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Tax Polices Concerning Foreign Enterprises in China's Development Zones

Updated: 2006-05-10 16:08

Polices State Regulations Special Economic Zones National Development
Zones Open cities and areas (including those along seas and rivers,
inland and border) and provincial Development Zones
Economic and Technological Zones and Export Processing Zones in which High-
tech Industrial Zones Free Trade Zones The Border
Economic Cooperative Areas
�� Enterprises Income Tax rate 1.Productive enterprises 30% 15% 15% 15% 1
5% 24% 24%
2.Non-productive enterprises 30% 15% 30% 30% 30% 30% 30%
��Knowledge intensive and technology intensive projects and Technology
Development Center; Projects with a long investment rewarding period 30% 15
% 15% 15% 15% *
(15%) 15% (Including those industrial projects encouraged by the
government in middle western areas)
��Export-oriented enterprises with its export value of the year equals or
exceeds 70% of its output value of the same year after the
exemption-reduction period is over 15% 10% 10% 10% 10% 12% 12%
��Financial institutions with foreign operation capital above 10 million
US$ and an operation period of 10 years or more 30% 15% 15%
(Approved by the State Council; including Shanghai Pudong)
��projects concerning energy, transportation, port or projections
engorged by the governments 15% (including those enterprises engaging in
infrastructure construction in Shanghai Pudong)

The following polices apply to all the zones if not made specifically

��
Pre-withdraw income rate 1.Profits derived from interests, bonus stock,
rent, licensing rights fees and other gains from various zones if foreign
businessmen don't set up any organizations in Chinese territory(except
those exemptions according to the laws)
10% from Jan 1st, 2001
2.For those provide advanced technology or preferential conditions
Granted an exemption by the approval of the state council or at a rate
lower than 10% by the local government
3.Profits derived from foreign-funded enterprises
Exempted

��
The exemption-reduction period of the enterprise income tax(The operation
period is over ten years, commencing from the year in which the
enterprises make profits) 1.Productive enterprise, high-tech enterprises
or technology development center
An exemption for the first and second year and a reduction by half from
the third to fifth year
2��The newly established enterprises undertaking transportation, electric
power,water conservancy, postal service, broadcasting and television, etc
in middle western regions
An exemption for the first and second year and a reduction by half from
the third to fifth year
3.Non-productive enterprises �� In the Special Economic Zones, the
service business enterprises with foreign operation capital above 5
million US$ and an operation period of 10 years or more
�� In the Special Economic Zones or other regions approved by the
State Council, the financial institutions with foreign operation capital
above 10 million US$ and an operation period of 10 years or more; An
exemption for the first year and a reduction by half from the second to
third year

4. Technology advanced enterprises Granted a reduction by half for 3 more
years as long as it remains advanced-technology-oriented after the
exemption-reduction period is over. (Not less than 10%)
5.Middle Western Areas For the foreign-invested enterprises of encouraged
type, it can enjoy an extended 3 years reduction at 15% income rate after
the exemption-reduction period is over.
6.Enterprise who engaged in the construction of port and ducks with an
operation period of 15 years and above
An exemption for the first to fifth year and a reduction by half from the
sixth to tenth year
7.Enterprises which engaged in agriculture, forestry and animal
husbandry, and those in undeveloped border areas By the approval of state
supervising department, it continues to enjoy a reduction of 15%-30% of
its due tax within 10 years after the exemption-reduction period is over;
The agricultural specialty for the purpose of protecting the environment
in middle western areas are granted an exemption from agricultural
specialty tax within 10 years
8.Added-investment projects The foreign party with their investment
projects conforming to encouraged type of "Guiding Catalogue for Foreign
Investment Industries" can enjoy 2 years exemption and 3 years reduction
by half of income tax if the added investment reachs stipulated ammount.

��Refund of Tax for reinvestment �� The foreign investor of the
enterprise with foreign investment that makes a direct reinvestment in
their enterprise or in other enterprises scheduled to operate for a
period of more than 5 years with foreign investment using profits
obtained form their enterprises in return shall enjoy a refund of 40% of
the paid income tax for the reinvestment.
�� If the reinvestment is made in an export or technology advanced
enterprises; the investor shall enjoy the entire refund of the said
income tax for the part of reinvestment.

��Customs Duties 1.Imported Equipment �� For the foreign investment
projects of "wholly directly export" which conform to "Guiding Catalogue
for Foreign Investment Industries", the imported equipments are imposed
custom duty and value-added tax according to the regulations��By
examination, if they are indeed wholly direcctly exported, the tax will
be refunded in five years.
��For the foreign investment projects of encouraged type and limited type
B which conform to "Guiding Catalogue for Foreign Investment Industries"
and transfer their technology, the imported non-utility
equipments(including the technology,Kit piece and spare parts imported
with the equipments according to the contracts)within the total amount of
investment will be exempted from duty and value-added tax except goods
listed in "Non-duty-free Imported Goods Catalogue for Foreign Investment
Projects"
2.Exported product Exempted from export duties with the exception of
those under state restriction; those products with its values increase by
over 20% due to substantial processing may be exempted from export duties
by the Customs as long as they are documented by the competent
authorities concerned.The enterprises and managerial departments will
enjoy an entire refund for the productive equipments, original material,
spare and accessories parts, constructive supplies and office equipment
purchased with Chinese territory

��Value-added Tax �� three types of rate at 17%,13%,6% respectively
according to different products categories; granted exemption or
reduction according to the national tax laws
�� exempted for the products sold in Special Economic Zones; common tax
payer is levied at rate of 6%
��exempted for the products made and sold in Free Trade Zones and Export
Processing Zones
��Investment adjusting tax of fixed assets Exemption for investment of
foreign-funded and foreign enterprises in Chinese territory
VIII��Foreign Exchange Control �� The foreign-invested enterprise are
allowed to change RMB into foreign exchange in the regular projects
�� The enterprises in Free Trade Zones and Export Processing Zones are
allowed to reserve foreign exchange
�� The banking grantee system is not implemented for the processing trade
in Free Trade Zones and Export Processing Zones
IX��Polices approved by the local government(the details sees the local
investment guide or related regulations on development zones)
1.Local income tax Levied at 10% according to the state regulations. It
can have a reduction or exemption made by the government of province,
autonomous regions or cities directly under the jurisdiction of the
central government according to the specific circumstance.
2.Enterprise income tax of national autonomous regions Reduced or
exempted by the approval of provincial government periodically
3.Tax incentive Stipulated by the local financial department; grant an
incentive compensation to the foreign-invested enterprises which pay the
income tax on time
4.Depreciation Stipulated by the local financial department; implement
acceleration depreciation according to the item circumstance
5.Real estate Stipulated by the local financial department; reduced based
on certain term and proportion
6.Expenditure discount Stipulated by the local government based on the
section, scale, Technique level and way of payment of the foreign-funded
projects, grant a reduction in the respects of the expense of land-use,
house-rent, energy, headwaters, tele-communications, service, etc
7.Loss compensation Any losses incurred, enterprises could be made up
with its gains of the next tax year, it may, in case its gains of the
following tax year are insufficient, continue doing so year by year in
succession within a period of no more than 5 years.

Notes: 1.* ( ) means taking reference of the polices in open areas
           2. The State Council stipulates, the policy of "refund the tax
after     payment determined by the local government" is terminated from
Jan 1st.
           3. The form above is compiled by the China Association of
Development Zones on the basis of current valid regulations of the State
Council and related department before 2002. The polices which are not
listed above are performed according to the national regulations.

(For more biz stories, please visit Industry Updates)

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Chinese Online Class - Tax Polices Concerning Foreign Enterprises in China's Development Zones

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