CHINA TAXATION SYSTEM
CHINA CORPORATE INCOME TAX
Preferential Policies Concerning Foreign Investments
Value Added Tax (VAT) Preferential Policies for Foreign Invested enterprises
1. Preferential policies for software and integrate circuits industries
a. From June 24, 2000 till the end of 2010, General taxpayers selling software developed by themselves shall pay VAT at the rate of 17%. However, if the actual VAT is more than 3%, the surplus amount of VAT shall be refunded at the same time of payment. Integrate Circuits designing enterprises are regarded as software enterprises and enjoy the same policies. The refund shall not be regarded as taxable income and enterprise income tax shall not be pre-raised, provided that such refund is used to re-invest in research and development of software products and enlargement of production.
b. From June 24, 2000 till the end of 2010, General taxpayers selling integrate circuits (including mono-crystalline silicone) produced by themselves shall pay VAT at the rate of 17%. However, if the actual VAT is more than 6%, the surplus amount of VAT shall be refunded at the same time of payment. The refund shall not be regarded as taxable income and enterprise income tax shall not be pre-raised, provided that such refund is used to re-invest in research and development of software products and enlargement of production.
2. Foreign Invested enterprises involved in processing with supplied materials shall be exempted from VAT
Foreign invested enterprises, who get the business of processing with supplied materials, and entrust other foreign invested enterprises or Chinese enterprises to process, shall apply to the administrative tax institutions for the Certificate of Tax Exemption for Processing Enterprises, and with producing of such certificate, get the exemption of the VAT on the Processing fee. The foreign invested enterprises shall go to the administrative taxation institutions for VAT refund to complete the writing-off after the export of the processed goods, by producing the bill of customs clarification, the writing-off registration book for processing with supplied materials, certificate of reception of foreign exchange. Punishment and repayment of the VAT shall be made on the enterprises by the administrative taxation institutions for VAT for export and the taxation departments of the customs, should such enterprises have not completed the Writing-off in time.
3. Within the amount of their investment, foreign invested enterprises shall be fully exempted from VAT on purchase of domestically-made equipment under the permitted catalogue. Details as following:
a. Equipment purchased domestically for the encouraged industries and specially developed industries stipulated by the State Industrial Catalogue Guiding Foreign Investment and the State Catalogue of Key Industries, Products and Technology of Special Development.
b. The said equipment hereof shall meets the following conditions as following:
(1). It shall be purchased in cash and unused China-made, not including objects of the investors and intangible assets.
(2). It must be within the total investment ratified for tax refund by the taxation departments and purchased after September 1, 1999 and made in China.
c. The foreign invested enterprises qualified for tax refund for purchase of China made equipment shall apply to the administrative taxation departments for tax refund for pre-registration of purchase of China-made equipment, before the first purchase within every contract.
4. VAT at the stage of import
Starting from January 1, 1998, within the stipulated conditions, VAT at the stage of import for equipment shall be exempted, provided that such equipment is of the industries under the encouraged catalogue for domestic and foreign investment stipulated by the Decree No 37 of the State Council in 1997.
5. Refund of VAT for export
a. When directly exporting or exporting through agent the products of their own, general taxpayers of the foreign invested enterprises shall get their refund of VAT by systems of "prepayment and refund after export" or "exemption, credit and fund".
b. Foreign invested enterprises established before December 31, 1993, originally enjoying an exemption of VAT when directly exporting or exporting through agent the products of their own, shall change to get their refund through the system of "prepayment and refund after export".
c. Refund of VAT shall be applied to export of crude oil within the national plan. As stipulated by the Ministry of Finance, the State General Administration of Taxation and the General Customs Administration, the export of crude oil within the national plan promulgated by the State Economic and Trade Commission shall enjoy the refund of VAT and the refund rate is 13%.
d. Refund of VAT shall be applied to the export of equipment, raw materials and parts for the overseas processing projects. The refund rate will be as per the general provisions of the country.
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