1. Preferential corporate income tax policies:

 

(1) Productive foreign-invested enterprises with more than 10 years’ operation period shall be exempted from corporate income tax for two years since they start to profit, and shall enjoy 50% abatement of corporate income tax from the 3rd to the 5th years. For resources exploration projects such as petrol, natural gas, rare metals and precious metals, it should be implemented according to the rules of the State Council. Foreign-invested enterprises with less than 10 years’ actual operation period should pay the exempted corporate income tax.

 

(2) When the lawful tax exemption or abatement expires, foreign-invested enterprises in such industries as agriculture, forestry and animal husbandry and those established in underdeveloped remote areas shall continue to enjoy 15% to 30% abatement of the income tax due in the next 10 years after their applications are approved by the tax department of the State Council.

 

(3) Foreign-invested advanced technology enterprises shall enjoy 2 years’ exemption and 6 years’ abatement of corporate income tax.

 

(4) When the lawful tax exemption or abatement expires, export enterprises shall enjoy 50% abatement according to the existing rate without a time limit, provided their exported output value of that year reach 70% of the total output value of the same year.

 

(5) If foreign-invested enterprises or the production and operation organizations established by foreign enterprises in China have losses in a year, they could compensate with the income of the next tax year; if the income of the next tax year is not enough to compensate for the loss, they could compensate in the following years, but not exceeding 5 years.

 

2. Preferential policies for imported equipment:

 

(1) Since January 1, 1998, the imported equipment of encouraged domestic and foreign-invested investment projects shall be exempted from tariff and import linkage value added tax within the prescribed limit.

 

Scope of tariff exemption for imported equipment:

 

a. Equipment imported for own use within the total amount of investment of foreign investment projects which involve technology transfer and are in the encouraged category or Group B of the restricted category of the “Industrial Guidance Catalogue for Foreign Investment” shall enjoy exemption from tariff and import linkage value added tax, provided that such items are not among commodities listed in the “Catalogue of Imported Commodities not Entitled for Tariff Exemption for Foreign Invested-Projects”.

b. Imported processing trade equipment provided by foreign investors free of charge shall be exempted from tariff and import linkage VAT, provided that such items are not among commodities listed in the “Catalogue of Imported Commodities not Entitled for Tariff Exemption for Foreign Invested-Projects”.

 

c.Tariff and import linkage value added tax shall also be exempted to technology, auxiliary equipment and spare parts imported with the equipment according to the contracts as the projects are in compliance with the aforesaid regulations.

 

(2)Equipment imported for own use and the complementary technology and spare parts by foreign-invested enterprises, foreign-invested research and development center, advanced technology and export foreign-invested enterprises that are in the encouraged category or Group B of the restricted category (hereinafter shorted to Five Types of Enterprises) for technical innovation shall enjoy exemption from tariff and import linkage value added tax in accordance with the “Circular of the State Council on Adjustment of Imported Equipment Taxation Policies” (Guo Fa [1997] No.37), provided that they are within the approved production and operation scope and cannot be produced domestically or the domestic ones fail to meet the requirements. 

 

The preferential tax exemption policy also requires the following conditions:

 

The capital resources should be the Five Types of Enterprises’ own fund apart from their total amount of investment (including enterprises’ reserve fund, expansion fund, depreciation and after-tax profit).

 

Commodities usage: renewal or maintenance of the enterprises’ existing equipment (excluding complete set of equipment and production line) within the approved production and operation scope.

 

Scope of imported commodities: equipment that cannot be produced domestically or the domestic ones fail to meet the requirements (commodities that are not among the list of the “Catalogue of Imported Commodities not Entitled for Tariff Exemption for Domestic Invested-Projects”), and the complementary technology and spare parts (including those imported together with the equipment or those imported alone).

 

(3) Equipment imported for own use and the technology, auxiliary equipment and spare parts imported with the equipment according to the contracts by foreign-invested enterprises to produce products of the “National Catalogue of High and New Technology” shall enjoy exemption from tariff and import linkage value added tax, provided that such items are not among commodities listed in the “Catalogue of Imported Commodities not Entitled for Tariff Exemption for Domestic Invested-Projects” in the Guo Fa [1997] No.37 document.

 

3. Preferential policies for purchasing domestic equipment:

 

(1) Domestic equipment purchased by foreign-invested enterprises established in China within the total amount of investment which are in the encouraged category or Group B of the restricted category of the “Industrial Guidance Catalogue for Foreign Investment” in the “Circular of the State Council on Adjustment of Imported Equipment Taxation Policies” (Guo Fa [1997] No.37) shall enjoy 40% offset of their investment in purchasing domestic equipment from the incremental income tax of the same year compared with the year before, provided that such items are not among commodities listed in the “Catalogue of Imported Commodities not Entitled for Tariff Exemption for Foreign Invested-Projects” of Guo Fa [1997] No.37 document.

 

If the aforesaid enterprises purchase domestic equipment outside the total amount of investment to improve the existing equipment and production techniques by using advanced and suitable new technology, techniques, equipment and material for the improvement of economic benefits, product quality, varieties of design and specification, product upgrading, export expansion, cost reduction, energy consumption reduction, comprehensive usage of resources as well as the treatment of three wastes and labor protection, they shall enjoy 40% offset of their investment in purchasing domestic equipment from the incremental income tax of the same year compared with the year before.

 

(2) Domestic equipment purchased by foreign-invested enterprises within the total amount of investment shall enjoy a full value-added tax rebate, provided that the equipment is within the scope of the catalogue of tax exemption.

 

Scope of tax rebate: equipment purchased in China of foreign investment projects which are in the “Industrial Guidance Catalogue for Foreign Investment” (the encouraged category or Group B of the restricted category) in the “Circular of the State Council on Adjustment of Imported Equipment Taxation Policies” (Guo Fa [1997] No.37) and projects which are in the “Catalogue of Industries, Products and Technology Currently Particularly Encouraged by the State for Development”.

 

Regarding the projects in line with the aforesaid requirements, some plastic, rubber, ceramics products as well as pipes for petrochemical projects that are listed on the purchasing contract to be purchased with the equipment shall enjoy tax rebate.

 

Equipment purchased in China that is listed in the “Catalogue of Imported Commodities not Entitled for Tariff Exemption for Foreign Invested-Projects” and the “Catalogue of Imported Commodities not Entitled for Tariff Exemption for Domestic Invested-Projects” shall not enjoy a tax rebate policy.

 

4. Preferential reinvestment policies:

 

Foreign investors of foreign-invested enterprises who reinvest the profits in the enterprises, increase registered capital or establish other foreign-invested enterprises with the operation period of at least 5 years shall apply to the tax authorities and get 40% refund of the income tax paid for the reinvested part after approval, and it should be in accordance with other preferential requirements of the State Council if there’s any. The refunded tax should be paid if the reinvestment withdraws within 5 years.

 

5. Preferential policies for depreciation of fixed assets:

 

Enterprises shall apply for the shortening of fixed assets’ depreciable life due to special reasons, which shall be examined by the local tax authority and reported to the State Administration of Taxation. The above-mentioned fixed assets requiring shortening of depreciable life due to special reasons include:

 

(1) Machinery and equipment that are seriously corroded by acids and bases, and factories and buildings that are shaking throughout the year;

 

(2) Machinery and equipment that operate day and night throughout the year to improve usage rate and intensity; and

 

(3) Fixed assets that belong to the Chinese party of the Sino-foreign cooperative operation enterprise after the cooperation period ends, which is shorter than the depreciable life prescribed in Article 35 of the Detailed Rule.