Preferential Policies for Use of Foreign Funds

1. Tax Policies

The applicable tax levied on foreign-funded enterprises, foreign enterprises and individual foreigners in China is categorized as income tax on foreign-funded enterprises and foreign enterprises, value-added tax, consumption tax, business tax, land appreciation tax, resource tax, stamp tax, animal slaughter tax, urban real estate tax, vehicle and boats license tax and individual income tax. Preferential tax policies for foreign-funded enterprises, foreign enterprises and individual foreigners are introduced as follows:

1.1 Value-added tax

1.1.1 Drawback on export goods

Except for otherwise stipulation by the state, the goods produced by foreign-funded enterprises for export shall be gone through drawback procedures in taxation administration with presentation of the Customs clearance form and other relevant required documents. The tax drawback ratios are as follows:

A. Machinery, equipment, electronic products, transportation equipment, instruments and meters, garments: 17%;
B. Agricultural products: 5%;
C. Other products: 13-15%

1.1.2 Tax exemption for imported goods

The raw materials imported by foreign-funded enterprises for the production of export products, turnover tax related with import shall be exempted from according to state regulations.

1.1.3 The raw materials imported by foreign-funded enterprises by means of processing on supplied materials shall be exempted from value-added tax related with import and consumption tax.

1.2 Individual Income Tax

For individual foreigners working at foreign-funded enterprises or foreign enterprises within the territory of China, foreigners employed by the enterprises, institutions, social organizations and state organs within China, deduction standard of individual income tax from salaries is raised. On the basis of deducting RMB￥800, the additional RMB￥ 3200 shall be reduced. Individual salary income over wage scale nine is suitable for a progressive tax, and the tax rate is from 5% to 45%.

1.3 Enterprises' Income Tax

1.3.1 Preferential tax policies for productive foreign-funded enterprises

Except for otherwise stipulation by the State Council concerning resource exploitation projects such as petroleum, natural gas, rare metals and precious metals, to those productive foreign-funded enterprises with more than ten years' operation, two years' income tax shall be exempted and three years' income tax shall be half reduced (since the first profitable year).

Those foreign-funded enterprises engaged in agriculture, forestry and animal husbandry, after the regular period of tax preferential treatment (two years' tax exemption and three years' half reduction), shall continually enjoy a 15-30 percent reduction of enterprises' income tax in the next 10 years with application for tax exemption and approval from tax administration of the State Council.

1.3.2 Preferential tax policies in Coastal Economic Opening Zones of China

Being in the Coastal Economic Opening Zones of China, Zhaoyuan adopts preferential tax policies approved by the State.

To those productive foreign-funded enterprises, the enterprises' income tax rate is reduced to 24 percent. Among those, the technology-intensive or intelligence-intensive projects, the projects with long investment return period and investment volume of over 30 million U.S. dollars, the constructional projects of energy, transportation and ports, etc., enterprises' income tax is levied at a reduced rate of 15% with approval from the State Administration of Taxation.

1.3.3 Preferential tax policies for exportation-based and advanced technical enterprises

A. To those exportation-based foreign-funded enterprises, after the regular period of tax reduction, if the value of their export product exceeds 70% of the output value in the same year, they can get a half reduction of the enterprises' income tax. Among those, the enterprises that have paid enterprises' income tax at a rate of 15 percent can be levied at a reduced rate of 10 percent.
B. To those advanced technical foreign-funded enterprises, after the regular period of tax reduction, if they remain to be advanced technical enterprises, they can get another 3 years' half income tax reduction. If the reduced rate is lower than 10%, it will be counted as 10%.

1.3.4 Preferential tax policies for reinvestment

If the foreign investors of foreign-funded enterprises directly reinvest their profits getting from their enterprises to the same ones to expand their registered capital, or set up other foreign-funded enterprises with an operational period of no fewer than five years, 40% of the income tax collected on the reinvestment capital shall be returned after the applications of the investors are approved by Taxation Authorities. If the reinvested enterprises are exportation-based or advanced technical enterprises, all the income tax collected on the reinvestment shall be returned. If the enterprises established or expanded by the reinvestment of foreign investor's can't reach the exportation standard within three years (from the very beginning of their production), or can't be confirmed as advanced technical enterprises any more, they should pay back 60 percent of the returned tax payment. If the operational period of the reinvestment enterprise is less than five years, all the returned tax payment should be paid back

1.4 Tariff Policies

1.4.1 All foreign-funded projects transferring technology within the scope of classifications of Encouragement and Restriction (B) of the "Industrial Catalogue Guiding Foreign Investment", the equipment to be imported within the projects' total investment in terms of values and for internal use will be exempted tariffs and value-added tax related with import, but the equipment should be excluded in the "Catalogue of Imported Commodities to be Used in Foreign-invested projects and be Exclusively Tax Exempted".

The equipment to be imported of the projects funded by loans from foreign governments and international financial institutions and for its own use, and the unappraised equipment imported by foreign investors in their processing items, shall be granted with preferential treatment in terms of tax exemption as that of the above-mentioned item.

1.4.2 Any raw materials, fuel, unassembled parts, spare parts, components and elements, components in set, auxiliary materials and packing materials required for contracts of exporting products imported by foreign-funded enterprises shall be placed in bond. Customs formalities of verification and cancellation shall be completed by the enterprise after process into finished products and re-exporting.

1.4.3 Catalysts, catalytic agents, abrasives and fuel, etc, imported by enterprises in reasonable quantities consumed directly in the course of processing products for export shall be exempted from import duties and VAT.

1.4.4 Exception from export duties shall be granted to the exported goods produced by the enterprises of its own, except for those restricted by the states or otherwise provided for.

2.Preferential Policies of Foreign Exchange　Administration

2.1 Preferential treatments to foreign exchanges remitted in for investment and obtained by offshore borrowings, bond or stock issues make by foreign legal persons or natural persons, and to foreign exchange returns made by foreign-funded enterprises will remain valid. They may not settle their foreign exchange accounts at the designated banks to open accounts, to retain foreign exchanges of to make normal payments in foreign exchange.

2.2 Foreign-funded enterprises may make normal business payments in foreign exchange and foreign investors profit, stock and bonus can be remitted from the balance of their cash accounts directly without being examined and approved in advance. Payments in excess of the balance of their cash accounts made to cover expenses in production and management, to repay capital with interest and to remit abroad bonus and capital foreign exchange transfers, upon examination and approval by the state Bureau of the Exchange Control, may be executed.

2.3 China will stick to it that foreign-funded enterprises should keep a balance between their foreign exchange income and expenditure. In case of failure, they may go to appointed banks to buy foreign exchange at the market exchange rate published by people bank of China.

2.4 Foreign investors may, upon approval, reinvest their RMB profits earned from foreign-funded enterprises which can not keep a balance between their foreign exchange income and expenditure into inland enterprises that can earn foreign exchange or increase their foreign exchange earnings. In this case, foreign investors may enjoy the right of getting back part of their income tax handed over to the state and of obtaining foreign exchanges from the newly earned exchanges by the beneficiary enterprise so as to remit abroad their legal profits. When applying for reinvesting their RMB profits, foreigners are required to produce the profit distribution decision by the board of directors of the original enterprise and the certificate by the local exchange control department.

3. Policies of Land Administration

3.1. Forms of Acquisition of Land Use Rights

A. Land supplied generally in the form of sales
B. For those engaging in the development of such projects as infrastructure facilities without seeking profits, public welfare services, communications and water conservancy energy sources of state, with approval of government, land can be supplied in the form of allotment.
C. For those engaging in development projects of agriculture, forestry, animal husbandry and fisheries, land can be supplied in the form of lease.
D. Land belongs to state-owned land, and land use rights are adopted in the form of sales and lease, for cooperation with township and village collective enterprises on non-agriculture construction.
E. For shareholding enterprises which list stocks abroad, their land use rights can be sold by the State to enterprises, or provided in the form of buying shares at a fixed price, or leased.

3.2. Time Limit of Land Using

For land supplied in the form of sale, the longest time of land using is 70 years for residential use, 40 years for the land used in the field of commerce, tourism and recreation, 50 years for the purpose of industry, education, science and technology, culture, public health, sports, etc.

3.3 Preferential Policies

A. Land is supplied in the form of sales, for export-oriented enterprises (with the value of export products accounting for over 70 percent of the output value of the enterprises products produced in the current year) and technically advanced enterprises, land use right is in the preferential form of sales cost and supplied in the form of allotment, land use fee is exempted within 5 years.
B. With regard to engaging in the development and construction of large-scale infrastructure such as energy resources, communications and harbors, land sale cost, their land use fee can be reduced or delayed in payment.
C. The land use rights acquired by the method of sales within the specified period of use can be transferred, leased, and mortgaged according to law.
D. As for those who engage in the development of agriculture, forestry, animal husbandry and fisheries and in development operation of barren hills, wasteland, unexploited beaches, the land sale cost, land use fee or rental is granted in preferential terms.
E. For land used for projects of culture, education, scientific research, medical and health as well as public welfare services not aimed to make profits, land use fee is exempted within five or ten years.

3.4 Procedures for Applying for the Right to the Use of Land for Foreign-funded Projects

A. Foreign-funded enterprise may, bringing with them enterprise statutes, contracts, certificates, business licenses as well as feasibility study reports, annual project plans and design documents verified and issued or approved by the department concerned, apply to the municipal or county land administration authorities for land use.
B. Land administration authorities, while examining and verifying the land use conditions for foreign-funded enterprises, shall initially determine, according to related regulations, the location and area of land, number of years, usage as well as land use fee both sides shall sign a land use contract.
C. Land administration authorities, in line with the stipulated examination and approval limit of authority, report to the people's government at or above the county level for approval.
D. Enterprises shall pay land use fees according to regulations. Municipal or county land management department hands over enterprises. Land for use and verifies and issues land use certificate, then the enterprise acquires the land use right according to law.

4. The Preferential Policies for Foreign Investment　Promotion in Zhaoyuan City (Update!)

4.1. The tax policies

4.1.1 Income tax: Since the first profitable year, the income tax of enterprises shall be exempted in the first two years, half reduced in the following three years.

4.1.2 Value-added Tax: The value-added tax of enterprise shall be returned by 25% in the first year and returned by 12.5% in the following two years. Foreign invested enterprises in the key economic zone of the city shall enjoy further preferential policies. In the first three years the value-added tax shall be returned by 25% and following three years' value-added tax shall be returned by 12.5%. All these returned value-added tax shall be paid from city's local financial income. (These policies are made by Zhaoyuan Government)

4.2. Policies of Land Administration

4.2.1 Preferential Policies for Common Enterprises:

4.2.1.1 The enterprises whose export value are more than 70 percent of total output value in the current year or enterprises engaging in the construction of infrastructure or exploitation and development of agriculture, forestry, animal husbandry and fisheries, shall be supplied with land in a preferential charge. Land even can be free used for public service projects, which don't aim at profit.

4.2.1.2 The using tax of cultivable land shall be reduced or postponed. 2.13 The assart fee of land shall be reduced.

4.2.2 The most preferential policies provided to the world top 500 powerful enterprises and high-tech enterprises are as follows:

4.2.2.1 If the city government is responsible for land levying and workshop construction and rent them to foreign investors, the rent will be exempted in the first 5 years. The foreign investors can also buy instead of renting.

4.2.2.2 The foreign investors can also build factories by themselves. The land can be used free of land buying fee, free of land levying procedure charges. (This policy expires in November 2002).

4.3 Other relative policies

4.3.1 Special policies can also be adopted to satisfy the requirement of enterprises such as the world top 500 companies, High-tech enterprises, national famous enterprise groups and new burgeoning industries special supported by state government. Policies should serve for projects. The key problem affecting further development of above enterprises can be discussed case by case, which means special policies for these special matters.

4.3.2 Living consumption and children education of foreign investors are treated equally with that of local citizen. Investors registered in key economic zone can settle in Zhaoyuan city, together with his spouse and children and free of urban population capacity adding fee.

4.3.3 None unit has right to levy, check, visit the enterprises in the key economic zones without permission of administrative commission of the economic zone.