In the city of Qingdao, foreign trade is an integral part of the economy and is encouraged wherever possible on the principle of the free flow of import and export goods and technology. The export of machinery and electrical products, development of processing trades, service trades, and overseas processing trades are encouraged as are the import of advanced technology and equipment through foreign businesses.

The city of Qingdao has implemented a series of preferential policies for foreign investors. For a detailed listing of preferential policies it is advisable to consult with and receive a professional opinion from a qualified tax or investment consultant. Here are some of the preferential policy highlights:

1. Foreign-invested manufacturing enterprises that contract to operate in Qingdao for a period of more than 10 years will receive an income tax exemption for the first two years beginning from the first year of profitability and reduced to 50% from the third to the fifth year.

2. Foreign parties of a foreign-invested enterprise will be allowed to directly reinvest their business profits into the registered capital of the enterprise or invest profits in other enterprises. If the contracted operating period is not less than 5 years, upon reinvestment, the foreign party will receive a tax refund of up to 40% of paid income tax on the reinvested portion. If funds are reinvested directly into the establishment or expansion of export-oriented enterprises or advanced technological enterprises, the income tax paid on the reinvested portion will be completely refunded.

3. If a foreign invested enterprise is set up at a port or a dock with a contracted operating period of over 15 years, income tax will be exempted for the first five years beginning from the first year of profitability and reduced by half from the sixth to the tenth year.

4. If the foreign invested enterprise engages in breeding, planting, forestry, animal husbandry, or the fisheries, the product sales VAT will be exempted.

5. Approved foreign-funded enterprises will enjoy a tax credit of up to 40% of the investment in purchasing domestic equipment (total invoice price and tax after deduction of refunded VAT and charges of transportation, installation, and testing of the equipment.)

6. Business taxes for technology transfer and technology development of a foreign invested enterprise can be exempted.

7. Income tax on income obtained from a foreign invested enterprise by a foreign businessperson will be exempted. Profits and share interests, bonuses and incomes after enterprise settlement, can be freely remitted abroad.

8. Losses in a foreign invested enterprise can be carried forward and offset with the next year's income. If the next year's income is insufficient, the following year's income can be offset, for a period not exceeding 5 years.

9. For approved foreign invested projects, which belong to an encouraged class, restricted class II with technical transfer of the "Foreign Investment Enterprise Index", the import tariff and import link VAT will be exempted for the following items (items listed in the "Foreign Investment Project Non-tax-free Commodity Index" are excluded): importing self-use equipment within the total investment volume (including importing auxiliary technology and a reasonable quantity of supporting or spare parts); importing self-use equipment using loans provided by foreign governments and international financial organizations, and processing equipment excluded from the import quota provided by foreign partners.

10. Import tariffs will be exempted for the renewal (complete-set or production line excluded) or repair of self-funded existing equipment (enterprise reserved funds, development funds, depreciation, and after-tax profits), import of self-use equipment and its supporting technology, components and spare parts, which cannot be produced domestically, within the approved production scope, outside the total investment volume, when the existing encouraged class and restricted class II invested enterprises, foreign invested research & development centers, or advanced technology and export-oriented foreign invested enterprises conduct technical innovations.

11. Import tariffs will be exempted if foreign invested research & development centers import self-use equipment and other related technology, components, and spare parts, which cannot be produced domestically or cannot meet the needs, within the total investment volume.

12. If not specified otherwise, the production link consumption tax will be exempted and tax reimbursement for VAT will be practiced for the export of products of foreign invested enterprises.

13. Large and medium-sized enterprises can be contracted by or leased to large international enterprises or consortia. Small and medium-sized state-owned, collectively-owned or township enterprises can be sold, leased or transferred to domestic or foreign enterprises. Foreign business people, who contract, hire or buy small or medium-sized enterprises in Qingdao, can enjoy preferential policies for internal investment enterprises.

14. Foreign banks are encouraged to set up branches in Qingdao. Local income taxes will be exempted for the profits from these branches. Sino-foreign jointly funded or co-op travel agencies are positively encouraged.

15. According to relevant regulations, foreign businesses investing in traffic facilities or public utilities, may operate relevant service businesses and utilize BOT, TOT, or other forms. They may also enjoy tax exemption and reduction policies granted by the state. Investors involved in the construction of highways and bridges, whose charges fall into categories stipulated by the state, may make suggestions on toll fees on the basis of a rational investment recovery period. The plan will be put into effect upon examination and approval by related authorities within the sphere of responsibility for price management. The toll fees will be modified according to social price fluctuations upon the approval of the original authorities. Foreign invested infrastructure construction will be exempted from paying local income taxes.

16. Foreign invested enterprises participating in the renovation of old urban areas with a concentration of poor houses and the development and construction of affordable housing for low and medium-income families will enjoy the same treatment as domestic enterprises. Land for the construction of affordable housing approved by the government may be supplied through administrative allocation. Relevant fees will be exempted or reduced accordingly.

17. Foreign investment in agriculture will be exempted from local income tax. 40% of the paid reinvestment tax will be refunded if foreign investors reinvest in agriculture using the profits obtained from their investments and the operational period of the reinvestment is five years or longer.

18. Taxes paid by foreign investors in the exploitation of barren hills, shallows, or water resources will be refunded in full, with approval by the municipal or district government.

19. Priority will be placed on agriculture in land allocation. 50% of the land-use fee will be exempted for investments using large areas of non-farm land for exploitation of agriculture, forestry and animal husbandry. The land-use fee will be exempted in full for ten years for foreign investment in low-yield farmland areas. Land lease deposits on reserved land for projects with investments of over US$10 million will be exempted under approval of local finance and land administrations. The land can be paid for in installments.

20. A 30% deduction of the prescribed land-use fee will be granted for investment in export or advanced technology enterprises. Enterprises, which are given the land-use right in the form of transfer, will also enjoy an exemption of land-use fees.