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CHINA FOREIGN INVESTMENTS

Summary of Major Nationwide Preferential Policies
for Foreign Investments

The following are major nationwide applicable preferential policies for foreign investors in China:

1. Manufacturing businesses involving foreign investment with a operation tenure of over 10 years enjoy 2 years of corporate income tax exemption from the first profit-making year and half reduction for the ensuing 3 years.

2. When the foreign party uses its profit for re-investment to increase the registered capital or branches out for new businesses for at least 5 years, it can get back 40% of the income tax levied on the amount added. Total refund is applied to cases of direct investment for setting up or expanding export businesses or technologically advanced companies.

3. Port development projects with at least 15 years of operation are entitled to 5 years of income tax exemption and half reduction for the next 5 years.

4. Foreign invested operations in breeding, planting, forestry, animal-husbandry, and agriculture are free of VAT in sales of self-made farm produce.
 
5. Simultaneous collection and return is applied to the general taxpayer who sells self-made computer software and whose tax exceeds 6% of the amount payable. Individuals or institutions engaged in technology transfer, development, and related technical consulting and services are entitled to the exemption from business tax.
 
6. Foreign investors are free to remit abroad their profits, dividends, bonuses and post-liquidation income.
 
7. The annual loss incurred by the foreign invested entity or its China-based manufacturing or operation sites can be compensated by the profit to be derived from the following tax year. This process can go on and on within the limit of 5 years.
 
8. Exemption of import tariffs and related VAT on equipment and parts for the enterprises¡¦ own use goes to FIES whose businesses are encouraged by the State or fall under Category B of the restricted items. This is also true for those companies which import equipment by virtue of foreign government loans or loans from international financial organizations.

9. FIES included in the Encouraged and Restricted B Category, R&D centers and export-oriented companies will no longer pay import tax and duties on equipment which is not otherwise manufactured within China and which is imported for the company's own use. This exemption also covers the situation where a product of satisfactory quality cannot be found in the country.

10. Apart from crude oil and sugar, export-oriented products by foreign invested entities are exempt from VAT and consumption tax.
 
11. The scheme of categorized management of enterprises in the export processing trade is being implemented. Enterprises under Category A enjoy ¡§symbolic execution¡¨ of the shadow margin account system, i.e., no need to turn in cash deposit to the bank when it comes to imports (inclusive of restricted items). This applies also to those companies under Category B except for the restricted imports. Category C on the other hand, encompasses enterprises whose fine for a single regulatory breach within one year exceeds RMB10,000 or which have a record of two or more transgressions which account for 0.1 percent of the Customs clearances of the previous year, a situation which should require on the corporate side the submission of a cash deposit for their imports.
 
12. For companies in the processing trade pay3ments of the earnest money can be made in varied forms undertaken by qualified financial bodies authorized by the General Administration of Customs or any legal person able to clear off liabilities and provide security to the Customs. The methods of payment range from cash and cheque to drafts and remittances.

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