Preferential Policy

(1) Enterprise Income Tax

For foreign-invested enterprises established in special economic zones, foreign-invested enterprises that establish institutions and sites to produce and manage in special economic zones and productive foreign-invested enterprises established in the development zones, the income tax will be levied in accordance with tax rate at 15% discount.

For p roductive foreign-invested enterprises established in the old urban districts of the cities where the coastal economic open zones, special economic zones and the development zones lie, the income tax will be levied in accordance with tax rate at 24% discount.

For foreign-invested enterprises engaged in projects of energy sources, traffic, harbors and wharfs, the income tax can be levied in accordance with tax rate at 15% discount with the approval of the State Administration of Taxation.

For foreign-invested enterprises, if their management period is over ten years, they can be free of income tax for the first two years from the year they make profits. From the third to fifth year they will be only levied half of the inc ome tax. However, for such enterprises engaged in the resources exploitation projects of petroleum, natural gas, rare metal and precious metal etc, their income tax is prescribed by the State Department separately.

Chinese-Foreign Equity Joint Venture engaged in the construction of ports and wharfs, if their management period is over fifteen years, after the application of the enterprises and with the approval of tax departments of the prov inces, autonomous regions, or municipalities directly under the Central Government where the enterprises locate, they can be free of the income tax for the first five years from the year they make profits. From the sixth to tenth year they can be only levied half of the income tax.

For foreign-invested enterprises engaged in agriculture, forestry and animal husbandry, and the foreign-invested enterprises established in the undeveloped jumping-offs, after expiration of their enjoying tax-free and tax-reduction, their income tax can be levied in accordance with ratal at 15% to 30% discount in the following ten years after the application of the enterprises and with the approval of the department in charge of tax in the State Departments.

For foreign-invested and managed enterprises whose products are for export, after expiration of their enjoying tax-free and tax-reduction according to the regulations of tax law, if the output value of export they provide goes beyond 70% of the total output value of the same year, their income tax can be levied in accordance with the tax rate at 50% discount stipulated by tax law that year. However, for product export enterprises who are established in special economic zones or economic development zones, or have paid the income tax in accordance with 15% of tax rate, if they accord with the conditions above mentioned, their income tax will be levied in accordance with 10% of tax rate.

For foreign-invested and managed enterprises of advanced technology, after expiration of their enjoying tax-free and tax-reduction according to the regulations of tax law, if they are still enterprises of advanced technology, their income tax can be levied in accordance with the tax rate at 50% discount stipulated by tax law for three prolonged years.

If loss incurs in the institutions and sites established by foreign-invested enterprises and foreign enterprises within the boundaries of China to produce and manage, they can make up the loss with the income of the next taxpaying year. And if the income of the next taxpaying year is not enough to meet the loss, the enterprises can continue making up the loss with the income year after year, however, it can't go beyond five years.

(2) Individual Income Tax

As to individuals of foreign nationalities working in the foreign-invested enterprises and foreign enterprises within the boundaries of China , their income for which they should pay tax can be reduced by 3200 Yuan on 800 Yuan reduction.

(3) Profit

The profits that foreign investors make from foreign-invested enterprises are free of the income tax.

(4) Importing Equipment

Necessary to the encouraged type of items in Guide Catalog of Foreign-invested Industry , the self-used equipments imported within the total investment amount (including technology, fittings and spare parts along with equipments imported in accordance with contacts) except the goods listed in Catalog of Goods Imported Not Duty-Free In Foreign-Invested Items are free of duty and import value-added tax.

As to the encouraged type of foreign-invested enterprises, foreign-invested research and developments center and foreign-invested enterprises of advanced technology type and product export type which have been established, if they import self-used equipments and the necessary technology, fittings, spare parts, which are necessary for their technology alteration but can't be produced in China within the scope of production and management approve originally or whose capability can't meet need, these things imported can be free of duty and import value-added tax in accordance to the stipulations of Notice On Adjusting The Tax Policy Of Equipments Imported By the State Department ( Excepted from the Documents of NO.37 in 1997 issued by the State Department ).

If foreign-invested enterprises import self-used equipments of necessity, as well as technology, fittings and spare parts along with equipments imported in accordance with contacts in order to produce productions in Catalog of State High-New Technological Productions , these things imported except the goods listed in Catalog of Goods Imported Not Duty-Free In Home-Invested Items are free of duty and import value-added tax.

(5) Stocking Equipments Made in China

As to investment items in which the capital put into by foreign investors of foreign-invested enterprises reaches 25% or above of the capital in hand from all investment parts of the enterprises and which also accord with the encouraged type in Guide Catalog of Foreign-invested Industry and Catalog of Industries, Products and Technologies Encouraged Emphatically By State Presently , as well as the unused equipments made in China purchased by foreign-invested enterprises with currency in China (including part of plastic accessories, rubber accessories, porcelain accessories and pipes used in petrochemical items bought along with the equipments and listed in purchase contracts ) , foreign-invested enterprises will be returned all value-added tax of equipments made in China.

As to the equipments listed Catalog of Goods Imported Not Duty-Free In Foreign-Invested Items a nd Ca talog of Goods Imported Not Duty-Free In Home-Invested Items and purchased in China , foreign-invested enterprises do not enjoy the favorable tax policies of returning tax.

(6)Reinvestment

If foreign investors of foreign-invested enterprises reinvest the profits from the enterprise in the enterprises, increasing the registered capital or with the profits build up other foreign-invested enterprises whose management periods are not below five years, they can be returned 40% of tax paid by them for reinvestment part.

If foreign investors invested directly to build up and enlarge the enterprises whose products are for export or enterprises of advanced technology within the boundaries of China , they can be returned all enterprise income tax paid by them for reinvestment part in accordance with the related stipulations of the State Department.

(7) Fixed Assets Depreciation

If fixed assets need reduce the number of depreciation years for some special reasons, the enterprises can make applications, which will be reported to the State Administration of Taxation for approval level by level after the examination and verification of the local tax organs. Such fixed assets include:

1. Machines and equipments severely eroded by acid and alkali, as well as the workshops and buildings in perennial convulsion and vibration;

2. Machines and equipments in a perennial state of running day and night for improving the utilization ratio and strengthen the use intensity;

3. Fixed assets which will belong to Chinese partners after the expiration of the cooperation and the cooperation peri od of Chinese-foreign contractual joint ventures is sho rter than the number of depreciation years stimulated by the 35 th item of this detailed rules.

(8) Miscellaneous

As to the charge of using concession attained for offering special technologies for scientific research, developing energy resources, developing traffic and the production of agriculture, forestry and animal husbandry, as well as developing important technologies, the income tax will be levied in accordance with tax rate at 10% discount with approval of the department in charge of tax in the State Department. In this case, if the technologies provided are advanced and the conditions are favorable, the income tax can be exempted.

As to the income that the units and individuals (including foreign-invested enterprises, foreign-invested and established research and development centers, foreign enterprises and individuals of foreign nationalities) get from the service of transferring and developing technologies and the related technology consultations and services, the business tax will be exempted.

The software charge paid abroad by foreign-invested enterprises for introducing into advanced technologies listed in Catalog of State High-New Technological Productions in accordance with contracts is free of duty and import value-added tax.

If the cost of developing technologies by enterprises within the boundaries of China in the same year enterprises make such development increases actually by 10% or above over the previous year, the income for which tax should be paid in the same year is allowed to decrease by 50% of the actual cost of developing technologies in the same year with the examination and verification and approval of the tax organs. If the cost of developing technologies by enterprises increases 10% or above over the previous year, and 50% of the actual cost is more than the income for which tax should be paid by enterprises, the income is allowed to reduce by the part within the income for which tax should be paid. The amount beyond which will not be reduced in the same year and the following years.