in the Border Areas" (GUO BAN FA [25] 1991) and other relevant regulations approved by State Council shall be implemented. The People・s Governments of provinces and the autonomous region, within their jurisdiction, authorize the People・s Governments of the four cities with certain rights of administration of border trade and economic cooperation. The People・s Governments of the four cities shall check and approve independently, within the authorized rights, the economic contracts regarding border trade, processing and labor service cooperation. The four cities may establish another one or two border trade companies in each city upon approval by the Ministry of Foreign Trade Economic Cooperation (MOFTEC).


B. Processing trade and export-oriented agriculture are encouraged. Exemption from import duty and Product Tax (or Value-Added Tax) shall be conducted on the seeds, seedlings, feed and the related technology and equipment imported to develop export-oriented agricultural products in the Eighth Five-year Plan period, and on machine equipment as well as on other materials imported to process products to be exported and to be used for technological innovation by enterprises.


C. The investment either from within China or from other countries shall be actively absorbed to promote economic development. Currently the first step to take is to introduce investment from countries in the CIS and from within China to develop export trade, simultaneously to lay a solid foundation to absorb investment from foreign investors from other countries and regions than CIS. The People・s Governments of the provinces and the autonomous region may, within their authorities, give the People・s Governments of the four cities more rights in checking and approving foreign investment projects. Enterprise Income Tax shall be levied at the reduced rate of 24% from enterprises with foreign investment upon approval of the local taxation authorities.


Investors from countries in CIS are permitted to use capital goods or other materials and equipment etc. as part of the total investment. Such goods may be sold on a barter basis according to the relevant regulations of China. In this case the Industrial and Commercial Consolidated Tax and the import duty shall be levied at 50% of the normal tax rate.


D. A certain area may be zoned in the city for establishing a border economic cooperation area mainly to attract investment from inland enterprises to set up processing enterprises to export their products to the CIS and enterprises related to the corresponding tertiary industry. The coverage of the border economic cooperation areas shall be checked and approved by the Office of Special Economic Zones of State Council and other relevant departments.


E. The right to import and export to and from the countries in the CIS shall be given to the production joint ventures with inland investment, upon approval of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) engaged in the manufacturing of products mainly for export in the border economic cooperation area, if the production and export volume of the enterprise reaches a certain amount. The export and import scale shall be studied and decided by the Ministry of Foreign Economics and Trade. In the area, Enterprise Income Tax shall be levied at the reduced rate of 24% for joint ventures with inland investment. If inland investors of the joint ventures with inland investment send the allocated profit back inland, Income Tax shall be levied once more at the rate of 9% by the corresponding inland taxation authorities. Exemption from the Investment Orientation Regulation Tax shall be conducted during the Eighth Five-year Plan period.


F. Goods obtained from the barter trade in countries in the CIS by joint ventures with inland investment and enterprises with foreign investment in the border economic cooperation area are permitted to be sold by themselves. On the goods Customs Duty and Industrial and Commercial Consolidated Tax shall be levied at half the normal rate on import. If the goods belong to those whose import is limited by the State, the goods shall go through the procedure for checking and approval according to the relevant regulations when imported.


G. Exemption from import duty and Product Tax (or Value-Added Tax) shall be conducted on machines, equipment and materials for capital construction to be imported for infrastructure construction in border economic cooperation areas. The newly added financial revenue in the border economic cooperation areas shall be retained in the area during the Eighth Five-year Plan to be used for infrastructure construction.


H. During the period of the Eighth Five-year Plan, the People・s Bank of China shall deliver special loans of RMB 40 million yuan for fixed assets per year (RMB 10 million yuan each city) to be used for the construction of the border economic cooperation area. Such loans shall be covered in the national credit and investment plan.


??Appendix 2


Notice of State Council on Opening to the Outside World Nanning and Kunming Cities and Another Five Cities (Town, County) on the Border Such as Pingxiang City etc


GUO HAN [62] 1992.6.9


A. For Nanning and Kunming Cities, the policies for coastal open cities shall be implemented.


B. For Pingxiang City, Dongxing Town, Wanding City, Ruili County and Hekou County, the following policies shall be implemented:


a.The relevant regulations approved by State Council shall be implemented for border trade and foreign economic cooperation. The People・s Governments of Guangxi Zhuang Autonomous Region and Yunnan Province, within their authorities, authorize the People・s Governments of the five cities (counties, town) with certain rights in administration of border trade and in economic cooperation. The People・s Governments of the five cities (counties, town) shall check and approve independently the economic contracts regarding border trade, processing and labor service cooperation within the authorized right. The five cities (counties, town) may establish another one or two border trade companies in each city (county, town) upon approval of the Ministry of MOFTEC.


b.Processing trade and export-oriented agriculture are encouraged. Exemption from import duty and Product Tax (or Value-Added Tax) shall be carried out on the seeds, seedlings, breeding stocks, feed and the related technology and equipment imported to develop the export-oriented agricultural products in the Eighth Five-year Plan period and on machine equipment as well as other materials imported to process products to be exported and to be used for technological innovation by the enterprises.


c.The investment either from within China or from other countries shall be actively absorbed to promote economic development. The People・s Governments of Guangxi Zhuang Autonomous Region and Yunnan Province may, within their authority, give the People・s Governments of the five cities (counties, town) more rights in checking and approving foreign investment projects. Enterprise Income Tax shall be levied at the reduced rate of 24% for enterprises with foreign investment.


d.Investors from neighboring countries are permitted to use capital goods or other materials and equipment etc. as part of the total investment. Such goods may be sold on a barter basis according to relevant regulations of China. Industrial and Commercial Consolidated Tax and import duty shall be levied at 50% of the normal tax rate.


e.The border economic cooperation areas may be established in qualified cities (counties, town) to set up processing enterprises to export their products and set up enterprises related to the corresponding tertiary industry. The coverage of the border economic cooperation areas shall be checked and approved by the Office of Special Economic Zones of State Council and other relevant departments. Exemption from import duty and Product Tax (or Value-Added Tax) shall be carried out on machines, equipment and materials for infrastructure construction as well as the reasonable quantity of office appliances to be imported in the border economic cooperation areas. The newly added financial revenue in the border economic cooperation areas shall be retained in the areas during the Eighth Five-year Plan period to be used for infrastructure construction.


f.The right to import and export to and from neighboring countries shall, upon approval of the Ministry of Foreign Economics and Trade, be given to the production joint ventures with inland investment engaged in the manufacturing of products mainly for export in the border economic cooperation areas, if the production and export volume of the enterprises reaches a certain amount. The export and import scale shall be studied and decided by the MOFTEC. Enterprise Income Tax shall be levied at the reduced rate of 24% in the area from the joint venture with inland investment. If the inland investors of the joint ventures send the allocated profit back inland, the Income Tax shall be levied once more at the rate of 9% by the corresponding inland tax authorities. Exemption from the Investment Orientation Regulation Tax shall be carried out during the Eighth Five-year Plan period.


g.Goods obtained from the barter trade in neighboring countries by the joint ventures with inland investment and enterprises with foreign investment in the border economic cooperation areas are permitted to be sold by themselves. On such goods Customs Duty and Industrial and Commercial Consolidated Tax shall be levied at half the normal rate on import. If the goods belong to those whose import is limited by the State, the goods shall go through the procedure for checking and approval according to relevant regulations when imported.


h.The State shall provide a reasonable amount of subsidy to the five cities (counties, town) for construction of facilities for the Customs trade port. The Ministry of Finance shall check and decide the amount of subsidy and the allocation of the subsidy.


The five cities (counties, town) are permitted to collect management charges on goods going through the trade port (0.6 yuan/ton). The fees from the charges shall be used for the construction of the trade port and maintenance of municipal works of the cities.


i.During the period of the Eighth Five-year Plan, the People・s Bank of China shall deliver special loans of RMB 10 million yuan for fixed assets per year to Wanding City and Ruili County respectively, and those of RMB 20 million yuan to Pingxiang City, Dongxing Town and Hekou County respectively. The above loans shall be used for the construction of the border economic cooperation areas and the border cities. Such loans shall be covered in the national credit and investment plan.


j.The five cities (counties, town) are permitted to import 30 self-use traffic vehicles per year, free of import duties, Value-Added Tax and Special Consumption Tax, from this year on in the period of the Eighth Five-year Plan. The traffic vehicles shall only be used within the area and not allowed to be sold or to be transported to other places. Local Customs are responsible for strict supervision and administration. The departments of foreign economics and trade in Guangxi Zhuang Autonomous Region and Yunnan Province are authorized to check and issue the import permit.


k.Investors are allowed to invest in neighboring countries to establish enterprises outside China according to relevant provisions in Document No.13 [1991] by State Council. Projects with investment less than US$1 million shall be checked and approved within Guangxi Zhuang Autonomous Region and Yunnan Province, and the approval certificate shall be issued by the government at the provincial level authorized by the MOFTEC.


Appendix 3


Notice of the State Administration of Taxation on Clarification of Implementation of Taxation Policies for Enterprises with Foreign Investment in 12 Border Cities Such as Heihe


GUO SHUI HAN [1412] 1992.10.5


To promote the border trade and the local trade of border cities with neighboring countries, State Council successively issued the following documents: Document No. 21 [1992] "Notice of State Council on Opening to the Outside World Another Four Cities Such as Heihe", Document No. 61 [1992] "Reply of State Council to the Questions Regarding New Places Opening to the Outside World in Xinjiang Uygur Autonomous Region", and Document No. 62 [1992] "Notice of State Council on Opening to the Outside World Nanning and Kunming Cities and Another Five Cities on the Border Such as Pingxiang City etc.". According to the above documents, Enterprise Income Tax shall be levied at the reduced tax rate of 24% for enterprises with foreign investment established in the 12 border cities (counties, towns) i.e., Heihe city and Suifenhe City in Jilin Province, Manzhouli City in Inner Mongolia Autonomous Region, Yining City, Bole City and Tacheng City in Xinjiang Uygur Autonomous Region, Pingxiang City and Dongxing Town in Guangxi Zhuang Autonomous Region, Wanding City, Ruili County and Hekou County in Yunnan Province. Recently, some local taxation authorities raised the question of whether or not Enterprise Income Tax shall be levied at the reduced rate of 24% for all the enterprises with foreign investment established in the above cities, and whether or not they shall be production or non-production enterprises. The reply of State Council is that the enterprises which are permitted to pay tax at the reduced rate of 24% in the above 12 border cities (counties, towns ) are only those enterprises with foreign investment of a production nature.


8.7.6 11 Tourist and Holiday Resort Areas


Jinshitan of Dalian City, Shilaoren of Qingdao City, Tai Lake, Zhijiang of Hangzou City, Hengshadao of Shanghai Municipality, Wuyishan of Fujian Province, Meizhou Island, Nanhu of Guangzhou City, Yintan of Beihai City, Dianchi of Kunming City, Yalongwan of Sanya City


Appendix 1


Notice of State Council on the Relevant Points Regarding Trial Establishment of the National Tourist and Holiday Resort Areas


GUO FA [46] 1992.8.17


A. The national tourist holiday resort areas shall be comprehensive tourist areas which can meet the requirements of international holiday tourism and which shall mainly receive foreign tourists. The national tourist holiday resort areas shall have clear borders, shall be located in places where it is suitable to construct centralized complete sets of facilities, where there are rich tourist resources for holiday resorts, where there are a fairly large number of tourists, where transport is easy and where there is a decent environment for opening to the outside world.


B. Tourism is an industry which earns foreign exchange, the development of which is encouraged by the State, therefore, the State issued the following preferential policies for national tourist holiday resort areas:


a.Enterprise Income Tax shall be levied at the reduced tax rate of 24% for enterprises with foreign investment established in the areas; of which the production enterprises with foreign investment scheduled for an operating period of not less than 10 years shall, from the year it begins to make profit, be exempted from Income Tax for the first and second years and allowed a 50% reduction of Income Tax for the third to fifth years.


b.Exemption from duty and the import Industrial and Commercial Consolidated Tax shall be carried out on the following imported goods if they are of reasonable amounts such as building materials, production equipment, operation equipment, traffic vehicles and office appliances for self use which are covered in the total investment by the enterprises with foreign investment in the area, and such as the goods for settling in as well as the self-use traffic vehicles brought in by the resident foreign investors and employees. Customs shall deal with the raw material, parts and components, accessories, auxiliary materials, packaging materials imported for manufacture of export-oriented tourist goods according to the relevant regulations for bonded goods.


c.Exemption from the import duty and Product Tax (Value-Added Tax) shall be adopted on machines, equipment and other materials for infrastructure construction imported for the infrastructure construction in the holiday resort areas.


d.Foreign exchange shops may be established in the area, and the relevant check and approval shall be carried out according to the relevant regulations of the State.


e.Tourist taxi companies using locally made cars may be jointly established in the area with foreign investors. The exemption from the State Car Industry Development Fee, vehicle purchase surcharge and Special Consumption Tax shall be carried out on the locally made cars purchased if they are within the stipulated number. The above regulations also apply to tourist taxi car companies established in the area by local enterprises. These cars can be only used by tourist taxi car companies in the area and shall not be permitted to be sold. The State Planning Commission shall conduct the relevant affairs with the relevant departments.


f.A first class travel agency may be jointly established with foreign investment in the area to do travel business for foreign tourists in the area. The State Tourist Bureau is responsible for the checking, approval and administration of the relevant affairs.


g.The problem regarding the land for development and construction in the area shall be solved according to the "Provisional Regulations of the People・s Republic of China on the Sales and Transfer of the Land Use Right of the State-owned land in Cities and Towns" (Document No.55 [1990] issued by State Council). The funds from the sales of the land shall be retained in the area to be used for construction of the infrastructure within 5 years from the date when the area is approved to be established.


h.All foreign currency earnings from tourism in the area shall be retained in the area to be used for its development within 5 years from the date when the area is approved to be established.


C. Projects of tourist facilities established with foreign investment in the national tourist holiday resort area shall be checked and approved in the provinces, autonomous regions, municipalities and separate planning cities where the areas are located, if the investment amount is within their authority for checking and approval stipulated by State Council. However, the projects of tourist accommodation facilities shall be reported to the State Tourist Bureau, the State Planning Commission and the Ministry of Foreign Trade and Economic Cooperation for their record. If the investment amount is beyond the right for checking and approval at the provincial level stipulated by State Council, the checking and approval shall be conducted according to the relevant regulations of the State. The operation period by the enterprise generally shall not be longer than 30 years for tourist accommodation facilities established with foreign investment.


D. The establishment of the trial national tourist holiday resort areas shall be reported by the local people・s government to State Council for checking and approval.


E. The establishment of trial national tourist holiday resort areas is one important measure to deepen reform, to expand the opening to the outside world, to alter the structure of tourist products, to improve the tourism level and to improve international competition in the tourist industry. The relevant departments of State Council and the relevant local governments shall make an appropriate plan and make the experimental units a success. At the beginning of the establishment of the tourist holiday resort area, the scale shall not be too large, but shall expand gradually.


Appendix 2


Notice of the State Administration of Taxation on Taxation in National Tourist Holiday Resort Areas


GUO SHUI FA [248] 1992.11.10


A. Enterprise Income Tax shall be levied at the reduced tax rate of 24% for enterprises with foreign investment established in the national tourist holiday resort areas, of which the production enterprises with foreign investment scheduled for an operation period of not less than 10 years shall, from the year it begins to make profit, shall be exempted from Income Tax for the first and second years and allowed a 50% reduction of Income Tax from the third to fifth years.


B. The exemption from Industrial and Commercial Consolidated Tax on the following imported goods shall be carried out if they are of a reasonable amount - building materials, production equipment, operation equipment, traffic vehicles and office appliances for self use which are covered in the total investment by enterprises with foreign investment in the national tourist holiday resort area, and such as the goods for settling in as well as self-use traffic vehicles brought in by resident foreign investors and employees. Customs shall deal with the raw materials, parts and components, accessories, auxiliary materials, packaging materials imported for the manufacturing of export-oriented tourist goods according to the relevant regulations for bonded goods.


C. Exemption from import duty and Product Tax (Value-Added Tax) shall be adopted on machines, equipment and other materials for infrastructure construction imported for the infrastructure construction in the holiday resort area.


D. Exemption from Special Consumption Tax shall be carried out on the locally made cars purchased and used, if they are within the stipulated number, by the tourist taxi car companies inside the national tourist holiday resort areas. The cars can only be used by the tourist taxi car companies in the area and shall not be sold.


E. Tax incentives already implemented in the region where the national tourist holiday resort area is located shall be continued in the national tourist holiday resort area.


F. Exemption from and reduction of Enterprise Income Tax mentioned above shall begin from 1992, while exemption from and reduction of Industrial and Commercial Consolidated Tax, Product Tax, Value-Added Tax and Special Consumption Tax shall begin on September 1, 1992.


8.7.7 13 Bonded Areas


Futian and Shatoujiao in Shenzhen City, Shantou, Xiamen, Haikou, Dalian, Tianjin, Qingdao, Zhangjiagang, Waigaoqiao, Ningbo, Fuzhou and Guangzhou


Appendix 1


Notice of the State Administration of Taxation on Taxation in Tianjin Bonded Area


GUO SHUI HAN [1123] 1991.8.14


A. The Enterprise Income Tax shall be levied at the reduced tax rate of 15% for production enterprises with foreign investment engaged in processing products for export in the bonded area.


B. The following provisions shall be carried out regarding Industrial and Commercial Consolidated Tax, Product Tax (or Value-Added Tax) on the imported or exported goods in the Tianjingang Bonded Area:


a.Exemption from the Industrial and Commercial Consolidated Tax, Product Tax (or Value-Added Tax) shall be carried out on goods coming into the bonded area from abroad except for those for which the State has made other regulations;


The Industrial and Commercial Consolidated Tax or Product Tax (Value-Added Tax) shall be levied according to the relevant regulations when the goods which entered the bonded area free of import duty are transported out of the bonded area to other places.


b.Exemption from Industrial and Commercial Consolidated Tax on production shall be carried out, or already levied Product Tax ( Value-Added Tax ) shall be refunded, on goods coming from other than bonded areas into bonded areas and which are qualified for export and are actually exported unless, otherwise stipulated by the State.


c.The following tax incentives shall be enjoyed on products manufactured in enterprises in the bonded area except when there are other regulations by the State:


Exemption from Industrial and Commercial Consolidated Tax or Product Tax (Value-Added Tax) of production shall be carried out when the products are exported;


Industrial and Commercial Consolidated Tax or Product Tax (Value-Added Tax), shall be levied according to the relevant regulations when the products are approved for transport into other than bonded areas;


Exemption from the Industrial and Commercial Consolidated Tax or Product Tax (Value-Added Tax) of production shall be adopted when the products are sold in the bonded area.


8.7.8 4 investment areas for Taiwan investors


Xiamen: (3)


Xinglin, Haicang, Jimei


Fuzhou: (1)


Mawei


Appendix 1


Notice of the State Administration of Taxation on Exemption from and Reduction of Enterprise Income Tax and Industrial and Commercial Consolidated Tax in the Investment Areas for Taiwan Investors in the Coastal Area in Fujian Province


GUO SHUI HAN [520] 1990.5.25


A. Taiwan-involved equity joint ventures, contractual joint ventures and enterprises wholly owned by Taiwan investors (hereinafter referred to as ′TI enterprises′) established by Taiwan investors in the investment area for Taiwan investors at Xinglin and Haicang under administration of Xiamen City (hereinafter referred to as ′Xiamen IATI′) may enjoy the relevant tax incentives for Xiamen Special Economic Zone:


a.Enterprise Income Tax shall be levied at the reduced rate of 15% on income derived from production, operation or other business carried out by TI enterprises established in Xiamen IATI. Of the TI enterprises:


Ⅰ. those engaged in industry, transport and communication, agriculture, forestry and animal husbandry etc., and with an operating period of not less than 10 years may, upon approval of their applications by the taxation authorities in Xiamen City, enjoy exemption from Enterprise Income Tax for the first and second years from the first profit making year and a reduction in Enterprise Income Tax by 50% from the third to the fifth year;


Ⅱ. those engaged in tertiary industries and with investment from Taiwan investors exceeding US $ 5 million and the operation period not less than 10 years may, upon approval of their applications by the tax authority in Xiamen City, enjoy exemption from Enterprise Income Tax for the first profit making year, and a reduction in Enterprise Income Tax by 50% for the second and third years.??


b.The People・s Government of Xiamen City shall decide on exemption from and reduction of local Income Tax for the TI enterprises in the investment areas for Taiwan investors.


c.Exemption from Income Tax shall be carried out for the remittance outside the mainland of the profits allocated to the Taiwan investors from the equity joint ventures in the investment areas for Taiwan investors.


d.Income Tax shall be levied at the reduced rate of 10% on income from dividends, interest, rentals, royalties and other sources in Xiamen IATI obtained by Taiwan investors who have no establishments on the Mainland except where tax exemption are carried out according to tax laws. The People・s Government of Xiamen City shall make decisions on more favorable tax exemption and reduction for Taiwan investors who provide capital or equipment on terms preferential to the Mainland or whose transferred know-how is advanced


e.The exemption from Industrial and Commercial Consolidated Tax shall be carried out on such goods as machine equipment, raw materials, parts and components, traffic vehicles and other production goods necessary for production imported by TI enterprises in Xiamen IATI. Industrial and Commercial Consolidated Tax shall be levied according to the regulations on traffic vehicles and durable consumer goods whose import are limited by the State. Industrial and Commercial Consolidated Tax shall be levied at 50% of the normal rate according to the tax laws on imported mineral oil, cigarettes, wines and other things for daily use. Industrial and Commercial Consolidated Tax shall be exempt for cigarettes, wines, luggage, goods for settling in brought in with the Taiwan investors if they are in reasonable quantity.


f.Industrial and Commercial Consolidated Tax shall be exempt on products for export manufactured by TI enterprises in Xiamen IATI except for crude oil, finished oil and other products for which there are particular regulations by the State.


g.Industrial and Commercial Consolidated Tax shall be levied at 50% of the normal rate according to the tax laws on such products as mineral oil, cigarettes and wines produced by TI enterprises in Xiamen IATI if they are sold within Xiamen IATI. The People・s Government of Xiamen City may make decisions independently as to whether to levy Industrial and Commercial Consolidated Tax at the normal rate or at the reduced rate on certain products. As for the rest of the products, Industrial and Commercial Consolidated Tax shall be exempt.


h.Industrial and Commercial Consolidated Tax shall be levied according to the tax laws on imported goods on which exemption from and reduction of Industrial and Commercial Consolidated Tax are carried out and on products manufactured in Xiamen IATI if they are transported into inland areas by TI enterprises in Xiamen IATI. Industrial and Commercial Consolidated Tax shall be exempt on luggage brought along with Taiwan investors from Xiamen IATI into inland areas if it is a reasonable amount.


i.Industrial and Commercial Consolidated Tax shall be levied at the rate stipulated in the tax laws on income obtained by TI enterprises in Xiamen IATI from commerce, transport and communication, and services. Industrial and Commercial Consolidated Tax shall be levied at the rate of 3% on income obtained from banking and insurance. The People・s Government of Xiamen City is responsible for making decisions to give enterprise tax incentives regarding fixed term exemption from and reduction of Industrial and Commercial Consolidated Tax if it is considered necessary for enterprises to be given the tax incentives at the beginning of the establishment.


B. Taiwan involved equity joint ventures, contractual joint ventures and enterprises wholly owned by Taiwan investors engaged in manufacturing (shortened to TI enterprises) established by Taiwan investors in the investment areas for Taiwan investors set up in Mawei Economic and Technological Development Zone in Fuzhou (shortened to Fuzhou IATI below) may enjoy the relevant tax incentives for the Economic and Technological Development Zone:


a.Enterprise Income Tax shall be levied at the reduced rate of 15% on income derived from production, operation or other business carried out by the TI enterprises established in Fuzhou IATI. The TI enterprise scheduled for a period of operation not less than 10 years may, upon approval of their applications by the taxation authorities in Fuzhou City, be exempted from Enterprise Income Tax for the first and second years from the first profit making year and allowed a 50% reduction of Enterprise Income Tax from the third to the fifth year.


b.The People・s Government of Fuzhou City shall make decisions on exemption from and reduction of local Income Tax for the TI enterprises in Fuzhou IATI.


c.Exemption from Income Tax shall be carried out on the remittance outside the mainland of the profits allocated to Taiwan investors from the equity joint ventures in Fuzhou IATI.


d.Income Tax shall be levied at the reduced rate of 10% on income from dividends, interest, rentals, royalties and other sources in Fuzhou IATI obtained by Taiwan investors who have no establishments on the Mainland except for cases in which tax exemption shall be carried out according to the tax laws. The People・s Government of Fuzhou City shall make decisions on more favorable tax exemption and reduction for Taiwan investors who provide capital or equipment on terms preferential to the Mainland or whose transferred know-how is advanced.


e.Industrial and Commercial Consolidated Tax shall be exempt on building materials, production equipment, raw materials, parts and components, traffic vehicles and office appliances imported by TI enterprises in Fuzhou IATI for their own use. Industrial and Commercial Consolidated Tax shall be levied according to the regulations on imported raw materials, parts and components, free of import duties with which TI enterprises in Fuzhou IATI process products and the processed products are for sale in inland areas.


f.Industrial and Commercial Consolidated Tax shall be exempt on products for export manufactured by TI enterprises in Fuzhou IATI except for crude oil, finished oil and other products for which there are other particular regulations by the State. Tax shall be levied at the normal rate on products to be sold in inland areas.


g.Industrial and Commercial Consolidated Tax shall be exempt according to documentary evidence by the Administration Committee of Fuzhou IATI on goods for settling in and traffic vehicles brought along into the Mainland by Taiwan investors or employees for their own use who work in TI enterprises in Fuzhou IATI or live in Fuzhou IATI if the goods brought in are of a reasonable quantity.


C. The tax incentives for TI enterprises shall also apply to foreign companies, enterprises and other economic organizations in Xiamen or Fuzhou IATI.


D. The date when the Notice comes into effect shall be decided by the People・s Governments of Fuzhou City and Xiamen City respectively.


8.7.9 Shanghai Pudong New Area:(1)


??Appendix 1


Notice of the Ministry of Finance on Issuing the "Regulations on Exemption from and Reduction of Income Tax and Industrial and Commercial Consolidated Tax to Encourage Foreign Investment in Shanghai Pudong New Area"


CAI SHUI ZI [20] 1990.9.27


The Regulations on Exemption from and Reduction of Income Tax and Industrial and Commercial Consolidated Tax to Encourage Foreign Investment in Shanghai "Pudong New Area".


Article 1:The Regulations were specially formulated to promote foreign economic cooperation and technological communication, promote absorption of foreign investment, introduce advanced technology and speed up of the development and construction in Pudong New Area in Shanghai (hereinafter referred to as ′Pudong New Area′).


Article 2:Enterprise Income Tax shall be levied at the reduced rate of 15% on income derived from production, operation and other business carried out by production Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises established in Pudong New Area. The enterprises whose operation period is no less than 10 years may, upon approval of their applications by the taxation authorities, enjoy exemption from Enterprise Income Tax for the first and second years from the first profit making year and a reduction of Enterprise Income Tax by 50% from the third to the fifth year.


Article 3:For export-oriented enterprises, upon expiration of the tax exemption and reduction period stipulated in the Tax Law, if the values of their exported products for the year exceeds 70% of the total value of their products for the year, Enterprise Income Tax shall be levied at the reduced rate of 10%. Technologically advanced enterprises may, upon the expiration of the enterprise Income Tax exemption and reduction period as stipulated in the Tax Law, pay Enterprise Income Tax at the reduced rate of 10% for another 3 years if they remain technologically advanced enterprises.


Article 4:Enterprise Income Tax shall be levied at the reduced rate of 15% for enterprises with foreign investment who are engaged in the construction of such energy and transportation projects as airports, ports, railways, highways and power stations, etc.; enterprises with an operation period exceeding 15 years may, upon approval of their application by the Shanghai Municipal Taxation authorities, enjoy exemption from Enterprise Income Tax from the first profit making year to the fifth year, and reduction of Enterprise Income Tax by 50% from the sixth to the tenth year.


Article 5:Enterprises with foreign investment engaged in the construction of infrastructure on a fairly large piece of land for its own projects shall enjoy tax incentives for the production enterprises listed in Article 2 of the Regulations upon approval of their applications by the taxation authorities.


Article 6:Financial institutions such as foreign banks, branches of foreign banks, Chinese-foreign equity banks and financial companies with paid-in capital from foreign investors or operating funds appropriated by the head office of the foreign bank to their branch in China exceeding US$ 10 million and with the operation period lasting for 10 years or more may, upon approval of their applications by the relevant taxation authorities, enjoy reduction of the tax rate to 15% for Enterprise Income Tax on business income and exemption from Enterprise Income Tax for the first profit making year and reduction of Enterprise Income Tax by 50% for the second and third years.


Article 7:Industrial and Commercial Consolidated Tax shall be levied at the rate of 3% on income from loan business carried out by such financial institutions as foreign banks, branches of foreign banks, Chinese-foreign equity banks and financial companies. Industrial and Commercial Consolidated Tax shall be levied at the rate of 5% on income from other financial business.


Article 8:Any foreign investor who reinvests his share of profit from the enterprise directly into that enterprise or in other enterprises with foreign investment, the operation period with the reinvested capital being not less than 5 years, shall, upon approval by the taxation authorities of the applications by the investors, be refunded 40% of Income Tax already paid on the reinvested amount. Any foreign investor who reinvests to establish and expand export-oriented enterprises or technologically advanced enterprises with an operation period not less than 5 years shall be refunded all Income Tax already paid on the reinvested amount.


Article 9:Exemption from the Income Tax shall be carried out on the profit remitted outside China allocated to the foreign investors from the Chinese-foreign equity joint ventures.


Article 10:Income Tax shall be levied at the reduced rate of 10% on income from dividends, interest, rentals, royalties and other sources in Pudong New Area obtained by foreign investors who have no establishments in China except where tax exemption is carried out according to tax laws. The People・s Government of Shanghai Municipality shall decide on more favorable tax exemption and reduction for foreign investors who provide capital or equipment on terms preferential to China or whose transferred know-how is advanced.


Article 11:Industrial and Commercial Consolidated Tax shall be exempt on products for export manufactured by enterprises with foreign investment except for crude oil, finished oil and other products for which there are particular regulations by the State.


Article 12:Enterprises with foreign investment shall enjoy exemption from Industrial and Commercial Consolidated Tax on building materials, equipment for production and management, parts and components, traffic vehicles, office appliances, raw materials and auxiliary materials for production imported by the enterprises with foreign investment for their own use.


Industrial and Commercial Consolidated Tax shall be levied from enterprises with foreign investment for the raw materials, parts and components, and packaging materials free of tax at import with which products are made and sold in inland areas.


Article 13:Foreigners working in the enterprises in Pudong New Area or living in Pudong New Area shall be exempted from Industrial and Commercial Consolidated Tax on goods for settling in and traffic vehicles brought in with them if the goods are in a reasonable quantity.


Article 14:The People・s Government of Shanghai Municipality shall decide whether to grant exemption from or reduction of local Income Tax for enterprises with foreign investment or exemption from and reduction of house property tax on the newly built houses built up or purchased for their own use for enterprises with foreign investment.


Article 15:The Regulations shall also apply to enterprises and projects established with investment of the companies, enterprises and other economic organizations or individuals from Hong Kong, Macao or Taiwan.


Article 16:The Regulations shall come into effect on October 1, 1990.


Article 17:The State Administration of Taxation is responsible for interpretation of the Regulations


8.7.10 Suzhou Industrial Park: 1


??Appendix 1


Notice of the State Administration of Taxation on Taxation in Suzhou Industrial Park


GUO SHUI HAN [128] 1995.3.27


A. According to the provisions in "Reply to the Relevant Questions About Development and Construction of Suzhou Industrial Park" (Document No. 9 [1994]) made by State Council (hereinafter referred to as ′Reply′), enterprises with foreign investment engaged in construction projects for infrastructure facilities regarding communication and energy resources such as the construction of ports, docks, railways, highways and power stations shall enjoy Enterprise Income Tax payment at the reduced rate of 15% according to Section 1 of Article 7 in the "Income Tax Law of the People・s Republic of China on Enterprises with Foreign Investment and Foreign Enterprises". The enterprise income tax shall be levied at the reduced rate of 15% from enterprises with foreign investment engaged in the projects mentioned above outside the Suzhou Industrial Park and in Suzhou City if they conform to the provision in Item 1 of Section 1 in Article 73 of the Detailed Rules and Regulations for the Implementation of the Tax Law, upon approval of the applications of the enterprises by the State Administration of Taxation.


B. On the basis of the existing tax incentive policies of the State, Chinese-foreign equity joint ventures engaged in construction of ports and docks in Suzhou city shall enjoy exemption from Enterprise Income Tax for 5 years from the first profit making year and a 50% reduction of the Enterprise Income Tax for the following 5 years according to Item 1 of Section 1 in Article 75 of the Detailed Rules for the Tax Law. The enterprises with foreign investment engaged in construction projects regarding communication, energy resources and infrastructure such as railways, highways, power stations and the accessory facilities in Suzhou Industrial Park shall enjoy a fixed term exemption from and reduction of Income Tax according to Section 1 of Article 8 in the Tax Law. However for the few very large scale and special projects which are considered to need more tax incentives, the enterprise may file a report to the relevant taxation authorities for approval according to the provisions in Article 3 of the Reply.


C. Chinese-Singapore Equity Development Company responsible for the development and construction of Suzhou Industrial Park and mainly engaged in the construction of infrastructure and public facilities in the Park may enjoy tax incentives applying to the production enterprises with foreign investment established in Economic and Technological Development Zones.


8.7.11 Hainan Special Economic Zone


??Appendix 1


Regulations of State Council on Encouraging Investment to Develop Hainan Island


GUO FA [26] 1988.5.4


Article 1:


The Regulations have been formulated to absorb investment from abroad and to speed up the development and construction of Hainan Island.


Article 2:


The State shall give more flexible and open economic policies to the Hainan Special Economic Zone and the People・s Government of Hainan Province shall be granted more independent rights.


Article 3:


The State encourages enterprises, other economic organizations or individuals from home and abroad (hereinafter referred to as ′investors′) to invest in the development of Hainan Island, to set up all kinds of economic and social establishments.


Article 4:


The State shall protect the legal right of the investors according to laws and shall not nationalize or requisition the assets of the investors. In special cases, to meet the requirement of social public welfare, the State may requisition the assets of the investors according to legal procedures and shall give corresponding compensation.


Investors shall abide by laws and regulations of China.


Article 5:


Investors may make investments on Hainan Island in the following forms.


A. establishing Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign owned enterprises, as well as other types of enterprises permitted by the laws. The operation periods of various enterprises shall be decided in the contract signed by all sides or shall be approved by relevant responsible departments;


B. purchasing securities such as stocks, bonds etc.;


C. operating enterprises by contracting or renting them;


D. investing in other forms of international conventional investment, conducting economic and technological cooperation and communication.


Article 6:


Compensated use of land is adopted on Hainan Island.


The People・s Government of Hainan Province may sell the right to use State-owned land to investors according to the laws. The agreement period for the land use right shall be decided according to particular cases regarding the differences in industries and projects. The longest period is 70 years. If the land still needs to be used upon the expiration of the period, it may be extended upon approval.


Investors may conduct paid transfer of the obtained land use right according to relevant regulations in China.


Article 7:


Paid mining shall be adopted, according to law, for the mineral resources on Hainan Island. The mining of the particular mineral resources stipulated by the State shall be reported to the responsible department of the State for approval, while the People・s Government of Hainan Province shall make approvals of the mining of other mineral resources. Investors are permitted to explore and mine the mineral resources in the forms of equity joint ventures, contractual joint ventures and wholly foreign owned enterprises.


Article 8:


Investors may make investment and engage in infrastructure construction such as construction of ports, docks, airports, highways, railways, power stations, coal mines and water conservancies in equity or contractual forms. They may also operate particular facilities in a wholly owned form. They may, according to relevant regulations of the State, invest in all kinds of enterprises and services related to the above mentioned projects, conducting comprehensive operations.


Article 9:


To meet the requirement of economic development, foreign banks, Chinese-foreign equity banks or other financial institutions may be established in Hainan Island upon approval by the People・s Bank of China.


Article 10:


The People・s Government of Hainan Province shall check and approve all economic and social establishments to be set up on Hainan Island. But if the industries in which the investment is made, and the total investment amount are beyond the jurisdiction given by the State to the People・s Government of Hainan province, the investment shall go through the procedure for reporting and approval stipulated by the State.


Article 11:


The People・s Government of Hainan Province shall check and approve the import of building materials, equipment for production and management, raw materials, parts and components, packaging materials and other materials for production and operation as the investment of the enterprises approved to be established, as well as traffic vehicles and office appliances for own use.


Article 12:


Enterprise Income Tax shall be levied at the tax rate of 15% on income from production, operation and from other business carried out by the enterprises established on Hainan Island (except for the national banks and insurance companies); from the above enterprises, local Income Tax shall be levied at 10% of the tax payable. Of the enterprises:


A. those engaged in development and operation of infrastructure construction such as ports, docks, airports, highways, railways, power stations, coal mines and water conservancies with the operation period exceeding 15 years shall enjoy exemption from Income Tax from the first profit making year to the fifth year, and a reduction of Income Tax by 50% from the sixth year to the tenth year;


B. those engaged in production sectors such as industry, transportation and communication with the operation period over 10 years shall enjoy exemption from Income Tax for the first and second years from the first profit making year, and a reduction of Income Tax by 50% from the third to the fifth years; and if the enterprises are recognized as technologically advanced enterprises by the People・s Government of Hainan Province, they shall further enjoy a reduction of Income Tax by 50% from the sixth to the eighth year.


C. those engaged in production sectors such as industry and agriculture shall pay Enterprise Income Tax at the reduced rate of 10% for the year, upon the expiration of the tax exemption and reduction period stipulated according to the regulations, if the output value of the products for export in the enterprise is over 70% of the total output value that year;


D. those engaged in tertiary industry with a total investment over US $ 5 million or RMB 20 million yuan and with an operation period exceeding 10 years shall enjoy exemption from Income Tax for the first profit making year, and a reduction of Income Tax by 50% for the second and third years.


The People・s Government of Hainan Province shall make decisions on whether to give tax incentives i.e. exemption from and reduction of local Income Tax to enterprises on Hainan Island.


Article 13:


Income Tax shall be levied at the reduced rate of 10% on income from dividends, interest, rentals, royalties and other sources on Hainan Island obtained by foreign investors who have no establishments on Hainan Island except for cases in which tax exemption shall be carried out according to the tax laws. The People・s Government of Hainan Province shall make decisions on more favorable tax incentives of tax exemption and reduction for the foreign investors who provide capital or equipment on terms preferential to China or whose transferred know-how is advanced.


Article 14:


On Hainan Island, enterprises with foreign investment and enterprises 25% of whose stocks are held by foreign investors, shall enjoy import and export operation right to import the goods necessary for production in the enterprises and to export the products self manufactured, while other enterprises shall also enjoy the same kind of import and export operation right upon approval of the People・s Government of Hainan Province.


Article 15:


Enterprises on Hainan Island shall be exempted from Customs Duty, Product Tax or Value-Added Tax on imported machine equipment, raw material, parts and components, traffic vehicles and other materials as well as office appliances necessary for the construction and production in the enterprises.


The enterprises on Hainan Island shall enjoy a reduction of import duties, Product Tax or Value-Added Tax by 50% on imported goods to be sold in the market in the Island.


Article 16:


The State encourages the enterprises on Hainan Island to export their own products. The enterprises shall be exempt from export Customs Duty on exporting products and shall be refunded the already levied Product Tax or Value-Added Tax except for crude oil, finished oil and a few other products for whose export there are other particular regulations by the State.


Article 17:


The enterprises on Hainan Island shall enjoy exemption from Product Tax or Value-Added Tax on products they produced and sold at the market in the island, except for mineral oil, cigarettes and wines and a few other products for which there are particular regulations by the People・s Government of Hainan Province. On these products, the Product Tax or Value-Added Tax shall be levied at 50% of the normal rate. On the products with import materials and components, the Customs Duty, Product Tax or Value-Added Tax shall be levied or remitted according to Article 15.


The enterprises shall enjoy independence in selling the products they have made at other places in China except for products whose import is limited by the State, thus needing to be checked and approved according to the relevant regulations by the State. However, the Product Tax or Value-Added Tax shall be levied according to the tax laws and regulations. As for the products with imported materials and components, the Customs duty, Product Tax or Value-Added Tax shall be levied on the imported materials and components according to Article 15.


If the products of the enterprises with foreign investment sold in inland areas are in conformity to the import substitution regulations by the State, enterprises with foreign investment on Hainan Island may apply for "import substitution"


Article 18:


The spot exchange from foreign exchange earnings obtained from export of products or other operation activities by the enterprises on Hainan Island may be retained according to the regulations made by the local branch of the People・s Bank of China.


Enterprises may regulate the foreign exchange supply and demand at the foreign exchange regulation market on Hainan Island and other places to keep a balance between income and expenditure.


Article 19:


The foreign investors may remit profits allocated from the enterprises established on Hainan Island outside China freely through the foreign exchange deposit account of the enterprises and shall be exempted from Income Tax.


Any foreign investor who reinvests its share of profit from the enterprise on Hainan Island in China, the operation period with the reinvested capital being not less than 5 years, shall be refunded 40% of the Income Tax already paid on the reinvested amount. Foreign investors who reinvest in infrastructure construction, agricultural development enterprises, export-oriented enterprises or technologically advanced enterprises on Hainan Island shall be refunded all the Income Tax already paid on the reinvested amount.


Any local investor may remit the profit allocated from the enterprise in Hainan Island freely to other places in China. Income Tax shall not be levied on profit allocated to other places in China within 10 years from the first profit making year.


Article 20:


The foreigners, from countries or regions which have diplomatic relationships or official trade relations with China, who come to Hainan Island to attend the negotiations concerning investment and trade to conduct economic and technological communication, to visit relatives or to tour may, provisionally, go through the entry procedures at Haikou or Sanya pass, if the period of stay is no more than 15 days. If the foreigner has justifiable reasons for staying longer on


Hainan Island or for going to other places in China, he may apply for a visa extension.


The resident foreigners on Hainan Island, the foreigners investing to establish enterprises or taking part in development or construction work and their families may apply to the relevant departments of the People・s Government of Hainan Province for multi-entrance visas to Hainan Island.


Article 21:There is no need for compatriots from Hong Kong, Macao and Taiwan and Overseas Chinese to get their passport stamped when going to Hainan Island or other places in China or going outside China if they hold a valid passport or other valid certificate signed by the relevant departments of State Council or by institutions authorized by State Council. Compatriots from Taiwan may go directly to the Hainan Island pass for "Traveling Certificate for Taiwan Compatriots".


The People・s Government of Hainan Province is authorized to check and approve personnel to go abroad sent by the local enterprises in Hainan Province to establish, outside China, economic, trade and traveling offices or enterprises except for cases in which there are other regulations by the State.


Article 22:The People・s Government of Hainan Province may deal with problems not covered in this Regulations according to the relevant regulations for Special Economic Zones by the State.


The implementation of the Regulations shall be formulated by the relevant responsible departments of State Council and the People・s Government of Hainan Province.


Article 23:The Regulations shall be implemented from the date they are promulgated.


??Appendix 2


Notice of the State Administration of Taxation on Implementation of Provisions Regarding Taxation in "Regulations of State Council on Encouraging Investment to Develop Hainan Island"


GUO SHUI WAI ZI [176] 1988.7.13


A. The ′enterprises established on Hainan Island′ mentioned in Article 12 of the Regulations and the ′enterprises on Hainan Island′ mentioned in Articles 15, 16 and 17 include enterprises with foreign investment, State-owned enterprises, collective-owned enterprises, joint ventures and stock companies established in Hainan Island.


B. The provisions regarding exemption from and reduction of enterprise income tax from Section 1 to Section 4 in Article 12 of the Regulations shall apply to the enterprises established in 1988 and thereafter, also to the infrastructure projects started before 1988 but still not finished. Before the promulgation of the Regulations, the already established enterprises on Hainan Island which have enjoyed fixed term exemption from and reduction of Enterprise Income Tax, may continue to do so through to the end of the period according to the original regulations.


C. The ′over 70%′ in the sentence ′the output value of the products for export of the enterprises is over 70% of the total output value that year′ in Section 3 of Article 12 in the Regulations should include 70%. The enterprises shall have to present documentary evidence for export-oriented enterprises given by the departments in charge of examination and verification to the local tax authorities for examination and verification. The enterprises shall not enjoy the payment of Enterprise Income Tax at the reduced rate of 10% that year until the local taxation authorities make approval.


D. Any enterprise established on Hainan Island is not permitted to pay loans with tax or to pay loans with profit before payment of tax. The enterprise who has already been approved to pay loans with tax or pay loans with pretax profit may continue to enjoy preferential treatment through to the end of the approved period.


E. The existing regulations concerning Product Tax, Value-Added Tax and Business Tax shall be applied to all the taxes levied from the enterprises in Hainan Island according to the turnover of commodities and non-commodities.


F. ′Raw material′ in Article 15 in the Regulations includes fuel, building material as well as tableware and materials for catering services.


F. The ′goods′ in the ′imported goods to be sold in the market in the island′ in Section 2 of Article 15 in the Regulations include goods imported for the self use of the enterprises or for the daily life of the employees. The relevant existing regulations shall be adopted for articles for their own daily use brought along by foreign investors or individuals.


H. Except for crude oil, finished oil and a few products for whose export there are other regulations by the State, on which the Product Tax or Value-Added Tax shall be levied according to the regulations and shall not be refunded at export, on the other products manufactured by enterprises on Hainan Island for export, the already levied Product Tax or Value-Added Tax shall all be refunded according to the principle "the amount levied is the amount refunded" when the products are declared at Customs and leave China.


I. On products manufactured by enterprises on Hainan Island and sold in the market on Hainan Island, the Product Tax or Value-Added Tax shall be exempt according to Article 17 in the Regulations. However, if they are import duty free materials or product components, the Product Tax or Value-Added Tax shall be levied on such materials or components according to Section 2 of Article 15 in the Regulations if the products are sold in the market on Hainan Island.


J. Business Tax shall be levied, according to the regulations on Business Tax, on business income obtained by enterprises on Hainan Island from such industries as commerce, service and transportation & communication, in which the enterprises are engaged.


For original enterprises with foreign investment engaged in commerce, service and transportation & communication, etc., on Hainan Island, if the rate of Business Tax, which has taken the place of Industrial and Commercial Consolidated Tax, is higher than the former rate of Industrial and Commercial Consolidated Tax, the former tax rate shall remain unchanged, and shall be carried out through to the end of the approved operation period (not including the lengthened period


The People・s Government of Hainan Province shall make decisions on whether or not to offer tax incentives to enterprises on Hainan Island which need exemption from and reduction of Business Tax.


K. Construction tax shall be exempt on construction projects carried out with self raised investments in Hainan Province from 1988 to the end of 1995.


L. The funds for major projects in energy and transportation construction shall be collected from enterprises and institutions on Hainan Island according to the existing regulations. The People・s Government of Hainan Province shall make decisions for enterprises or institutions who need exemption from and reduction of the fund payments.


M. The exemption from and reduction of Income Tax mentioned in the Regulations shall start from tax year 1988, and the exemption from, reduction of and refund of the Product Tax or Value-Added Tax shall start on May 1, 1988 except for cases in which regulations were made earlier.


8.8 Taxation for enterprises in the Special Economic Zones engaged in contracted operation of offshore oil exploration and development or in providing relevant services


A. All taxes shall be levied according to tax regulations in the Special Economic Zones from enterprises established or registered in the Special Economic Zones if the place for production or operation of the enterprises is in the Special Economic Zones and the operation income is also from within the Special Economic Zones.


B. All taxes shall be levied according to the unified tax regulations in the inland areas from enterprises established or registered in the Special Economic Zones if the actual operation place of the enterprise is outside the Special Economic Zones and the operation income is also outside the Special Economic Zones (including the sea and continental shelf of China).


C. All taxes shall be levied according to relevant tax regulations in the Special Economic Zones and the unified tax regulations in inland areas respectively for enterprises established or registered in the Special Economic Zones, if the operation places of the enterprises are located both in and outside the Special Economic Zones while the operation income is both from within or from outside the Special Economic Zones, on the basis of clear separation of the operation income from within the Special Economic Zones from that derived from outside the Special Economic Zones.


(CAI SHUI ZI [271] 1983.9.9)



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