5. Preferential Treatments on Taxes

(1) Income Tax
A. Enterprise Income Tax
Foreign-invested productive enterprises with an operation duration of over 10 years shall be exempted from enterprise income tax for the first two profiting years, and from the third to the fifth year their enterprise income tax shall be levied at a rate equivalent to half of that stipulated.

Equity joint ventures engaged in the construction of ports and wharves with an operation duration of over 15 years shall enjoy an enterprise income tax exemption for the first 5 profiting years, and an income tax reduction by half for the following 5 years.

Foreign invested enterprises with advanced technology, if they continue to be regarded as technologically advanced enterprises after the aforesaid enterprise income tax exemption and reduction period shall enjoy an income tax reduction by half for an extra of three years in accordance with related laws on taxes.

The export-oriented foreign investment ventures, on the condition that they export 70% or more of its total output of that year, shall continue to enjoy an enterprise income tax rate equivalent to half of that stipulated by related laws on taxes after the normal enterprise income tax exemption and reduction period.
Subject to approval from competent authorities, the enterprise income tax can be reduced to and levied at a rate of 15% on foreign invested productive enterprises located in the coastal economic open zones and being engaged in the following projects:
--Technology and/or knowledge-intensive projects;
--Foreign invested projects with the investment of over US$30 million and long payback period.
--Projects of energy, transport facility and harbour construction.
The enterprise income tax shall be reduced to and levied at a rate of 15% on foreign invested ventures located in state-level new- and high-tech development zones ratified by Chinese State Council as new- and high-tech enterprises.
Foreign invested projects in the fields of energy resources, transportation and agricultural comprehensive development enjoy the preferential treatments on enterprise income tax exemption and reduction stipulated by related laws and regulation of the state. Within the following five years, the portion of enterprise income tax above the amount levied at the rate of 15% shall be refunded at the application of the ventures and the approval of competent authorities.

B. Local Income Tax
Foreign invested productive enterprises with an operation duration of over 10 years shall be exempted from local income tax for the first 5 to 10 profiting years at the application of the enterprises and approval of the tax authorities at prefecture or county level, on the condition that they are in line with one of the following requirements:
--Being export-oriented and technically advanced enterprises.
--Being technology- and/or knowledge-intensive projects.
--Being projects with the investment of over US$30 million and long payoff period.
-- Being projects of energy, transport facility and harbour construction.
--Being Sino-foreign equity joint ventures engaged in construction of wharfs and ports.
--Being identified as new- and high-tech enterprises established in new- and high-tech development zones.
--Being enterprises engaged in development and management of agriculture, forestry, animal husbandry and aquiculture industries.
--Being productive enterprises established in counties of impoverished or mountainous regions of Shandong Province.

Export-oriented enterprises whose export volume accounts for over 70% of the total output of that year can continue to enjoy a reduced local income tax rate equivalent to half of that stipulated by relevant state laws and regulations after the aforesaid tax-free and reduction period. Ventures with advanced technology shall enjoy an income tax reduction by half for extra three years following the tax-free and reduction period.

Foreign invested productive enterprises that do not meet the aforesaid conditions but have an operation duration of over 10 years can be exempted from local income taxes for the first two profiting years and enjoy a reduced tax rate in the next three years equivalent to half of that stipulated by relevant state laws and regulations, subject to an application to and approval by local tax authorities.

　

Taxation rate after exemption and reduction period

For foreign invested agricultural comprehensive development projects, foreign currency earning agricultural projects and new- and high-tech projects identified by the provincial commission of science and technology, the paid local income tax shall be refunded subject to the approval of the competent authorities.

Local income tax shall be exempted on foreign invested productive enterprises outside of the coastal economic open areas ratified by the state authorities, and on foreign invested projects with an investment of more than US$30 million in such fields as energy development, transportation facility and port construction.

　

C. Individual Income Tax

The staff members of foreign citizenship in foreign invested enterprises, after a deduction of 4000 yuan from their monthly salary income, shall pay their individual income tax at the following rates:

(2) Tariff, Value-added Tax and Consumption Tax
The Chinese Government offers tariff and import-related value-added tax waivers on self-use equipment imported for foreign invested projects within their total amount of investment on the condition that the projects belong to the encouraged categories in the Catalogue for the Guidance of Foreign Investment Industries and the imports are not listed in the Catalogue of Non-Tariff-Free Imports for Foreign Investment Projects. Self-use equipment imports for projects utilising foreign governmental loans and loans provided by international financial organisations, and charge-free equipment imports provided by foreign companies for processing-trade projects, apart from the items in the Catalogue of Non-Tariff-Free Imports for Foreign Investment Projects, shall be exempted from the tariffs and import-related value-added tax in reference to related provisions governing the waivers on equipment imports for foreign invested projects. The aforesaid waivers are also applicable for techniques, necessary accessories and spare parts imported together with the equipment for the projects in conformity with related requirements.

For technological innovation of the existing foreign invested ventures of the encouraged category, R&D centres, technologically advanced ventures and export-oriented ventures, the self-use equipment and the related techniques, necessary accessories and spare parts which are imported within the originally ratified business scope for the reason that these products can not be domestically produced or the domestically made ones are not qualified to meet the demand, shall be exempted from tariff and import-related tax in accordance with concerned stipulations of the Circular of the State Council on Adjusting the Policies on Taxation of Equipment Imports.

The value-added tax on domestically manufactured equipment shall be fully refunded for foreign invested enterprises of the encouraged category purchasing the domestically made equipment within their total investment on the premise that the imported equipment of the same type is in the categories enjoying the import-related tax waivers. If foreign invested enterprises purchase domestically made equipment for conducting technological innovation in conformity with state industrial policies or producing new- and high-tech products, the portion of taxable income equivalent to the equipment price shall be deducted for paying enterprise income tax.

In accordance with concerned stipulations of the Circular of the State Council on Adjusting the Policies on Taxation of Equipment Imports, the foreign invested R&D centres shall be exempted from tariff and import-related tax for importing the self-use equipment and the related techniques, necessary accessories and spare parts within their total investment for the reason that these products can not be domestically produced or the domestically made ones are not qualified to meet the demand.

The foreign invested enterprises in the fields of poultry raising, farming, forestry, animal husbandry and aquiculture shall be exempted from value-added tax for marketing their own agricultural produces.

Commodities processed or assembled for export and processing charges shall be exempted from value added tax and consumption tax.

For exports produced by compensation trade projects, if the value-added tax has been levied in the stage of production, the tax shall be refunded after customs declaration for exportation in accordance with related stipulations, and the refunding formalities can be gone through without submitting the receipt of collecting export proceeds.

(3) Preferential Policies on Taxes for Encouraging the Introduction of Advanced Technology Abroad
On the premise that the technological development fees of foreign invested enterprises increase by 10% or more compared with the previous year, the portion of taxable income of that year equivalent to 50% of the actually input technological development fees shall be deducted subject to the approval of tax authorities.

Foreign enterprises shall be exempted from business tax for transferring technology to Chinese partners, and those transferring advanced technology or transferring at a favourable price shall be exempted from enterprise income tax with the approval of the tax authority of the State Council. Foreign invested enterprises (including foreign invested R&D centres) shall also be exempted from business tax on their income from transferring technology.