(*Statement: English language version of these rules is translated by china.org.cn for reference purposes only)

Preferential taxation

Tax which foreign-funded enterprises might meet in China includes enterprise income tax, value-added tax, sales tax, consumption tax, resource tax, real estate tax, license plate tax (car and ship), land value-added tax, stamp duty, butcher tax and personal income tax.

(a) enterprise income tax

The enterprise income tax of Sino-foreign joint ventures, cooperative enterprises and foreign-owned enterprises is 30 percent of annual profit. In addition, another 3 percent local income tax will be levied. The enterprise income tax of foreign-funded manufacturing enterprises in the opened area of East Liaoning is 24 percent, while 15 percent tax is levied for those in economic development zones of Dalian, Yingkou and Shenyang.

Foreign-funded manufacturing enterprises which run over a period of 10 years are exempt from enterprise income tax in two years since the enterprises begin to earn profits, and only half the amount is levied from the third to fifth years.

If export value of a foreign-funded export enterprise exceeds 70 percent of their total output value, they are due 50 percent enterprise income tax after the expiration of the tax exemption and reduction period. If they are an advanced technology enterprise, they are due 50 percent less their enterprise income tax for three more years.

If foreign-funded enterprises use their profits for reinvestment and intend to operate for 5 years, 40 percent of the tax levied in reinvestment will be refunded. If they set up, or extend, export enterprises and advanced technological enterprises with at least a 5 year operation, all the enterprise’s income tax in the reinvestment process will be refunded. No remittance tax will be due while remitting their profit overseas.

Preferential Policy of Liaoning Province to Enlarge Foreign Investment Utilization

(Dec. 27 1990, Liaoning Provincial Government Office (1990) No.84)

Article 1: The regulation is formulated to attract more foreign investment, speed-up industry technology renovation, strengthen export and forex-earning capacity and quicken infrastructure construction.

Article 2: The special foreign investment items in the regulation refer to those with investments of over US$400 million and approved by the central government.

Article 3: The regulation applies to all special foreign investment items in Liaoning.

Article 4: Liaoning Planning Committee manages all the special foreign investment items, and the office of Special Foreign Investment Items is responsible for daily work.

Trade, fiscal, taxation, forex and customs departments in the provincial government should jointly manage these items within their power scope.

Article 5: The fixed-asset investment volume of special foreign investment items should be placed in the plans. Provincial planning committees will make the annual plan.

Article 6: The special foreign investment items, no matter they earn their foreign exchange, or not, suffer profit or loss, should be classified for audit and loan repayment.

For these items, within 15 years of their making profit: all the profits, income tax, depreciation costs should be used for loan repayment. After the principal and interest have been paid off, the remaining revenue can be retained according to state regulations.

Article 7: Special foreign investment items can enjoy tax exemptions:

1. fixed-asset investment is exempt from building tax.

2. imported equipment and materials (excluding raw material) are exempt from customs, product tax and value-added tax.

3. according to national regulations, they are not asked to hand in funds and buy bonds.

Article 8: The special foreign investment items are all entrusted to the Liaoning Building Investment Company to run operations, and be responsible for the fund re-loan, loan distribution, loan reclaiming and loan repayment. After the principal and interest are paid off, the rest of the profit can be left in the company, and the local city government can share 30 percent of the profit (excluding those items directed by central and provincial government). The contracting company can charge 0.5 percent management fees from the investment (including fees charged by the foreign investment department).

Article 8: For special foreign investment items, all the equipment, parts and raw materials in the import and export process should be operated by the contracting company. The company can entrust it to other foreign-trade companies.

Article 10: For special foreign investment items, all foreign exchange earned by export should be used to pay off loans.

Article 11: If the products of special foreign investment items can replace imported products, after the consent of trade and forex administrations, these items can be placed in the official plans, and contracting companies can get forex.

Article 12: All the preferential policies of both central and provincial governments, on foreign investment, apply to special foreign investment items.

Article 13: Special foreign investment items in foreign-funded enterprises apply to the regulation in principle, but the legal rights and interests of foreign investors should be guaranteed.

Article 14: Special foreign investment items in Shenyang and Dalian should be wholly administrated by the appointed authorities by the municipal government. The debts should be paid off as a whole.

Article 15: The management regulation of special foreign investment items concerning fiscal, taxation, trade, customs issues should be made by the competent authorities respectively.

Article 16: Liaoning Planning Committee is responsible to interpret these regulations.

Article 17: The regulation shall take effect from the date of promulgation.