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Major Tax Incentives

33 Major Tax Incentives

AGRICULTURE, FORESTRY, ANIMAL HUSBANDRY, FISHERY, WATER CONSERVANCY

ENERGY, TRANSPORTATION, POSTAL SERVICES, TELECOMMUNICATIONS

SCIENCE, EDUCATION, CULTURE, PROPAGANDA, HEALTH, SPORTS

SOCIAL SECURITY, CIVIL AFFAIRS, NATIONALITIES

THE THIRD INDUSTRY

FINANCE, INSURANCE, SECURITIES

ENVIRONMENTAL PROTECTION, RESOURCE UTILIZATION

SPECIFIED REGIONS

IMPORTS AND EXPORTS

ENTERPRISES WITH FOREIGN INVESTMENT, FOREIGN ENTERPRISES, FOREIGNERS

DIPLOMATIC TAX IMMUNITY

In order to fully develop the role of taxation in regulation, and to better promote the economic construction and development of all causes of the State, numerous tax incentives are offered in the tax laws, administrative regulations, and departmental rules formulated by the following organs:

  • The National People's Congress (NPC) and its Standing Committee.
  • The State Council.
  • The Ministry of Finance.
  • The State Administration of Taxation (SAT).
  • The Tariff and Classification Committee of the State Council.

AGRICULTURE, FORESTRY, ANIMAL HUSBANDRY, FISHERY, WATER CONSERVANCY

VAT

Various incentives, including exemptions and reductions, may be granted in the following circumstances:

  • Sales of self-produced primary agricultural products by agricultural producing units including those engaged in the following areas, or by individuals, may be exempt from value-added tax (VAT):
    • Planting.
    • Breeding.
    • Forestry.
    • Animal husbandry.
    • Aquatic industries.
  • Feeds, seeds, seedling plants, farming plastic films and farming machinery, as well as specified chemicals and pesticides, may be temporarily exempt from VAT.
  • Seeds (seedling plants), breeding stock (livestock) and fingerlings (fry) imported for use in the following areas may be periodically exempt from VAT at the import stage:
    • Agriculture.
    • Forestry.
    • Animal husbandry.
    • Fishery production.
    • Scientific research.
  • Equipment or apparatus imported directly for use in agricultural science research or experiments may be exempt.
  • Agricultural products sold or imported by taxpayers may enjoy a 13% VAT rate.
  • Before the end of 2005, reductions or exemptions may be granted for the following items imported by deep-sea fishing enterprises:
    • Vessels.
    • Key equipment or parts of vessels.
  • Where taxpayers purchase agricultural products from agricultural producers or small taxpayers, the input VAT may be computed at 13% of the sums listed in the purchase vouchers or sales invoices, for credit against the output VAT.

Import Duty

Exemptions or reductions may be granted under the following circumstances:

  • Equipment or apparatus imported directly for use in agricultural science research or experiments may be exempt.
  • Before the end of 2005, reductions or exemptions may be granted for the following items imported by deep-sea fishing enterprises:
    • Vessels.
    • Key equipment or parts of vessels.

Business Tax

  • Expenses incurred on the following items may be exempt:
    • Agricultural mechanical ploughing.
    • Irrigation and drainage.
    • Prevention and treatment of plant diseases and insect infestations.
    • Plant protection.
    • Insurance for farming and animal husbandry.
    • Technical training services related to any of the above.
    • Breeding of poultry, livestock, or aquatic animals.
    • Prevention and treatment of diseases affecting poultry, livestock, or aquatic animals.
  • Income derived from the transfer of land-use rights to farmers for agricultural production may be exempt.
  • Revenue derived by agricultural scientific research units from the transfer of technology may be exempt.
  • Forestry cultivating funds may be exempt if either of the following conditions is met:
    • The funds are drawn by forestry enterprises from revenue generated from selling wood or bamboo.
    • The funds are consolidated by the forestry department from forestry enterprises in accordance with State rules.

Enterprise Income Tax

Exemptions or reductions may be granted in the following circumstances:

  • Temporary exemptions may be granted for the income received by the following entities from the provision of technical or labor services:
    • Agricultural technology education stations.
    • Plant protection stations.
    • Water conservancy stations.
    • Forestry stations.
    • Animal husbandry veterinary stations.
    • Aquatic product stations.
    • Seed stations.
    • Farming machinery stations.
    • Meteorological observatories.
    • The Farmers Professional Technical Society.
    • Professional cooperatives.
  • Temporary exemptions may be granted for the income received by the following entities from the provision of technical or labor services:
    • City and township enterprises.
    • Institutional units.
  • Temporary exemptions may be granted for income earned by State agricultural enterprises or institutions, including those engaged in any of the following areas:
    • Agriculture.
    • Farming.
    • Animal husbandry.
    • Fishery.
    • Forestry.
    • Water supply, Water conservancy, etc.
    • Meteorology.
    • Overseas Chinese farms.
  • Temporary exemptions may be granted for income earned by key agricultural enterprises of the State that have been industrialized and that are engaged in the following areas:
    • Planting or breeding of agricultural or forestry products.
    • Primary processing of agricultural or forestry products.
  • Temporary exemptions may be granted for income derived by enterprises and institutions from any of the following activities:
    • Planting of trees, tree seeds or nursery stock.
    • Primary processing of tree or wood products.
  • Income earned from fishery may be temporarily exempt if they fall into either of the following categories:
    • The enterprises are ocean fishery enterprises that hold Ocean Fishery Enterprise Qualification Certificates issued by the Ministry of Agriculture, and the income is derived from engagement in deep-sea fishing.
    • The enterprises are fishery enterprises that hold Fishery Fishing Certificates issued by relevant fishery administration departments at any level, and the income is derived from engagement in outer seas or deep-sea fishing.
  • Where enterprises with foreign investment are engaged in any of the following areas, and where their operational periods exceed 10 years, they may, starting from the first profit-making year, enjoy exemptions for the first and second years, and 50% reductions for the third, fourth, and fifth years.
    • Agriculture.
    • Forestry.
    • Animal husbandry.
    • Fishery.
    • Water conservancy.

Where they are engaged in agriculture, forestry, or animal husbandry, they may, upon approval by the State Administration of Taxation (SAT), have their tax payable reduced by 15%–30%, for another 10 years following the expiry of the period for tax exemptions and reductions.

  • Where the following circumstances apply, water power enterprises may, upon approval by the tax department, enjoy exemptions for 2 years and 50% reductions for 3 years:
    • The enterprises are newly set up in special State-specified regions in the western part of China or other regions.
    • Their income from the water business accounts for more than 70% of their total income.

      The tax holidays start from the following dates:

      – Domestic enterprises: The date that production and business operations commence.

      – Enterprises with foreign investment and an operational period of at least 10 years: The first profit-making year.

  • Temporary exemptions may be granted for technical service income derived by agricultural science and research units from any of the following activities:
    • The transfer of technology achievements.
    • Technical training.
    • Technical consultation.
    • Technical services.
    • Technical subcontracting.
  • Where the social forces fund the research and development of new products by unassociated agricultural science and research institutions or universities, the funds provided may be totally deducted from taxable income for the current year.
  • Expenses incurred by agricultural enterprises on technical renovation may be totally included in the costs of production for deduction.
  • Township enterprises may have tax reduced by 10% when they provide subsidies of social expenditure.
  • Where enterprises donate to the China Greenland Fund, the portion not exceeding 3% of their taxable income for the current year may be deductible. For financial and insurance enterprises, the limit is 1.5%.
  • Where foreign enterprises derive royalty income from the provision of technical know-how for the development of production in any of the following areas, the tax rate may be reduced to 10%:
    • Agriculture.
    • Forestry.
    • Animal husbandry.

    Where the enterprises use advanced technology, or where the terms are preferential, tax may be exempt.

  • Where agricultural science and technology institutions become enterprises, they may be granted exemptions for self-used land that is utilized for science and technology development.

    Exemptions shall apply for 5 years starting from the date that the change is registered.

Individual Income Tax

  • Given the abolition of Agricultural Specialty Tax, and reductions/exemptions for Agriculture

Tax or Animal Husbandry Tax, income derived by farmers from the following areas may be granted temporary exempt:

  • Special agricultural products.
  • Plantation, breeding, raising, or fishing industries.
  • Sales of self-produced agricultural products.

City and Township Land Use Tax

  • The following types of land may be exempt:
    • Land directly used for agriculture, forestry, animal husbandry, or fishery production.
    • Land used for water facilities or protection.
  • Where agricultural science and technology institutions become enterprises, they may be granted exemptions for self-used land that is utilized for science and technology development.

    Exemptions shall apply for 5 years starting from the date that the change is registered.

Farmland Occupation Tax

  • Land used for farmland irrigation facilities that service agricultural production may be exempt.
  • Where land is used to build self-use residential houses for farmers, 50% reductions may be granted in accordance with prevailing rules.

Vehicle and Vessel Use Tax

  • Tractors used mainly for agricultural production may be exempt.

Vehicle Acquisition Tax

  • Three-wheel transportation vehicles used for farming may be exempt.

Stamp Tax

  • Exemptions or temporary exemptions may be granted for the following contracts:
    • Agricultural byproduct purchase contracts concluded between State-designated purchase departments and village committees or individual peasants.
    • Insurance contracts for forestry plants, or animal or livestock breeding specimens.

Deed Tax

  • Exemptions may be granted to units or individuals that receive land-use rights for the following types of land, for the purposes of agriculture, forestry, animal husbandry, or fishery.
    • Barren mountains.
    • Barren trenches.
    • Barren hills.
    • Barren beaches.

Agriculture Tax

Starting from 2004, Agriculture Tax was reduced and made exempt across the country step by step, until total exemption is reached in 2006.

ENERGY, TRANSPORTATION, POSTAL SERVICES, TELECOMMUNICATIONS

VAT

  • Where the following circumstances apply, import Value-Added Tax (VAT) may be reduced to 4% on passenger and cargo planes:
    • The weight of each plane without passengers or cargo exceeds 25 tons.
    • The planes are imported by domestic aviation companies.
  • Where internal units of the railway organization carry out cargo vehicle repair for the organization, their repair business may be exempt.
  • That portion of VAT payable for plane repairs that exceeds 6% may be refunded immediately after collection.
  • Exemptions may be granted for electrical power network maintenance charged to users when countryside power administration stations collect electrical power fees.
  • Exemptions may be granted for the following items under financial budgetary management:
    • The Electrical Power Construction Fund.
    • Road maintenance fees.
    • The Railway Construction Fund.
    • The Civil Aviation Infrastructure Construction Fund.
    • Harbor construction fees.
    • Postal and telecommunications surcharges.
  • Periodic exemptions may be granted for import VAT for the following items related to the surveying or exploration of oil or natural gas:
    • Equipment, apparatus, parts, or special tools imported directly for use in exploration work for China's offshore oil or natural gas industries.
    • Equipment, apparatus, parts, or special tools imported directly for surveying or exploration for China's onshore oil or natural gas industries, where the items cannot be produced in China or where the quality of domestic products cannot meet the project requirements.
  • Temporary exemptions may be granted for heating charges collected, for the period 2003– 2005, from residences by heat production and operation enterprises in the north, northeast, or northwest of China.

Customs Duties/Tariffs

  • Before the end of 2005, where key parts or equipment is imported for use in the construction of ocean vessels for domestic sale, and where the relevant departments approve the imports for either of the following reasons, the items may be subject to Customs duty at a rate of 1%. Where the actual rate is lower than 1%, duty shall be levied at the actual rate:
    • The items cannot be produced in China.
    • The quality of domestic products does not meet the product specifications.
  • Periodic exemptions may be granted for the following items related to the surveying or exploration of oil or natural gas:
    • Equipment, apparatus, parts, or special tools imported directly for use in exploration work for China's offshore oil or natural gas industries.
    • Equipment, apparatus, parts, or special tools imported directly for surveying or exploration for China's onshore oil or natural gas industries, where the items cannot be produced in China or where the quality of domestic products cannot meet the project requirements.

Business Tax

  • Exemptions may be granted for the following items under financial budgetary management:
    • The Electrical Power Construction Fund.
    • Road maintenance fees.
    • The Railway Construction Fund.
    • The Civil Aviation Infrastructure Construction Fund.
    • Harbor construction fees.
    • Postal and telecommunications surcharges.

Enterprise Income Tax

  • Newly set-up enterprises and units engaged in the following industries may be granted exemptions in the first year after they commence production and business operations, and 50% reductions in the second year.
    • Traffic and transportation.
    • Postal services.
    • Telecommunications.
  • Where the following circumstances apply, enterprises with foreign investment may, starting from the first profit-making year, enjoy exemptions for the first and second years, and 50% reductions for the third, fourth, and fifth years:
    • The enterprises are engaged in the energy industry (excluding oil or natural gas exploration).
    • The operational period exceeds 10 years.

    Where they are set up in remote areas that are economically undeveloped, they may, upon approval by the SAT, have their tax payable reduced by 15%–30%, for another 10 years following the expiry of the period for tax exemptions and reductions.

  • Enterprises with foreign investment that are engaged in projects in the following areas may, upon approval by the SAT, enjoy a reduced tax rate of 15%:
    • Energy.
    • Transportation.
    • Harbors.
    • Ports.
  • Sino-foreign joint ventures engaged in the construction of harbors or ports may enjoy a reduced tax rate of 15%.

    Where their operational period exceeds 15 years, they may, upon approval by the SAT offices at the provincial level, be granted, starting from the first profit-making year, exemptions for the first to fifth years, and 50% reductions from the sixth to tenth years.

  • Where the following circumstances apply, power, transportation, or postal enterprises may, upon approval by the tax department, enjoy exemptions for 2 years and 50% reductions for 3 years:
    • The enterprises are newly set up in special State-specified regions in the western part of China or other regions.
    • Their income from these areas (power, transportation, or postal services) accounts for more than 70% of their total income.

      The tax holidays start from the following dates:

      – Domestic enterprises: The date that production and business operations commence.

      – Enterprises with foreign investment and an operational period of at least 10 years: The first profit-making year.

  • Where foreign enterprises derive royalty income from the provision of technical know-how for the development of any of the following areas, the tax rate may be reduced to 10%:
    • Energy.
    • Transportation.

      Where the enterprises use advanced technology, or the conditions are preferential, tax may be exempt.

Individual Income Tax

  • For the wage/salary income of ocean transportation crew members, additional deductions may be allowed under tax law (standard deduction: 800 yuan per month).

    Expenses uniformly incurred on the collective meals of crew members may not be included in the taxable income of the crew members.

Farmland Occupation Tax

  • Exemptions may be granted for land that is used for the following purposes:
    • Railway tracks.
    • Plane runways or aprons.

    Land used for the construction of national or provincial roads in special State-specified regions in the western part of China or other regions may granted exemptions with reference to this rule.

    Whether tax shall be levied on land used for the construction of other roads shall be decided by the local provincial governments.

  • For land used for road construction that is subject to tax, tax shall be computed in the following manner:
    • At 2 yuan/sq m if the average tax per unit is 5 yuan/sq m or more.
    • At 1.50 yuan/sq m if the average tax per unit is less than 5 yuan/sq m.

House Property Tax

  • Exemptions may be granted for houses or land that is self-used by railway transportation enterprises under the Ministry of Railways.
  • For the period 2003–2005, temporary exemptions may be granted for houses or land used for production by heat production and operation enterprises in the north, northeast, or northwest of China.

City and Township Land Use Tax

  • Exemptions may be granted for the following tracts of land related to civil aviation plane flying zones:
    • Land used for such zones.
    • Land used for communication and aviation guides outside the zones.
    • Land used for water drainage or flood prevention around the zones.
    • Land used for roads outside the zones.
  • Exemptions may be granted for land used for ports at harbors.
  • Upon approval by the local tax bureaus at the provincial level, periodic exemptions or reductions may be granted for land that is used for open warehousing of goods, where the enterprises face real difficulty in paying tax.
  • Temporary partial exemptions may be granted to enterprises in the following industries:
    • Coal.
    • Oil.
    • Natural gas.
    • Electrical power.
  • Exemptions may be granted for houses or land that is self-used by railway transportation enterprises under the Ministry of Railways.
  • For the period 2003–2005, temporary exemptions may be granted for houses or land used for production by heat production and operation enterprises in the north, northeast, or northwest of China.

Vessel and Vehicle Use Tax

  • Where ticket prices for city buses or trolley buses are low, temporary exemptions may be granted.

City Maintenance and Construction Tax

  • From 2004 to 2009, the three-gorge project construction fund.

SCIENCE, EDUCATION, CULTURE, PROPAGANDA, HEALTH, SPORTS

VAT

Exemptions

In the following cases, exemptions may apply:

  • Contraceptive medicines and tools may be exempt.
  • Old or antique books purchased from the public may be exempt.
  • Articles imported for science research or teaching (e.g., equipment, meters, computers, books) may be exempt where the following circumstances apply:
    • The articles cannot be made domestically.
    • They are imported by science and research organizations or schools (mainly special science and research institutions belonging to units at the provincial or ministerial level, or institutions of higher learning or schools offering full-day classes that have all been established for and at least 3 years that are recognized by the Ministry of Education).
    • They are specified by the State for direct use in science research or teaching.
    • The amounts imported are reasonable.

    Import VAT exemptions may be granted simultaneously.

  • Teaching equipment, books, materials, or articles for normal study donated by overseas donors for direct use in the following educational institutions may be exempt:
    • Vocational schools.
    • High schools.
    • Secondary schools.
    • Primary schools.
    • Kindergartens.
  • Equipment or apparatus imported for direct use in agricultural science research may be exempt.
  • Where the following items are imported by State professional sports teams under the State General Bureau of Sports, they may be exempt:
    • Sports equipment for special needs.
    • Special garments used for games.

    The items may be gifted by international sports organizations or sponsored by foreign factories.

    Film copies sold by movie production enterprises set up with the approval of the State Council may be exempt.

  • The following items related to advanced technology products may be exempt:
    • Equipment, and supplementary technology, accessories, and parts for self-use by enterprises that manufacture products listed in the Catalog of State High and New Technology Products formulated by the Ministry of Science and Technology.
    • Equipment imported by these enterprises for manufacturing the products described above.
    • Software fees paid overseas by enterprises for introducing the products described above.
  • The following items related to software enterprises may be exempt:
    • Equipment, and relevant technology, accessories, and parts for self-use by the enterprises.
    • Equipment imported by the enterprises in conformity with State rules.
  • The following items related to integrated circuit manufacturing enterprises may be exempt:
    • Integrated circuit equipment and apparatus imported by the enterprises as part of the importation of integrated circuit technology or sets of production equipment.
    • Raw materials and consumables imported for self-use by the enterprises in conformity with the State stipulations.
  • Chinese antiques obtained by the antique administration department of the State Council and State antique store units, in accordance with prevailing rules, in the following manner may be exempt:
    • Donations by overseas organizations or individuals.
    • Returns or recoveries from overseas.
  • Blood for medical purposes supplied by blood stations to medical institutions.
  • Anti-AIDS medicines imported before the end of 2006 may be exempt at the importation and domestic circulation stages.

    Those produced at home before the end of 2006 may be exempt at the production and circulation stages.

Rebates

VAT may be collected first and then rebated.

  • Government newspapers and magazines published by the following entities:
    • Party organizations.
    • People's Governments.
    • The National People's Congress (NPC).
    • The People's Consultative Committee.
    • The Women's Association.
    • The Workers' Union.
    • The Youth League.
    • Military units.
  • Textbooks for universities, middle schools, and primary schools.
  • Newspapers and magazines published specially for teenagers.
  • Science books and periodicals.
  • Publications sold by Xinhua Bookstore below the county level and at countryside stores.

Computer Software

Before the end of 2010, new rules will be in place governing rebates for normal VAT payers that are engaged in software research and development.

Once they pay 17% VAT on computer software that they have self-developed and sold, that portion exceeding 3% may be rebated, to be used in software research and development, or in expanding production.

Exemption may also be granted for Enterprise Income Tax (in accordance with rules governing imported software that has been localized and sold by normal VAT payers).

Others

  • Books, newspapers, and magazines may be subject to a 13% VAT collection rate, unless otherwise stipulated.
  • No tax is levied on income derived from the issuance of sports lottery tickets.

Customs Duties/Tariffs

  • Articles imported for science research or teaching (e.g., equipment, meters, computers, books) may be exempt where the following circumstances apply:
    • The articles cannot be made domestically.
    • They are imported by science and research organizations or schools (mainly special science and research institutions belonging to units at the provincial or ministerial level, or institutions of higher learning or schools of whole day education that have all been established for and at least 3 years that are recognized by the Ministry of Education).
    • They are specified by the State for direct use in science research or teaching.
    • The amounts imported are reasonable.
  • Teaching equipment, books, materials, or articles for normal study donated by overseas donors for direct use in the following educational institutions may be exempt:
    • Vocational schools.
    • High schools.
    • Secondary schools.
    • Primary schools.
    • Kindergartens.
  • Equipment or apparatus imported for direct use in agricultural science research may be exempt.
  • Where the following items are imported by State professional sports teams under the State General Bureau of Sports, they may be exempt:
    • Sports equipment for special needs.
    • Special garments used for games.

    The items may be gifted by international sports organizations or sponsored by foreign factories.

  • The following items related to advanced technology products may be exempt:
    • Equipment, and supplementary technology, accessories, and parts for self-use by enterprises that manufacture products listed in the Catalog of State High and New Technology Products formulated by the Ministry of Science and Technology.
    • Equipment imported by these enterprises for manufacturing the products described above.
    • Software fees paid overseas by enterprises for introducing the products described above.
  • The following items related to software enterprises may be exempt:
    • Equipment, and relevant technology, accessories and parts for self-use by the enterprises.
    • Equipment imported by the enterprises in conformity with State rules.
  • The following items related to integrated circuit manufacturing enterprises may be exempt:
    • Integrated circuit equipment and apparatus imported by the enterprises as part of the importation of integrated circuit technology or sets of production equipment.
    • Raw materials and consumables imported for self-use by the enterprises in conformity with the State stipulations.
  • Chinese antiques obtained by the antique administration department of the State Council and State antique store units, in accordance with prevailing rules, in the following manner may be exempt:
    • Donations by overseas organizations or individuals.
    • Returns or recoveries from overseas.
  • Anti-AIDS medicines imported before the end of 2006 may be exempt.

Consumption Tax

  • Chinese antiques obtained by the antique administration department of the State Council and State antique store units, in accordance with prevailing rules, in the following manner may be exempt at the importation stage:
    • Donations by overseas organizations or individuals.
    • Returns or recoveries from overseas.

Business Tax

Exemptions

In the following cases, exemptions may apply:

  • Nursing services provided by nurseries or kindergartens may be exempt.
  • Educational service provided by schools for degree may be exempt.
  • Services provided by students for part-time study and work may be exempt.
  • Agricultural technology services and training services may be exempt.
  • Admission fees charged for cultural activities conducted by the following centers may be exempt:
    • Memorial halls.
    • Museums.
    • Science and technology halls.
    • Cultural centers.
    • Art galleries.
    • Exhibition halls.
    • Academies of painting and calligraphy.
    • Library units.
    • Cultural protection units.
  • Release income earned by film release units from film playing units may be exempt.
  • Income derived by units or individuals from the following technology-related activities may be exempt:
    • Transfers of technology.
    • Technology development.
    • Relevant technology consultation services.
    • Relevant technical services.
  • Income derived by individuals from the transfer of copyright may be exempt.
  • Interest paid on State loans obtained for educational causes may be exempt.
  • No tax is levied on income derived from the issuance of sports lottery tickets.

Enterprise Income Tax

Various incentives, including exemptions or reductions, may be granted.

  • The following enterprises may pay tax at a lower rate of 15%:
    • High-tech enterprises (including Sino-foreign joint ventures) located in High-Tech Development Zones approved by the State Council.
    • Enterprises producing integrated circuits in conformity with State rules.

      Exemptions may also be granted for 2 years in the following manner:

    • High-tech enterprises newly established in the zones: Starting from the date that they commence production and business operations.
    • Sino-foreign joint ventures with operational periods exceeding 10 years: Starting from their first profit-making year.
  • After verification, the following enterprises may, starting from the first profit-making year, enjoy exemptions for the first to second years, and 50% reductions for the third to fifth years:
    • Software enterprises newly set up in China.
    • Integrated circuit enterprises.
  • Temporary exemptions may be granted for income derived by the following entities from the provision of technical or labor services:
    • Agricultural technology spread stations.
    • Animal veterinary stations.
    • Meteorological observatories.
    • Township enterprises.
    • Institutions.
  • Temporary exemptions may be granted for technical service income derived by science and research units or universities from the following activities:
    • Transfers of technology achievements.
    • Technical training.
    • Technical consultation.
    • Technical services.
    • Technical subcontracting.
  • New enterprises or units engaged in the following industries or activities may be exempt for 2 years, starting from the date they commence production and business operations:
    • Technology consultation.
    • The information industry (including statistical services, science and technology services, economic information collection services, services of dissemination and processing of information, the advertising industry, and computer application services).
    • Technical services.
  • New enterprises or units engaged in the following activities may, upon approval by the tax authorities, enjoy exemptions or 50% reductions for 1 year, starting from the date they commence production and business operations:
    • Culture.
    • Education.
    • Health.
  • Where the following circumstances apply, television or radio broadcasting enterprises may, upon approval by the tax authorities, enjoy exemptions for 2 years and 50% reductions for 3 years:
    • The enterprises are newly set up in special State-specified regions in the western part of China or other regions.
    • Their income from these areas (television or radio broadcasting) accounts for more than 70% of their total income.

      The tax holidays start from the following dates:

    • Domestic enterprises: The date that production and business operations commence.
    • Enterprises with foreign investment and an operational period of at least 10 years: The first profit-making year.
  • Where enterprises or institutional units derive income from the following activities, that portion not exceeding 300,000 yuan may be temporarily exempt:
    • Transfers of technology.
    • Relevant technical consultation, services or training.
  • Exemptions may be granted for income derived by the following State-run schools from training or vocational training courses, if all the income belongs to the schools:
    • High schools.
    • Middle schools.
    • Primary schools.
  • Temporary exemptions may granted for youth centers.
  • Where enterprises invest in technology renovation projects qualified for the State industrial policy within China, 40% of their investment in home-made equipment needed for the projects may, upon approval by the tax authorities, be treated as a tax credit.

    The creditable amount shall not exceed the increment in tax between the year of investment and the preceding year.

    Where the increment is insufficient to allow a credit, the balance may be carried forward for offsetting against increments in subsequent years, for a maximum period of 5 years.

  • Where expenses incurred by the following enterprises for technological development increase by at least 10% over the previous year, they may deduct 50% of the expenses actually incurred for the current year from the taxable income for the year, in addition to stipulated deductions on an actual basis:
    • State industry enterprises.
    • Collective industry enterprises.
    • Joint-equity enterprises or joint-operation enterprises engaged in industry production or business operations, and controlled by State enterprises or collective enterprises.
    • Key State enterprises that are leaders in the agricultural industry.
    • Enterprises with foreign investment.
  • Depreciation or amortization periods for the following assets may be adjusted in the following manner, upon approval by the tax authorities:
    • Fixed assets: The depreciation period may be shortened, to a minimum of 2 years.
    • Intangible assets related to software purchases: The amortization period may be shortened, to a minimum of 2 years.
    • Production equipment for integrated circuit production enterprises: The depreciation period may be shortened, to a minimum of 3 years.
  • Expenses incurred by software development enterprises on the following items may be totally deductible from taxable income for the current year:
    • Wages.
    • Training.
  • Advertising expenses incurred by the following enterprises may be deductible on an actual basis for 5 years from the business registration date:
    • High- and new-technology enterprises engaged in software development, integrated circuit production, or other businesses.
    • Internet website businesses.
    • Risk investment enterprises engaged in high- and new-technology investment.

      The deduction percentage may be appropriately raised for advertising expenses incurred by the following enterprises if they need to heighten public awareness of their products and raise their company profile during special marketing periods. Alternatively, the expenses may be totally deducted on an actual basis.

    • High- and new-technology enterprises.
    • Risk investment enterprises.
    • New, growing enterprises.
  • Where enterprises, institutions, social organizations, individual households, or other individuals incur research and development expenses to support the following entities in the research and development of new products, new technology, or new crafts through non-profit social organizations or government organs in China, the expenses may be totally deductible:
    • Non-associated science and research institutions.
    • Non-associated high schools.

    Non-associated entities refer to those not owned or invested in by the supporting enterprises, and whose achievements are not used only by the supporting enterprises.

  • Where enterprises, institutions, or social organizations make donations to the following causes, through non-profit social organizations or government organs, the donations may be deductible in accordance with prevailing rules:
    • Education.
    • Culture.
    • Science.
    • The Red Cross.
    • Youth centers.
  • Where the following enterprises have a significant impact on the national economy and are advancing fast, the depreciation or amortization of any machinery equipment they use may be accelerated:
    • Electronic production enterprises.
    • Shipment industry enterprises.
    • Machinery enterprises producing “mother machines.”
    • Aeroplane production enterprises.
    • Chemical production enterprises.
    • Medical production enterprises.

    The tax department at the provincial level may standardize and adjust the acceleration based on the socio-economic development of the province.

  • Where key equipment is used to promote the development of science and technology, its depreciation or amortization may be accelerated.

    The tax department at the provincial level may standardize and adjust the acceleration based on the science and technology development of the province.

  • For integrated circuit production enterprises, the depreciation or amortization of production equipment may be accelerated.
  • Where enterprises purchase software that reaches the standards of fixed assets or constitutes intangible assets, its depreciation or amortization may be accelerated.
  • Where investors in integrated circuit production enterprises or packaging enterprises apply their profits post-Enterprise Income Tax to the following activities, before the end of 2010, 40% of the tax paid on their re-investment may be rebated. Where they withdraw the investment within 5 years, the tax rebated shall be pursued back.
    • To directly invest in their enterprises by increasing the registered capital.
    • To open, using the profits as capital, other integrated circuit production enterprises or packaging enterprises, with operational periods of not less than 5 years.

    Where overseas and domestic economic organizations, as investors, apply their profits post-Enterprise Income Tax to the following activities, before the end of 2010, 80% of the tax paid on the re-investment may be rebated. Where they withdraw the investment within 5 years, the tax rebated shall be pursued back.

    • To invest, using the profits as capital, in western China through the opening of integrated circuit production enterprises, packaging enterprises, or software enterprises, with operational periods of not less than 5 years.
  • Where non-profit funds set up, in accordance with prevailing rules, for the purpose of advancing the following causes, derive interest income from funds in deposits held at financial institutions, the income shall not be treated as taxable:
    • Science.
    • Culture.
    • Education.
  • Where enterprises with foreign investment satisfy the following criteria, they may, from the first profit-making year, enjoy exemptions in the first to second years, and 50% reductions for the third to fifth years:
    • They fall into the science and technology development category.
    • They directly serve production.
    • Their operational period exceeds 10 years.

    Where the enterprises are situated in non-developed remote areas, they may, upon approval by the SAT, reduce their tax payable by 15%–30% in the 10 years following the expiration of the tax holidays described above.

    Where the enterprises are new software enterprises, they may not be restricted by the period when enjoying the above tax incentives.

  • Where advanced technology enterprises with foreign investment retain their status after the statutory tax holidays expire, they may be eligible for 50% reductions of the tax computed at the statutory tax rate for 3 years following the expiry.

    Alternatively, enterprises subject to a 15% rate may pay tax at a 10% rate.

  • Where enterprises with foreign investment make purchases of China-made machinery that exceed the total investment sum in the course of utilizing advanced and suitable new technology, new crafts, new equipment, or new materials, to transform their current facilities or production technology for the following purposes, 40% of the machinery investment may also be credited against the increase in tax payable between the year of purchase and the preceding year:
    • To improve economic efficiency.
    • To improve product quality.
    • To diversify products.
    • To update products.
    • To expand exportation.
    • To decrease costs.
    • To save energy.
    • To optimize comprehensive use of resources.
    • To tackle waste residues, waste water, or waste gas.
    • To implement labor protection policies.
  • Where the foreign investors of enterprises with foreign investment use the profits from the enterprises for the following purposes, they may apply to the tax department for rebates on the tax paid on the re-investment:
    • To make direct investments for expansion.
    • To set up new advanced technology enterprises with operational periods of not less than 5 years.

    Where the expanded or newly set-up enterprises are not verified as advanced enterprises within 3 years of the date that production or business operations commence, 60% of the tax rebated should be paid back.

  • Where foreign enterprises obtain royalties from the provision of technical know-how in the following areas to benefit China, the royalties may be subject to a reduced tax rate of 10%:
    • Science research.
    • Energy development.
    • Traffic development.
    • Agricultural production.
    • Forestry.
    • Animal husbandry.
    • The development of important technology.

    Where the enterprises use advanced technology, or where the terms are preferential, exemptions may be granted.

Individual Income Tax

Exemptions

In the following cases, exemptions apply:

  • Awards for achievements in science, technology, culture, public health, or sports that are granted by the following bodies may be exempt:
    • Provincial People's Governments.
    • Ministries and Commissions under the State Council.
    • The People's Liberation Army Units at army level and above.
    • Foreign or international organizations.
  • Special Government allowances paid in accordance with State Council regulations may be exempt.

    Other allowances, such as those listed below, may also be exempt.

    • Academic allowances paid to academics of the China Science Academy or the China Engineering Academy.
    • Allowances paid to senior academics.
  • Interest earned from education savings may be exempt.

Temporary Exemptions

In the following cases, temporary exemptions may apply:

  • Where the experts or scholars satisfy the following criteria, their wages/salaries may be temporarily exempt:
    • Their retirement limits have been extended.
    • They have reached retirement age, but they continue to work because of work requirements.
    • They enjoy special Government allowances.
  • Where science research institutes or universities award prizes in the form of share rights (e.g., shares, investment portions) to individuals for transformational science or technological achievements, the prizes may be temporarily exempt.
  • Temporary exemptions may be granted for the wages/salaries earned by foreign experts that are exempt from tax in accordance with State regulations.

    Below are listed some examples of such experts:

    • Workers directly dispatched to China by the World Bank in accordance with World Bank loan agreements.
    • Workers directly dispatched by the United Nations to China.
    • Workers dispatched to China by assisting countries under assistance programs.
    • Experts that come to work in China but are paid by foreign sources.
  • Where individuals win prizes after buying social welfare or sports lottery tickets, a one-time temporary exemption may be granted for prizes not exceeding 10,000 yuan.

Reductions

In the following cases, reductions may be granted:

  • For remunerations from writing, tax payable may be reduced by 30%.
  • Donations made by individuals for the following causes, through social organizations or government organs in China, may be deductible from taxable income in accordance with prevailing rules:
    • Education.
    • The Red Cross.
    • Youth centers.
    • Other causes that benefit the public.

City Township Land Use Tax

  • Where enterprises run schools, nurseries, or kindergartens, the following items for self-use may be granted exemptions:
    • Land.
    • Houses.

House Property Tax

  • Where enterprises run schools, nurseries, or kindergartens, the following items for self-use may be granted exemptions:
    • Land.
    • Houses.

Farmland Occupation Tax

  • Exemptions may be granted for the land used by kindergartens, schools, or hospitals.

Vessel and Vehicle Use Tax

  • Ambulance vehicles may be exempt.
  • Epidemic prevention vehicles may be exempt.

Vessel and Vehicle Usage Plate Tax

  • Ambulance vehicles may be exempt.

Stamp Tax

  • Exemptions may be granted for the following documents:
    • Documents executed by owners of property when they donate the property to schools.
    • Documents executed between the publishing units of books, newspapers, or periodicals.
    • Documents executed between publishing units and subscription units or individuals.

Deed Tax

  • Upon approval by the relevant departments, exemptions may be granted to institutional units that receive land or houses for the following purposes:
    • Office work.
    • Teaching.
    • Medical treatment.
    • Science and research.
  • Upon approval by the relevant departments, exemptions may be granted to enterprises, institutional organizations, social groups, other social organizations or individuals that receive land or houses for the following purposes:
    • Teaching.
    • The establishment of educational institutions for all levels of society using non-financial education funds.

Special Categories

Institutions Funded by State Financial Department

  • Where the following types of institutions are funded by the State financial department, land, houses, vessels, or vehicles that are self-used by the institutions may be exempt from City and Township Land Use Tax, House Property Tax, and Vessel and Vehicle Use Tax:
    • Science.
    • Technology.
    • Education.
    • Culture.

Medical and Health-Related Institutions

Non-Profit Medical Institutions
  • Where the institutions charge State-specified prices, their medical service income is exempt from all types of taxes.
  • Where the institutions directly use a portion of their non-medical service income to improve medical conditions, that portion may be credited against their taxable income.
  • Pharmaceutical preparations that are self-produced and self-used by the institutions may be exempt from VAT.
  • Where the following items are self-used by the institutions, the items may be exempt from City and Township Land Use Tax, House Property Tax, and Vessel and Vehicle Use Tax:
    • Land.
    • Houses.
    • Vehicles.
    • Vessels.
Disease Control, Women/Infant Health Institutions
  • Where the institutions charge State-specified prices, their health service income may be eligible for the incentives described above.
  • Where the following items are self-used by the institutions, the items may be eligible for the incentives described above:
    • Land.
    • Houses.
    • Vehicles.
    • Vessels.
Profit-Making Medical Institutions
  • Where the institutions use their income to directly improve medical and health conditions, they may enjoy the above incentives within 3 years of the date they receive their business licenses.

Science and Research Institutions

Non-Profit Institutions
  • Where the institutions derive income from the following activities, the income may be exempt from Enterprise Income Tax in accordance with prevailing rules:
    • Technology development.
    • Transfer of technology.
    • Relevant technical consultation or technical services.
  • Where the institutions derive income from activities unrelated to their science and research business, and where they use a portion of that income to directly improve research conditions, that portion of the income may be credited against their taxable income, upon approval by the tax department.
  • Where the following items are self-used by the institutions, the items may be exempt from

    City and Township Land Use Tax, House Property Tax, and Vessel and Vehicle Use Tax:

    • Land.
    • Houses.
Institutions Turned Enterprises
  • Where qualified institutions become enterprises or become part of enterprises, they may be eligible for the following incentives within 7 years of the date that the change is registered:
    • They may be exempt from Enterprise Income Tax.
    • Land or houses that are self-used for science and research may be exempt from House Property Tax and City and Township Land Use Tax.

Science and Technology Development

Various incentives are awarded for efforts to popularize science and technology, and to support their development.

  • Before the end of 2005, where enterprises derive publishing revenue from the following activities, VAT may first be collected, then rebated:
    • Comprehensive-type science and technology newspapers.
    • Audio or video projects.
  • Exemptions for Business Tax may be granted for admission fees to the following venues and activities:
    • Science and technology halls.
    • Nature museums.
    • Planetariums.
    • Meteorological observatories.
    • Seismograph stations.
    • The science bases of universities or research institutions that are open to the public.
    • Popular science activities organized by the Party or government departments above the county level or science associations.
  • Before the end of 2005, where science and technology halls or nature museums import copies or work tapes in the course of purchasing the following items from overseas, exemptions may be granted for Customs duties and for VAT on importation:
    • Popular science movies.
    • TV program screening rights.

    Exemptions may also be granted for the Business Tax that should be withheld on the transfer of intangible assets such as screening rights.

    Where the following items for self-use are imported in other ways, exemptions may be granted for Customs duties and for VAT on importation:

    • Movies.
    • TV programs.
  • Where donations are made to science and technology halls or nature museums through non-profit social groups or government organs in China, the portion not exceeding 10% of their taxable income for the tax year may be deductible.

Cultural Business Units Turned Enterprises

From 2004 to 2008, various incentives shall be awarded to cultural business units that become enterprises as part of pilot schemes for the reform of the cultural system. Examples of such units are listed below:

  • News publishing units.
  • Radio units.
  • Film units.
  • Cultural arts units.

Cultural industries include those listed below:

  • Press publication industry.
  • Audio and video industry.
  • Cultural arts industry.

    Cultural units include enterprises or institutions engaged in cultural industries. Various incentives for cultural units are discussed below:

  • After the units become enterprises, VAT incentives that were previously applicable may stay in effect.

    In addition, exemptions may be granted for Enterprise Income Tax.

  • Where cultural business units are funded by the financial department, the following items that are self-used by the units may be exempt from House Property Tax, City and Township Land Use Tax, and Vessel and Vehicle Use Tax, after the units become enterprises:
    • Houses.
    • Land.
    • Vehicles.
    • Vessels.
  • Where the units export cultural products, policies on export tax refunds or exemptions may be applicable in accordance with prevailing tax laws.
  • Overseas revenue or income derived from the provision of overseas cultural services is exempt from Business Tax and Enterprise Income Tax.
  • Where the units import the following items, exemptions may be granted for Customs duties and for VAT on importation in accordance with prevailing tax laws:
    • Equipment for self-use and their accessories.
    • Parts for producing key cultural products.

Cultural Development

From 2004 to 2008, various incentives shall be awarded to support cultural development as part of pilot schemes for the reform of the cultural system.

  • For new cultural enterprises that are encouraged by the Government, exemptions may be granted for Enterprise Income Tax for 3 years, starting from the date of industrial or commercial registration.
  • Where the core enterprise of the pilot cultural enterprises group is 100% held by the member enterprises, Enterprise Income Tax may be consolidated, upon approval by the SAT.
  • Where the enterprises export cultural products, policies on export tax refunds may be applicable in accordance with prevailing tax laws.
  • Overseas revenue or income derived from the provision of overseas cultural services is exempt from Business Tax and Enterprise Income Tax.
  • Where the units import the following items, exemptions may be granted for Customs duties and for VAT on importation in accordance with prevailing tax laws:
    • Equipment for self-use and their accessories.
    • Parts for producing key cultural products.
  • Where cultural units suffer from losses for the following reasons, upon approval, land or houses for business use may be exempt from City and Township Land Use Tax and House Property Tax:
    • Natural disasters.
    • Other forms of force majeure.
    • The undertaking of State-designated tasks.
  • Where cultural enterprises are engaged in the following activities, they may enjoy the relevant tax incentives if they qualify under the rules governing tax incentives for high- and new-technology enterprises:
    • Research and development.
    • The production or dissemination of digital radio or TV programs.
    • The creation and maintenance of databanks.
    • Electronic publishing.
  • VAT exemptions may be granted for revenue derived from the sale of film copies by the following enterprises or individuals:
    • Movie producers approved by the State Council.
    • Movie groups and member enterprises set up with the approval of the relevant radio and TV administrative departments of the State Council.
  • Business Tax exemptions may be granted for film release revenue derived by film release enterprises from film display units.

SOCIAL SECURITY, CIVIL AFFAIRS, NATIONALITIES

Social Insurance Funds

  • No tax or fee is levied on social insurance funds. Examples are listed below.

Employment-Related Incentives

  • New city and township labor employment settlement services enterprises may, upon approval by the tax authorities, be exempt from Enterprise Income Tax for 3 years, starting from the date that they commence production or business operations, if their employment of retrenched city and township workers accounts for more than 60% of their total employment.

    After the tax holiday expires, the enterprises may, upon approval by the tax authorities, be granted 50% reductions for 2 years, if they employ newly retrenched workers accounting for an increase of more than 30% of the original employment in the year.

  • Where new services enterprises satisfy the following criteria, they may, after verification by the labor department and examination by the tax authorities, be exempt from Business Tax, City Maintenance and Construction Tax, the Educational Surcharge, and Enterprise Income Tax for 3 years:
    • Newly retrenched workers employed by the enterprises account for more than 30% of the total employment for the year.
    • The work contracts are for at least 1 year.

      Where the proportion is less than 30% for the year, the enterprises may be granted reductions at the reduction percentage computed by the proportion for 3 years.

      Reduction percentage = New employment of laid-off workers ÷ Total employment × 100% × 2

      The following enterprises are excluded from the incentives:

    • Advertising.
    • Sauna operators.
    • Massage services.
    • Internet bars.
    • Oxygen bars.
  • Where new commercial retailing enterprises satisfy the following criteria, they may, after verification by the labor department and examination by the tax authorities, be exempt from Business Tax, City Maintenance and Construction Tax, the Educational Surcharge, and Enterprise Income Tax for 3 years:
    • Newly retrenched workers employed by the enterprises account for more than 30% of their total employment for the year.
    • The work contracts are for at least 1 year.

    Where the proportion is less than 30% for the year, the enterprises may be granted reductions at the reduction percentage computed by the proportion for 3 years.

    Reduction percentage = New employment of laid-off workers ÷ Total employment × 100% × 2

  • Where currently existing services or commercial retailing enterprises satisfy the following criteria, they may, after verification by the labor department and examination by the tax authorities, be exempt from Enterprise Income Tax for 3 years:
    • Newly retrenched workers employed by the enterprises account for more than 30% of their total employment for the year.
    • The work contracts are for at least 1 year.

      The following enterprises are excluded from the incentives:

    • Advertising.
    • Sauna operators.
    • Massage services.
    • Internet bars.
    • Oxygen bars.
  • Where commercial retailing enterprises satisfy the following criteria, they may, after verification by the labor department and approval by the tax department, be allowed to make deductions from their tax payable for Enterprise Income Tax, for the settlement of each retrenched worker, before the end of 2005. The allowable deduction is 2,000 yuan per worker per year:
    • The enterprises are concurrently engaged in wholesaling.
    • They employ retrenched workers.
    • The work contracts are for at least 1 year.

    Where the tax payable for the current year is insufficient for the deduction, it may be carried forward to the next year.

  • Where the processing enterprises of labor employment services enterprises or small enterprises of a processing nature in the community satisfy the following criteria, they may, after verification by the labor department and approval by the tax department, be allowed to make deductions from their tax payable for Enterprise Income Tax, for the settlement of each retrenched worker. The allowable deduction is 2,000 yuan per worker per year.
    • The enterprises are concurrently engaged in wholesaling.
    • They employ retrenched workers.
    • The work contracts are for at least 1 year.

    Where the tax payable for the current year is insufficient for the deduction, it may be carried forward to the next year, for a maximum of 2 years.

  • Where economic entities set up by the large or medium-size State enterprises to settle additional workers through the separation of key businesses and supplementary businesses, and through systemic reform of supplementary businesses, they may, upon verification by the labor department and approval by the tax department, be exempt from Enterprise Income Tax for 3 years, if they meet the following conditions:
    • They utilize the non-key business assets or idle assets of the previous enterprises, or the effective assets of the shut-down or bankrupt enterprises.
    • They practise independent accounting.
    • They show clear ownership or adopt multiple ownership.
    • They absorb the additional workers of the previous enterprises, with these workers amounting to at least 30% of their total employment, and they amend or sign new work contracts with the settled workers.

      The following enterprises are excluded from the incentives:

    • Enterprises in the financial or insurance sectors.
    • Enterprises in the postal services or telecommunications sectors.
    • Enterprises engaged in construction, entertainment, sales of immovable property, or transfers of land-use rights.
    • Advertising.
    • Sauna operators.
    • Massage services.
    • Internet bars.
    • Oxygen bars.
    • Trade enterprises engaged in wholesaling, or retailing and wholesaling.
    • Other non-retailing businesses.
  • Where retrenched workers satisfy the following criteria, they may be exempt from Business Tax, City Maintenance and Construction Tax, the Educational Surcharge, and Individual Income Tax for 3 years, starting from the date they receive their tax registration certificates:
    • They are engaged in individual household businesses.
    • They employ more than seven retrenched workers.

      The following businesses are excluded from the incentives:

    • Construction.
    • Entertainment.
    • Advertising.
    • Sauna operators.
    • Massage services.
    • Internet bars.
    • Oxygen bars.
  • Where payers of Enterprise Income Tax settle retrenched and unemployed workers, the following allowances obtained in accordance with the rules stipulated by the Ministry of Finance, the Ministry of Labor and Social Security may be exempt from Enterprise Income Tax:
    • Social insurance subsidies.
    • Allowances (for certain positions).

Army-Related Incentives

Tax incentive policies have been instituted for the following individuals:

  • Cadres transferred from the army.
  • Soldiers retired from the army.
  • Family members of those serving in the army.

Transferred Cadres

  • Where new enterprises set up for settling cadres transferred from the army satisfy the following criteria, they may be exempt from Business Tax and Enterprise Income Tax for 3 years, starting from the date they receive their tax registration certificates:
    • The cadres are allowed to choose their own jobs.
    • The cadres account for more than 60% of the total employees of the enterprises.

Where cadres transferred from the army are engaged in individual household businesses, they may be exempt from Business Tax and Individual Income Tax for 3 years, starting from the date they receive their tax registration certificates.

Retired Soldiers

  • New services enterprises set up for settling job-seeking soldiers from the city and retired from the army, may enjoy the same tax incentives as those given to new services enterprises that settle retrenched workers.
  • New commercial retailing enterprises set up for settling job-seeking soldiers from the city and retired from the army, may enjoy the same tax incentives as those given to new commercial retailing enterprises that settle retrenched workers.
  • Job-seeking soldiers from the city and retired from the army who are engaged in individual household businesses, may enjoy the same tax incentives as those given to retrenched workers engaged in individual household businesses.

Family Members

  • Enterprises set up for settling the family members of those serving the army may enjoy exemptions from Business Tax and Enterprise Income Tax for 3 years, starting from the date they receive their tax registration certificates.
  • Where family members of those serving in the army are engaged in individual household businesses, they may enjoy exemption from Business Tax and Enterprise Income Tax for 3 years, starting from the date they receive their tax registration certificates.

Social Welfare Enterprises

  • Social welfare production enterprises run by the civil affairs department, street committees, villages, or townships, may be exempt from VAT (levied first, then refunded), upon approval by the tax department, if they satisfy the following criteria:
    • They settle handicapped individuals.
    • These individuals account for more than 50% of the total employees of the enterprises.

      If the proportion is 35%–50%, and if losses are incurred, upon approval by the tax department, the VAT levied may be partially or totally refunded.

      However, these incentives are not applicable in the following cases:

    • Sales of taxable goods subject to Consumption Tax.
    • Sales of products to other enterprises for export.
  • Social welfare enterprises run by the civil affairs department, street committees, villages, or townships, may be exempt from Business Tax, if they satisfy the following criteria:
    • They are engaged in the services industry (excluding advertising).
    • Their employment of the disabled accounts for more than 35% of their total employment.
  • Social welfare factories run by the civil affairs department, street committees, villages, or townships, may be granted 50% reductions for Enterprise Income Tax, if their employment of the disabled accounts for 10%–35% of their total employment.

    Exemptions may be granted if the proportion exceeds 35%.

Incentives for the Disabled

  • Labor services provided by the disabled may be exempt from VAT and Business Tax.
  • The following items for special use by the disabled that are in line with State rules may be exempt from VAT:
    • Domestically produced artificial limbs, wheelchairs, or orthopedic tools.
    • Imported articles.

    Imported products may be exempt from Customs duties and import Consumption Tax as well.

  • Enterprises that produce or assemble articles for special use by the disabled, in line with prevailing rules, may be exempt from Enterprise Income Tax during the period 2004–2005.

Donations for Disaster Relief

  • Where materials are donated to disaster-hit areas of China, they may be exempt from Customs duties, as well as import VAT and Consumption Tax.
    • The materials are donated by foreign civil organizations, enterprises, friends, overseas Chinese, Hong Kong residents, or compatriots from Taiwan or Macao.
    • They are directly used for disaster relief.
    • The quantities are reasonable.

      The materials may include the following items:

    • Food.
    • Clothes.
    • Medicines.
    • Relief equipment.

Poverty Alleviation, Charitable Causes

  • Where materials are imported and donated to aid poverty alleviation efforts or charitable causes, they may be exempt from Customs duties, as well as import VAT and Consumption Tax.
    • The materials are donated by natural persons, legal entities, or other organisations outside China.
    • They are donated through stipulated social organizations within China, State Council departments, or the People's Government at the provincial level.
    • They are directly used for poverty alleviation or charitable causes. The materials may include the following items:
    • Clothes.
    • Bedclothes.
    • Food.
    • Drinking water.
    • Medicines.
    • Medical equipment.
    • Study articles.
    • Special environmental protection apparatus.

Minority Nationalities

  • Where nationality trade enterprises or cooperative firms at the county level sell goods in nationality trade counties in accordance with prevailing rules, 50% of the VAT collected may be refunded.

    Where nationality trade enterprises or grassroots cooperative firms below the county level sell goods in nationality trade counties in accordance with prevailing rules, the goods sold may be exempt from VAT.

  • Where border sales of tea, pressed tea, or brick tea are handled by the following entities, the sales may be temporarily exempt from VAT:
    • Specified enterprises.
    • Sales units set up specially to handle the beverage needs of minority nationalities. These teas are daily necessities for minority nationalities in the following areas:
    • Xinjiang.
    • Tibet.
    • Inner Mongolia.
    • Qinghai.
    • Gansu.
    • Ningxia.
    • Sichuan.
  • Where normal VAT payers print the following publications in minority nationality languages, the VAT payable on the publications may be levied, then refunded:
    • Books.
    • Newspapers.
    • Periodicals.
  • Where the following entities provide raising services, the services may be exempt from Business Tax:
    • Homes for the aged.
    • Welfare institutions for the handicapped.
    • Matchmaking firms.
    • Funeral homes

Lottery Tickets

  • No Business Tax is levied on the revenue derived by welfare lottery issuance institutions from the sale of lottery tickets.

    Temporary exemptions may also be granted for Enterprise Income Tax.

  • Where individuals win prizes from buying lottery tickets, the prizes may be granted temporary exemptions from Individual Income Tax.

    Each win must be less than 10,000 yuan each time.

Non-Profit Welfare Service Institutions

  • Non-profit welfare service institutions for the aged set up by government organs or enterprises, institutional units, social organizations, or individuals may be temporarily exempt from Enterprise Income Tax.

    The following items are self-used by these institutions may be exempt from City and Township Land Use Tax, House Property Tax, and Vessel and Vehicle Use Tax:

    • Land.
    • Houses.
    • Vehicles.
    • Vessels

    Where enterprises, institutional units, social organizations, or individuals make donations to these institutions through government organs or non-profit social organizations, the donations may be totally deductible from taxable income for Enterprise Income Tax and Individual Income Tax.

Social Security Funds

  • Where the following entities derive income from the price differential achieved in the course of buying or selling securities investment funds, shares, or bonds, using social security funds, the income may be temporarily exempt from Business Tax:
    • The All China Social Security Fund Board.
    • The managers of investments made by social security funds.
  • The following types of income may be granted temporary exemptions from Enterprise Income Tax:
    • Interest income from social security funds managed by the All China Social Security Fund Board or by the managers of investments made by social security funds.
    • Income derived from the securities market by social security funds.

State-Specified Areas

  • Where enterprises are newly set up in the following State-specified areas, they may, upon approval by the tax authorities, be granted reductions or exemptions for Enterprise Income Tax for 3 years, starting from the date they commence production or business operations.

Autonomous Areas

  • Where enterprises in autonomous areas need encouragement or special treatment, upon approval by the People's Government at the provincial level, they may be granted reductions or exemptions for Enterprise Income Tax for specified periods.

Insurance

  • Where units or individuals make the following payments, at the percentage stipulated by the State, to designated financial institutions, the payments by the units may be deducted from their taxable income for Enterprise Income Tax; the payments by the individuals may be exempt from Individual Income Tax. When the individuals receive the payments described above, exemptions from Individual Income Tax may also be granted.
    • Premiums for basic pension insurance, basic medical insurance, or unemployment.
    • House reserve funds.

      Interest income from the following funds may also be exempt from Individual Income Tax:

    • Basic pension insurance funds.
    • Basic medical insurance funds.
    • Unemployment insurance funds.
    • House reserve funds.

Donations

  • Where enterprises make donations to the following entities or areas, through non-profit social organizations, or government organs in China, the donations may be deducted from their taxable income for Enterprise Income Tax in accordance with prevailing rules:
    • The civil affairs department.
    • Areas hit by natural disasters.
    • Poverty areas.

Social Welfare Development Funds

  • Interest income earned by non-profit funds set up in accordance with State rules may be temporarily excluded from taxable income for Enterprise Income Tax.
    • It is used to promote social welfare development.
    • It is derived from fund deposits in financial institutions

Retrenched, Terminated Workers

  • The following payments or income may be granted certain exemptions from Individual Income Tax:
    • Lump-sum settlement payment for employees of enterprises that have declared bankruptcy.
    • Lump-sum payments of compensation for individuals whose work contracts have been terminated.
    • Business income or remuneration from personal services earned by retrenched workers who are engaged in community services.
  • Relief payment or bereaved compensation paid by the civil affairs department may be exempt from Individual Income Tax.
  • Income earned by the following individuals may be eligible for reductions for Individual Income Tax, upon approval:
    • The handicapped.
    • Old orphans.
    • Families of revolutionary martyrs.
    • Individuals suffering heavy losses from severe natural disasters.
  • Where individuals make donations to the following causes or areas, through social organizations or government organs in China, the donations may be deducted from their taxable income in accordance with prevailing rules:
    • Social causes that benefit the public.
    • Disaster-hit areas.
    • Poverty areas.

Farmland Occupation Tax

Exemptions or reductions may be granted in the following cases:

  • Where the following individuals build new houses that conform to stipulated standards for land use, and where they have true difficulty paying tax, the incentives may apply:
    • Families of revolutionary martyr.
    • Revolutionary military service people who are handicapped.
    • Widows or orphans living in the countryside.
    • Farmers who lead difficult lives in old revolutionary base areas, minority nationality areas or distant, remote mountain regions.
  • The incentives may apply to welfare factories set up by the civil affairs department for settling the employment of the handicapped.
  • Where the State constructs roads in the form of work instead of relief in the following areas, and where the taxpayers have genuine difficulty paying the tax, the incentives may apply:
    • Old revolutionary base areas.
    • Minority nationality areas.
    • Distant, remote mountain regions.
  • The incentives may apply to land used for funeral parlors or crematoriums.
  • Where land is occupied for the construction of the following facilities, and where the construction is funded by funds from the social welfare lottery, or by donations from units or individuals, the incentives may apply:
    • City community service facilities for the aged.
    • Places of activities.
    • Homes for the care of the aged in the countryside.

Vehicles for the Handicapped

  • Special vehicles for the convenience of the handicapped may be exempt from Vessel and Vehicle Use Tax.

Stamp Tax

  • Where property owners execute documents to gift property to social welfare units that support aged orphans, the documents may be exempt from Stamp Tax.

Agriculture Tax

  • Key counties involved in State poverty relief development may be exempt.
  • Reductions may be granted to peasants living in the following areas, if they are not exempt from tax, and if production or life in these areas is difficult:
    • Old revolutionary bases.
    • Minority nationality areas.
    • Remote mountain areas.

THE THIRD INDUSTRY

Business Tax

Exemptions

Exemptions may be granted in the following cases:

  • Nursing services provided by the following centers may be exempt:
    • Nurseries.
    • Kindergartens.
    • Homes for the aged.
    • Welfare institutions for the handicapped.
  • Matchmaking services may be exempt.
  • Funeral services may be exempt.
  • Services provided by the disabled on an individual basis for society may be exempt.

    Where VAT is applicable, exemptions from VAT may be granted.

  • Where the following institutions charge State-specified prices for medical services, their medical service income may be exempt:
    • Non-profit medical institutions.
    • Disease control institutions.
    • Women/children's health institutions.
    • Health institutions.

    Profit-making medical institutions may enjoy the same treatment for a specified period if they satisfy the relevant criteria.

  • Educational services provided by schools or other educational institutions may be exempt.
  • Services provided by students participating in part-time work may be exempt.
  • Agricultural technology services may be exempt.
  • Technical training services may be exempt.
  • Exemptions may be granted to insurance companies that operate the following businesses, where the policies sold have a term of 1 year or more, and where the principal and interest are paid back at the end of the term:
    • Ordinary life insurance.
    • Pension insurance for the aged.
    • Health insurance.
  • Where units or individuals derive income from the following technology-related activities may be exempt, the income may be exempt, upon verification by the relevant science and technology department at the provincial level, and approval by the local tax bureau at the provincial level:
    • Transfer of technology.
    • Technology development.
    • Relevant technology consultation or technical services.

Temporary Exemptions

  • Business revenue earned by new services enterprises for settling laid-off workers may be exempt for 3 years.
  • Individual households engaged in community services may be exempt for 3 years.

Enterprise Income Tax

Reductions or exemptions may be granted in the following cases:

  • Where the following entities derive income from the provision of technical or labor services, that income may be temporarily exempt:
    • Agricultural technology education stations.
    • Plant protection stations.
    • Water conservancy stations.
    • Forestry stations.
    • Animal husbandry veterinary stations.
    • Aquatic product stations.
    • Seed stations.
    • Farming machinery stations.
    • Meteorological observatories.
    • Farmers Technology Professional Society.
    • Professional cooperative firms.
    • City and township enterprises or units.
  • Where new enterprises or units are engaged in the following activities, their income may be exempt for 2 years, starting from the date that they commence production or business operations:
    • Consultation (in areas such as science, technology, law, accounting, auditing, and taxation).
    • Information technology (in areas such as the collection, dissemination, and use of statistics; science, technology, and economic data; advertising; and computer application services).
    • Technical services.
  • Upon verification, new software enterprises may, from the first profit-making year, enjoy exemptions for the first and second years, and 50% reductions for the third to fifth years.
  • Where new enterprises or units are engaged in the following sectors, they may be exempt for 1 year and enjoy 50% reductions, starting from the day that they commence production or business operations:
    • Transportation.
    • Postal services.
    • Telecommunications.
  • Newly set-up enterprises engaged in the following businesses may apply to the tax authorities for exemptions for the first to second years and 50% reductions for the third to fifth years, if their income from these businesses accounts for more than 70% of their total income.
    • Traffic and transportation.
    • Postal services.
    • Telecommunications.

      The tax holidays shall be applied in the following manner:

    • Domestic enterprises: From the date that they commence production or business operations.
    • Enterprises with foreign investment and operational periods of at least 10 years: From the first profit-making year.
  • New enterprises or units engaged in the following activities or areas may, upon approval by the tax authorities, enjoy reductions or exemptions for 1 year, starting from the date that they commence production or business operations:
    • Public causes.
    • Commerce.
    • Materials.
    • Foreign trade.
    • Tourism.
    • Warehousing.
    • Resident services.
    • Catering.
    • Education.
    • Culture.
    • Health causes.
  • New city and township labor employment settlement services enterprises set up in accordance with prevailing rules may be exempt for 3 years.

    After the tax holiday expires, they may enjoy 50% reductions for 2 years if the percentage of new employment of laid-off workers meets the standards.

  • Where new services enterprises or commercial retailing enterprises that are set up in accordance with prevailing rules, settle laid-off workers, the enterprises may be eligible for exemptions or reductions for 3 years.

    Where currently existing services enterprises or commercial retailing enterprises that have been set up in accordance with prevailing rules, settle laid-off workers, the enterprises may be eligible for 30% reductions for 3 years.

  • Where commercial retailing enterprises that are set up in accordance with prevailing rules, settle laid-off workers, and where the enterprises are concurrently engaged in wholesaling, the enterprises may be eligible for exemptions or reductions based on the number of retrenched workers employed.
  • The commercial retailing enterprises settling the laid-off workers set up by rules and concurrently engaged in wholesales may be eligible for reduction of Enterprise Income Tax based on the number of laid-off workers employed.
  • Where the following institutions charge State-stipulated prices for medical services, their medical service income may be exempt:
    • Non-profit medical institutions.
    • Disease control institutions.
    • Women/infants health institutions.
    • Health institutions.

    Where these institutions derive income from other businesses, and where that income is used to improve medical conditions at the institutions, the income may be deducted from their taxable income, upon approval by the tax authorities.

    Some profit-making medical institutions may enjoy the same incentives for a specified period if they satisfy State-stipulated criteria.

  • Welfare or non-profit services institutions for the aged set up by the following entities, may be temporarily exempt:
    • Government organs.
    • Enterprises.
    • Institutional units.
    • Social organizations.
    • Individuals.
  • Donations made by the following entities to welfare or non-profit services institutions for the aged, through government organs or non-profit social groups, may be totally deductible from taxable income for the year:
    • Enterprises.
    • Institutional units.
    • Social organizations.
    • Individuals.
  • Places set up for the public benefit of the young may be exempt.
  • Donations made by taxpayers to places for the public benefit of the young, through nonprofit social groups or government organs in China, may be totally deductible from taxable income of the year.
  • Temporary exemptions may be granted for technical service income derived by science and research units or universities from the following activities:
    • Transfer of technology achievements.
    • Technical training.
    • Technical consultation.
    • Technical services.
    • Technical subcontracting.
  • Where non-profit science and research institutions derive income from engagement in the following activities, the income may be exempt:
    • Technology development.
    • Technology transfer.
    • Relevant technical consultation or technical services.

    Where the institutions obtain income from activities not relevant to their science and research businesses, that portion of the income invested to improve conditions for research and development may, upon approval by the tax authorities, be deducted from their taxable income.

  • Where enterprises with foreign investment are scheduled to operate for a period of not less than 10 years, and where they are engaged in the following activities, they shall, from the first profit-making year, be granted exemptions for the first to second years, and 50% reductions for the third to fifth years:
    • The development of science and technology.
    • Geological survey and industrial information consultation.
    • Maintenance or repair services for production equipment or precision instruments that are directly used in the course of production.

    Where the enterprises are set up in backward, remote areas, their tax payable may be reduced by 15%–30% for 10 years after the expiration of the tax holiday described above.

  • Where foreign enterprises earn royalties for the following activities, the royalties may be subject to a reduced rate of 10%:
    • The supply of technical know-how in scientific research.
    • The exploitation of energy resources.
    • The development of communications industries.
    • The development of agricultural, forestry, or animal husbandry production.
    • The development of important technologies.

    Where the technology supplied is advanced, or where the enterprises offer preferential terms to clients in China, exemptions may be granted.

Individual Income Tax

  • Donations made by the following entities to welfare or non-profit services institutions for the aged, through government organs or non-profit social groups, may be totally deductible from taxable income:
    • Enterprises.
    • Institutional units.
    • Social organizations.
    • Individuals.
  • Where retrenched workers derive the following types of income from community services, the income may be exempt for 3 years:
    • Production or business operations income.
    • Labor remuneration income.

Special Categories

Medical and Welfare Institutions

  • Land, houses, vehicles, or vessels self-used by the following institutions may be exempt from City and Township Land Use Tax, House Property Tax, and Vessel and Vehicle Use Tax:
    • Non-profit medical institutions.
    • Disease control institutions.
    • Women/childcare institutions.
    • Health institutions.
    • Welfare or non-profit institutions for the aged set up by the Government, enterprises, institutional units, social groups, or individuals.

    Some profit-making medical institutions that satisfy State-stipulated criteria may enjoy these incentives for a specified period.

Non-Profit Science Research Institutions

  • Where the following items are for self-use, the items may be exempt from City and Township Land Use Tax and House Property Tax:
    • Land.
    • Houses.

University Logistics Economic Entities

  • Before the end of 2005, exemptions for Business Tax and Enterprise Income Tax may be granted for the following types of income.
    • Rental or service income earned by university logistics economic entities that have split off from the university logistics administration department, and that have independent accounting and legal status: The income may be derived from the management of teacher/student apartments, or from the provision of logistics services for tertiary-level teaching.
    • Rental income earned by student apartments that are set up with social investments for the provision of housing services to university students, and that charge rental on a uniform basis.
    • Catering service income earned by canteens set up on campus with social management and independent accounting: The income is derived from the provision of catering services to teachers and students.
  • VAT exemptions may be granted from the following types of revenue:
    • Revenue from the provision of grains, edible oil, vegetables, meat, livestock, eggs, spices, or kitchen tools.
    • Revenue from the external sales of fast food to other universities.
  • Income earned by university logistics economic entities may be exempt from Enterprise Income Tax.
  • Rental charged by student apartments in compliance with uniform standards may be exempt from Enterprise Income Tax.
  • University logistics economic entities may be exempt from City and Township Land Use Tax and House Property Tax.
  • Land used for the construction of student apartments as part of university logistics reform may, upon approval, be exempt from Farmland Occupation Tax.
  • Where student apartments provide housing services to university students, and charge fees in compliance with uniform standards, they may be exempt from House Property Tax.
  • Documents signed with university students for the rental of student apartments may be exempt from Stamp Tax.

FINANCE, INSURANCE, SECURITIES

Business Tax

No tax is imposed on the following items or activities:

  • Loans made by the People's Bank of China to financial institutions.
  • Interest revenue derived from the intra-financial institution's use.
  • Interest income derived from the borrowing of funds.
  • Interest income derived by units or individuals from savings in financial institutions.
  • Insurance provided by insurance institutions within China for exported goods.
  • Export credit insurance offered by approved financial and insurance enterprises.
  • Indemnity payments pursued back by insurance companies.
  • Foreign exchange, marketable securities, securities investment funds, or non-goods futures purchased or sold by non-financial institutions or individuals.
  • The pooling of funds through the issuance of securities investment funds.

Exemptions

Exemptions may be granted in the following cases:

  • Insurance premiums derived from the following insurance businesses operated by insurance companies may be exempt:
    • Ordinary life insurance, annuity insurance, or health insurance, where the policies have a term of 1 year or more, and where the principal and interest are paid back when the policy matures.
    • Other ordinary life insurance, annuity insurance, or health insurance, as approved by the Ministry of Finance, and the SAT.
  • Interest derived from the following loans may be exempt:
    • Loans turned from special State debts.
    • State education support loans.
  • Exemptions may be granted for income derived by managers of securities investment funds from price differentials achieved in the following activities:
    • The buying and selling of stocks using the funds under management.
    • The buying and selling of bonds using the funds under management.

Enterprise Income Tax

Exemptions

  • Exemptions may be granted for interest income derived from State debts purchased by enterprises or other units.
  • Exemptions may be granted for income derived by managers of securities investment funds from price differentials achieved in the following activities:
    • The buying and selling of stocks using the funds under management.
    • The buying and selling of bonds using the funds under management.

Other Incentives

Enterprises with foreign investment or foreign enterprises may enjoy the following incentives:

  • Exemptions may be granted for interest on the following types of loans:
    • Loans made to the Chinese Government and Chinese State banks by international financial organizations.
    • Loans made at a preferential interest rate to Chinese State banks by foreign banks.
  • Interest income derived from within China by the following types of foreign enterprises, shall be subject to a 10% rate:
    • Enterprises that have no establishment/place in China.
    • Enterprises that have establishments/places in China, if those establishments/places are unrelated to the interest income.

      Foreign enterprises that already enjoy exemptions shall be excluded.

  • Dividend or interest income derived by foreign enterprises from the following regions, may be eligible for exemptions, or a reduced rate of 10%:
    • Special Economic Zones.
    • Economic and Technological Development Zones.
    • Coastal Economic Open Zones.
    • Other open areas approved by the State.

      In addition, for those enterprises that provide funds under special preferential terms, further exemptions or reductions may be available at the discretion of the Provincial Governments or Municipal Governments in the locales where their establishments are situated.

  • Foreign banks or banks with Sino-foreign investment that are established in the following areas, may be eligible for a 15% rate, if the capital input by the foreign investors or the operating funds of the branches appropriated by the head office exceed US$10 million, and if the operational period exceeds 10 years:
    • Special Economic Zones.
    • Other areas approved by the State Council.

      Moreover, these taxpayers may apply to the relevant local tax offices, for exemptions for the first year and 50% reductions for the second to third years, starting from the first profit-making year.

Individual Income Tax

Exemptions

Exemptions may be granted for the following items:

  • Interest income from State bonds.
  • Interest income from education savings.
  • Interest income from other special fund savings, or special funds of a savings nature as specified by the financial department of the State. Examples of the latter are listed below:
    • Basic pension insurance funds.
    • Basic medical insurance funds.
    • Unemployment insurance funds.
    • House reserves.
  • Insurance indemnities.

Temporary Exemptions

Temporary exemptions may be granted for the following items:

  • Income derived from the transfer of stock or from securities investment funds.
  • Interest income from State bonds distributed by securities investment funds.
  • Income derived from price differentials achieved in the course of buying and selling stocks.
  • Prizes awarded in the form of share rights by science research institutes or universities to individuals for transformational science and technological achievements. Examples of share rights are listed below:
    • Shares.
    • Investment percentage.
  • Dividends received by foreigners from enterprises with foreign investment.

Stamp Tax

Exemptions

The following items may be exempt:

  • Documents for the following types of loans:
    • Loans made free of interest.
    • Loans made at a discounted interest rate.
  • Documents executed by foreign governments or international financial organizations for providing favored loans to the Chinese Government or State financial institutions.

Temporary Exemptions

The following items may be temporarily exempt:

  • Insurance contracts for the following items or activities:
    • Agriculture.
    • Forestry plants.
    • Animal husbandry.
  • Investors buying securities investment fund units.

Customs Duties/Tariffs

  • Exemptions may be granted for equipment imported by means of loan projects undertaken by foreign governments or international financial organizations.

Special Categories

Countryside Cooperatives

Countryside cooperative firms may enjoy the incentives discussed below.

  • The Business Tax rate may be reduced to 3% for firms operating in the countryside credit cooperatives reform experiment areas, which comprise 29 provinces/autonomous regions/municipalities directly under the State Council, except Qinghai and Tibet.
  • From 2004 to 2006, firms operating in the countryside credit cooperatives reform experiment areas in the western and central parts of China may be temporarily exempt from Enterprise Income Tax.

    Those in reform areas in other parts of China may enjoy 50% reductions.

  • Cooperatives operating in poor counties, as verified by the State, may be exempt from Enterprise Income Tax for a specified period.

    Cooperatives earning thin profit in other areas may be taxed at a lower rate, with reference to rules governing standard thin-profit enterprises.

Gold Production, Management, Trading Units

  • These units may enjoy the incentives discussed below.
  • VAT exemptions may be granted for gold/gold ores sold by gold production/management units.
  • Import VAT exemptions may be granted for the importation of gold/gold ores.
  • Where gold trading firm members sell standard gold through gold trading firms, without actual delivering the gold, the sale may be exempt from VAT.

    Where the gold is actually delivered, the tax department may issue special VAT invoices based on the actual price. It may first levy VAT, then refund the VAT collected. No tax is refunded for gold exports.

    At the same time, exemptions may be granted for City Maintenance and Construction Tax and the Educational Surcharge.

  • Where gold ornaments are exported, no tax is refunded on the raw gold materials.

    However, that portion of VAT paid on the processing of the materials shall be refunded.

ENVIRONMENTAL PROTECTION, RESOURCE UTILIZATION

VAT

  • Tax may be levied and refunded for the following items:
    • Power generated using city wastes.
    • Cement produced using wastes specified by State rules.

      Exemptions may be granted for other construction products produced using waste residuals in conformity with State rules.

      Tax may be reduced by half for power or certain new wall materials produced using the following inputs:

    • Coal gangue.
    • Coal slurry.
    • Stone coal.
    • Oil shale.
    • Wind.
  • Exemptions may be granted for waste and used materials re-collection enterprises.

    Production enterprises that use waste and used materials may compute their input tax at 10% of the purchase price of the waste and used materials.

  • Exemptions may be granted for the waste-water processing fees charged by water enterprises, together with water fees under trust by the governments and the relevant departments.
  • Tax is levied, then refunded for comprehensive-use products produced with the following items:
    • Residuals from wood cutting, production, or processing.
    • Second-processing wood, small-diameter wood, or fire wood.

Business Tax

  • Exemptions may be granted for the following activities:
    • Insect prevention.
    • Plant protection.
    • Relevant technical training.

Enterprise Income Tax

  • Where enterprises use waste resources specified by the State as key raw materials in production, reductions, or exemptions may be appropriately granted, for a maximum period of 5 years.
  • Temporary exemptions may be granted for enterprises and their independently accounted branch factories or workshops, where they meet the following criteria:
    • They produce environmental protection equipment, or products encouraged by the State.
    • Their net annual income is less than 300,000 yuan.
  • Depreciation may be accelerated for key equipment used to facilitate environmental protection.
  • Where enterprises with foreign investment make purchases of China-made machinery that exceed the total investment sum in the course of utilizing advanced and suitable new technology, new crafts, new equipment, or new materials, to transform their current facilities or production technology for the following purposes, 40% of the machinery investment may be credited against the increase in tax payable between the year of purchase and the preceding year.
    • To improve economic efficiency.
    • To decrease costs.
    • To save energy.
    • To optimize comprehensive use of resources.
    • To tackle waste residues, waste water or waste gas.
    • To implement labor protection policies.
  • Where foreign enterprises obtain royalties from the provision of technical know-how in the following areas, the royalties may be taxed at a reduced rate of 10%:
    • Energy saving.
    • Treatment or prevention of environmental pollution.

      Where the enterprises supply advanced technology, or where the terms are preferential, exemptions may be granted.

Individual Income Tax

  • Awards for achievements in environmental protection granted by the following bodies or organizations may be exempt:
    • Provincial People's Government.
    • Ministries and Commissions under the State Council.
    • People's Liberation Army Units at army level or above.
    • Foreign or international organizations.

City and Township Land Use Tax

  • The following types of land may be exempt:
    • Land used for water conservancy facilities and protection.
    • Land used for forestry areas and its protection.
  • Wasteland for transforming may be exempt for 5–10 years.
  • Land used for constructing houses or infrastructure for settling immigrants due to reservoir construction, victims of calamity, and refugees.

Vessel and Vehicle Use Tax

  • The following vehicles or vessels may be exempt:
    • Water sprinkler vehicles.
    • Waste removal vehicles or vessels.
  • The following vehicles may be exempt:
    • Road-cleaning vehicles used by the environment and health department.
    • Environment monitoring vehicles used by the environment protection department.

Vessel and Vehicle Usage License Plate Tax

  • The following vehicles or vessels may be exempt:
  • Water sprinkler vehicles.
  • Waste removal vehicles or vessels.

Special Categories

Forestry, Forestry Protection

  • From 2004 to 2010, houses, land, vehicles, or vessels used by enterprises or units engaged in the following projects may be exempt from House Property Tax, City and Township Land Use Tax, and Vessel and Vehicle Use Tax.
    • State natural forestry protection projects in the upstream areas of the Yangtze River, and in the upstream and midstream areas of the Huanghe River.
    • Natural forestry protection projects in the northeast of China and Inner Mongolia.
  • Where houses or land used by forestry enterprises fall out of use for 1 year or more because of State natural forestry protection projects, they may be granted temporary exemptions from House Property Tax and City and Township Land Use Tax.

SPECIFIED REGIONS

Special Economic Zones

Enterprise Income Tax

Various incentives are provided for enterprises established in these zones.

  • Tax may be reduced to 15% for the following enterprises:
    • Enterprises with foreign investment that have been established in the zones.
    • Foreign enterprises engaged in production or business operations that have established institutions/places in the zones.
  • Income derived from the following sources by foreign enterprises from their establishments in the zones may be eligible for a reduced rate of 10% or exemptions:
    • Dividends.
    • Interest.
    • Rental.
    • Royalties.
    • Other income.

      In addition, where enterprises satisfy either of the following criteria, further exemptions or reductions may be granted at the discretion of the Provincial Government or Municipal Governments in the locales where their establishments are situated:

    • They provide funds or equipment under special preferential terms.
    • They transfer advanced technology.
  • A 24% tax rate may be granted for enterprises with foreign investment of a production nature that are established in the old urban districts of cities located in the zones.

    In addition, a 15% rate may, upon approval by the SAT, be granted where these enterprises satisfy the following criteria:

    • They are engaged in technology- or knowledge-intensive projects.
    • Their foreign investment exceeds US$30 million.
    • They have a long investment recovery period.
  • Foreign banks, banks with Sino-foreign investment, or other financial institutions that are established in the zones may be eligible for a 15% tax rate where they satisfy the following criteria:
    • The capital input by the foreign investors or the operating funds of the branches appropriated by the head office exceed US$10 million.
    • The operational period exceeds 10 years.

    Moreover, these taxpayers may, upon approval by the relevant local tax offices, enjoy exemptions for the first year and 50% reductions for the second to third years, starting from the first profit-making year.

  • Enterprises with foreign investment that are established in the zones and that are engaged in the services industry may, upon approval by the relevant local tax office, be exempt from tax for first year, and be eligible for 50% reductions for the second to third years, starting from the first profit-making year, where they meet the following criteria:
    • The foreign investment exceeds US$5 million.
    • The operational period exceeds 10 years.

Coastal Economic Open Zones

Enterprise Income Tax

  • A 24% tax rate may be granted for enterprises with foreign investment of a production nature that are established in the zones.

    In addition, a 15% rate may, upon approval by the SAT, be granted where these enterprises satisfy the following criteria:

    • They are engaged in technology- or knowledge-intensive projects.
    • Their foreign investment exceeds US$30 million.
    • They have a long investment recovery period.
  • Income derived from the following sources by foreign enterprises from their establishments in the zones may be eligible for a reduced rate of 10% or exemptions:
    • Dividends.
    • Interest.
    • Rental.
    • Royalties.
    • Other income.

      In addition, where enterprises satisfy either of the following criteria, further exemptions or reductions may be granted at the discretion of the Provincial Government or Municipal Governments in the locales where their establishments are situated:

    • They provide funds or equipment under special preferential terms.
    • They transfer advanced technology.

Economic and Technological Development Zones

Enterprise Income Tax

  • Enterprises with foreign investment of a production nature that are established in the zones may be taxed at a reduced rate of 15%.
  • A 24% tax rate may be granted for enterprises with foreign investment of a production nature that are established in the zones.

    In addition, a 15% rate may, upon approval by the SAT, be granted where these enterprises satisfy the following criteria:

    • They are engaged in technology- or knowledge-intensive projects.
    • Their foreign investment exceeds US$30 million.
    • They have a long investment recovery period.
  • Income derived from the following sources by foreign enterprises from their establishments in the zones may be eligible for a reduced rate of 10% or exemptions:
    • Dividends.
    • Interest.
    • Rental.
    • Royalties.
    • Other income.

      In addition, where enterprises satisfy either of the following criteria, further exemptions or reductions may be granted at the discretion of the Provincial Government or Municipal Governments in the locales where their establishments are situated:

    • They provide funds or equipment under special preferential terms.
    • They transfer advanced technology.

New- and High-Technology Industry Development Zones

Enterprise Income Tax

  • Where Chinese enterprises or enterprises with foreign investment are recognized as newand high-technology enterprises, and where they are established in the zones, they may be eligible for a 15% tax rate.

    In addition, the following tax holidays may be granted:

    • Chinese enterprises: Exemptions for 2 years, starting from the date that they commence production or business operations.
    • Sino-foreign joint ventures with operational periods of 10 years or more: Exemptions for the first to second years, starting from the first profit-making year.

Open Cities

Border Open Cities

These cities are located along China's borders. Examples are listed below.

  • Manzhouli.
  • Huichun.
  • Pingxiang.
  • Ruili.
  • Yining.
  • Erlianhaote.
Enterprise Income Tax

A 24% tax rate may apply to enterprises with foreign investment that are set up in such cities.

River Open Cities

These cities are located along China's rivers. Examples of such cities along the Changjiang River are listed below:

  • Wuhu.
  • Jiujiang.
  • Wuhan.
  • Yueyang.
  • Yichang.
  • Chongqing.
Enterprise Income Tax

Tax incentives applicable to the Coastal Economic Open Zones are applicable to such cities.

Inland Open Cities

Examples of such cities are listed below:

  • Beijing.
  • Shijiazhuang.
  • Taiyuan.
  • Huhehaote.
  • Haerbin.
  • Changchun.
  • Nanchang.
  • Hefei.
  • Zhengzhou.
  • Changsha.
  • Nanning.
  • Chengdu.
  • Kunming.
  • Guiyang.
  • Xi'an.
  • Lanzhou.
  • Xining.
  • Yinchuan.
  • Urumiqi.
Enterprise Income Tax

Tax incentives applicable to the Coastal Economic Open Zones are applicable to such cities.

National Tour and Holiday Resorts

Examples are listed below:

  • Hainan: Yalong Bay.
  • Kunming: Dianchi.
  • Beihai: Yintan Beach.
  • Fujian: Wuyi Mountain.
  • Jiangsu: Taihu Lake.
  • Dalian: Jinshitan.

Enterprise Income Tax

A 24% tax rate may be applicable to enterprises with foreign investment that are established in such resorts.

Poverty Areas

  • Agriculture Tax exemptions may be granted for key counties where State poverty relief development work is being undertaken.

    Reductions may be granted for peasants living in the following areas, where agricultural production or life is difficult, and where no exemptions have been granted:

    • Old revolutionary bases.
    • Minority nationality areas.
    • Mountainous areas.
  • Enterprises newly set up in the following State-specified areas may, upon approval by the tax authorities, be granted reductions or exemptions from Enterprise Income Tax for 3 years, starting from the date that they commence production or business operations:
    • Old revolutionary bases.
    • Minority nationality areas.
    • Remote areas.
    • Poverty areas.
  • Where enterprises satisfy the following criteria, they may be eligible for Enterprise Income Tax reductions or exemptions for a specified period, upon approval by the People's Government at the provincial level:
    • They are established in autonomous regions.
    • They need encouragement or special treatment.
  • Where enterprises with foreign investment are established in backward areas, and where their statutory tax holidays have expired, Enterprise Income Tax reductions by 15%–30% may be granted for 10 years following the expiry of the tax holidays:
  • Where enterprises with foreign investment satisfy the following criteria, they may pay Enterprise Income Tax at a 15% rate for 3 years after the expiry of their statutory tax holidays (2-year exemption; 3-year reduction):
    • They are established in the central and western parts of China.
    • They are engaged in industries that are encouraged by the State.

      Where the enterprises satisfy the following criteria as well, they may enjoy a 10% rate for Enterprise Income Tax:

    • They are verified as export-oriented enterprises.
    • Their exports account for more than 70% of their total production for the year.
  • Where peasants living in the following areas construct new houses that conform to specified standards, and where they have difficulty paying Farmland Occupation Tax, reductions or exemptions may be granted:
    • Old revolutionary base areas.
    • Minority nationality areas.
    • Distant, remote mountainous regions.
  • Where roads are constructed in the form of work instead of relief in the following areas, and where it is difficult to pay Farmland Occupation Tax, reductions or exemptions may be granted:
    • Old revolutionary base areas.
    • Minority nationality areas.
    • Distant, remote mountainous regions.

Border Areas

  • Where border residents import everyday living articles imported through border trade fairs, that portion not exceeding 3,000 yuan per person per day may be exempt from import Customs duties, import VAT, and Consumption Tax.

Western Parts of China

Various incentives are provided for enterprises established or activities carried out in the western parts of China (including 12 provinces/autonomous regions/municipalities directly under the State Council as stipulated by the State Council, and other areas).

  • Where domestic enterprises or enterprises with foreign investment satisfy the following criteria, they may apply to the tax department to be taxed at a rate of 15% for Enterprise Income Tax from 2001 to 2010:
    • They are engaged mainly in industries encouraged by the State.
    • Income from their key business accounts for more than 70% of their total income for the current year.
  • Where newly set-up enterprises satisfy the following criteria, they may apply to the tax authorities for exemptions from Enterprise Income Tax in the first to second years, and 50% reductions in the third to fifth years.
    • They are engaged in the transportation, electrical power, water conservation, postal services, or television and radio broadcasting industries.
    • Their income from these businesses account for more than 70% of their total income. The tax holidays shall be applied in the following manner:
    • Domestic enterprises: Starting from the date that they commence production or business operations.
    • Enterprises with foreign investment: Starting from the first profit-making year.
  • Land used for the construction of national or provincial roads may be exempt from Farmland Occupation Tax, with reference to rules governing land used for railways and civil aviation.

    Exemptions for other types of land use shall be determined by the People's Government at the provincial level.

IMPORTS AND EXPORTS

Exports of Self-Produced Goods

  • Where taxpayers export self-produced goods or entrust exportation to foreign trade enterprises, and where the goods are not prohibited by the State from export, the taxpayers may bring the relevant documents to the tax authorities for exemptions, credits, or refunds for VAT and Consumption Tax, after declaring the goods to Customs for exportation, and recording financially as sales treatment.

    The same treatment may be granted to production enterprises that undertake overseas repairs, where the following circumstances apply:

    • The machinery or electrical products are subcontracted to domestic enterprises after foreign enterprises win the bid.
    • The machinery or electrical products are subcontracted to domestic enterprises after they win the bid, using loans from international financial organizations or foreign governments.

Special Category Goods

The following goods have been granted special permission for refunds or exemptions for VAT, Consumption Tax and Customs duties:

  • Goods or taxable consumer goods transported by foreign subcontracting project companies out of China for use in overseas subcontracting projects.
  • Goods or taxable consumer goods purchased by enterprises in China and transported out of China as part of the capital investment made overseas.
  • Equipment, raw materials, or parts exported for used in overseas processing and assembly.
  • Goods or taxable consumer goods exported by means of foreign-aid preferential loans provided by the Chinese government and foreign-aid joint equity and cooperative program funds.
  • Taxable consumer goods exported in the course of foreign compensation trade, barter trade, or small quantity trade.
  • Goods or taxable consumer goods sold by foreign ship supply companies or ocean shipping companies to foreign vessels or Chinese oceangoing ships, where the transactions are conducted in foreign currency.
  • Goods sold at duty-free shops at the exit ports.
  • Special goods purchased by export enterprises from small taxpayers with ordinary invoices.

    Examples are listed below:

    • Drawnwork.
    • Art products.
    • Fishing tools.
    • Mountain products.
    • Paper products.
  • Goods or taxable consumer goods purchased by enterprises inside bonded zones from areas outside the zones, in accordance with rules governing export or export after processing.
  • Domestically made equipment, raw materials, or parts sold and delivered by enterprises outside export-processing zones to enterprises inside the zones for use within the zones.
  • Water, electricity, or gas consumed by production enterprises in export processing zones for the production of export goods.
  • Domestically made equipment procured by enterprises with foreign investment, where the following criteria are met:
    • The procurement falls within the total investment sum.
    • The procurement is tax-exempt under State rules (materials or parts purchased together).
  • Domestically made goods or taxable consumer goods that are purchased and self-exported by Sino-foreign joint commercial ventures with import and export rights, set up with the approval of the State Council.
  • Taxable consumer goods used by foreign trade enterprises to undertake foreign repair business.
  • Goods or services purchased in China by foreign embassies/consulates or diplomatic representatives/consuls in China.

Other Goods

The following goods may be exempt from VAT, Consumption Tax, and Customs duties.

However, these goods are not eligible for export tax refunds.

  • Goods that are exported after being processed with imported materials.
  • Contraceptive medicines or tools.
  • Antique or old books.
  • Cigarettes.
  • Goods used by the army.
  • Goods self-produced and exported by small VAT payers.

Imported Goods

The imported goods discussed below may be exempt from Customs duties and import VAT:

  • Where the State encourages and supports the development of foreign investment projects or domestic investment projects, where the following items are imported for the projects, and where the importation does not exceed the total investment sum, the items may be exempt:
    • Equipment for self-use.
    • Technology, accessories, or parts imported together with the equipment.
  • Where enterprises import the following items to manufacture products listed in the Catalog of State High- and New-Technology Products formulated by the Ministry of Science and Technology, the items may be exempt:
    • Equipment for self-use.
    • Technology, accessories, or parts imported together with the equipment.
  • Where software enterprises import the following items, the items may be exempt:
    • Equipment for self-use.
    • Technology, accessories, or parts imported together with the equipment.
  • Where integrated circuit manufacturing enterprises solely import the following items in the course of importing integrated circuit technology or whole sets of production equipment in conformity with State stipulations, the items may be exempt:
    • Integrated circuit equipment.
    • Apparatus.
  • Where integrated circuit manufacturing enterprises import the following items for self-use imported in accordance with State stipulations, the items may be exempt:
    • Raw materials.
    • Consumables.
  • Where enterprises import advanced technology listed in the Catalog of State High- and New-Technology Products formulated by the Ministry of Science and Technology, software fees paid overseas for the importation may be exempt.
  • Where science research institutions or schools specified by the State import goods for research or teaching, the goods may be exempt if the following criteria are met:
    • The goods cannot be produced domestically.
    • The goods are used directly for science research or teaching.
    • The quantities are reasonable.

      The goods may also be exempt from import Consumption Tax.

  • Where the following items are imported directly for use in agricultural science research or testing, the items may be exempt:
    • Equipment.
    • Apparatus.
  • Where goods are imported specially for the use of the handicapped in accordance with State rules, the goods may be exempt,

    The goods may also be exempt from import Consumption Tax.

  • Where equipment is imported using loans from foreign governments or international financial organizations, the equipment may be exempt.
  • Where the following items are imported in the form of free aid or gifts from foreign governments or international financial organizations, the items may be exempt:
    • Materials.
    • Equipment.

      The goods may also be exempt from import Consumption Tax.

  • Where materials are imported by the following entities based overseas and donated to the recipients in accordance with prevailing rules, and where materials are directly used for poverty alleviation or charitable causes, the materials may be exempt:
    • Legal entities.
    • Natural persons.
    • Other organizations.
  • Where the following items are imported and freely donated by overseas legal donors for direct use in the educational programs of vocational schools, high schools, middle schools, primary schools, or kindergartens, the items may be exempt:
    • Teaching equipment.
    • Books.
    • Materials.
    • Educational articles.
  • Where parts are imported to produce electrical equipment or machinery as part of bids won by Chinese machinery or electrical enterprises, the parts may be exempt if the following criteria are met:
    • The parts cannot be produced domestically, or cannot be qualified for demand.
    • The enterprises participate in the bids using loans from foreign governments or international financial organizations.
  • Where the following items related to oil and gas exploration are imported, the items may be exempt if they cannot be produced domestically, or if domestically produced goods cannot meet the requirements for direct surveying or exploration work:
    • Equipment, apparatus, parts, or special tools imported directly for use in offshore oil and gas exploration.
    • Equipment, parts, or special tools imported for onshore oil and gas exploration.
  • Where anti-AIDS medicines are imported before the end of 2006, the medicines may be exempt.

Goods Entering Bonded Zones from Abroad

Goods entering bonded zones from abroad may enjoy the incentives discussed below for Customs duties, import VAT and Consumption Tax.

  • Where the following items are needed for infrastructure construction within the zones, the items may be exempt:
    • Machinery.
    • Equipment.
    • Other materials.
  • The following items used by enterprises within the zones may be exempt:
    • Production or management equipment self-used by the enterprises.
    • Office articles and parts needed for their repair.
    • Fuels for production.
    • Materials or equipment needed for the construction of factory buildings or warehousing facilities.
  • The following items needed for the processing of exported products by enterprises within the zones may be exempt:
    • Raw materials.
    • Parts.
    • Packaging materials.

Donated Disaster Relief Materials

  • Where the following entities donate disaster relief materials to disaster-hit areas of China, certain exemptions for Customs duties, VAT, and Consumption Tax at the importation stage may be granted:
    • Foreign civil organizations, enterprises and friends.
    • Overseas Chinese, Hong Kong residents, and compatriots from Taiwan or Macao.

Imports by Border Residents

  • Where border residents import living goods through border trade, the goods may be exempt from Customs duties, import VAT, and Consumption Tax, if their value does not exceed 3,000 yuan per day per person.

Insurance for Exported Goods

  • Where insurance companies in China derive business revenue from insurance for exported goods, no Business Tax is levied on the revenue.

Foreign Trade Enterprises

  • New foreign trade enterprises may, upon approval by the tax department, be eligible for reductions or exemptions for Enterprise Income Tax for 1 year, starting from the date that they commence production or business operations.

Export-Oriented Enterprises

  • Where enterprises pay Enterprise Income Tax on re-invested profits, the foreign investors may, upon approval by the tax department, be granted full rebates where they meet the following criteria:
    • They directly re-invest in China to open or expand export-oriented enterprises.
    • The enterprises have operational periods exceeding 5 years.

    Where the enterprises do not satisfy the criteria for export-oriented enterprises within 3 years of the date that they commence production or business operations, 60% of the tax rebated should be paid back.

Export Production

  • Where enterprises with foreign investment are engaged in production for exports, and where their statutory exemption and reduction periods have expired, the enterprises may be granted either of the following incentives for Enterprise Income Tax:
    • 50% reductions computed at the statutory tax rate for the current year, if the value of their exports for the year amounts to more than 70% of their total annual production value.
    • A 10% rate, if the enterprises are already subject to a 15% rate.

Exportation Processing

  • Where enterprises with foreign investment satisfy both of the following criteria, they may be eligible for a 15% rate for Enterprise Income Tax:
    • The enterprises are of a production nature.
    • They are engaged in export processing in the bonded zones.

ENTERPRISES WITH FOREIGN INVESTMENT, FOREIGN ENTERPRISES, FOREIGNERS

This section discusses tax incentives for enterprises with foreign investment, foreign enterprises, and foreigners.

The following entities may enjoy also tax incentives with reference to the rules governing incentives for enterprises with foreign investment, foreign enterprises, and foreigners:

  • Enterprises with investment by compatriots from Hong Kong, Macao, or Taiwan.
  • Enterprises with investment by overseas Chinese.
  • Compatriots from Hong Kong, Macao, or Taiwan.
  • Overseas Chinese.

Equipment Imported for Self-Use

The items discussed below may be exempt from Customs duties and import VAT in accordance with prevailing rules.

  • Where the State encourages and supports the development of foreign investment projects, and where the importation of the following items does not exceed the total investment sum, the items may be exempt:
    • Equipment imported for self-use.
    • Technology, accessories, or parts imported together with the equipment.
  • Where the following enterprises import equipment for self-use, or import technology, accessories or parts together with the equipment, where these items fall within the approved production or business scope of the enterprises, and where the enterprises import the items using funds of their own, beyond the total investment sum, because the items cannot be produced domestically or because domestically made products cannot meet the specifications, the items may be exempt:
    • Enterprises with foreign investment.
    • Research and development centers with foreign investment.
    • Enterprises with foreign investment of the advanced-technology or export-oriented type that belong to encouraged or limited B categories.

    Where projects satisfy criteria laid out in the Advantageous Industries and Projects Catalog for the use of foreign funds in the western provinces/autonomous regions/municipalities directly under the State Council, and where the enterprises engaged in the projects use their own funds, beyond the total investment sum, for importation, the importation shall be treated with reference to the rules laid out above.

  • Where research and development centers with foreign investment import the following items, and where the importation does not exceed the total investment sum, because the items cannot be produced domestically or because domestically made products cannot meet the specifications, the items may be exempt:
    • Equipment imported for self-use.
    • Technology, accessories, or parts imported together with the equipment.
  • Where projects satisfy criteria laid out in the Advantageous Industries and Projects Catalog for the use of foreign funds in the western provinces/autonomous regions/municipalities directly under the State Council, and where the following items are imported for the projects, because the items cannot be produced domestically or because domestically made products cannot meet the specifications, the items may be exempt.
  • The importation does not exceed the total investment sum, because the items cannot be produced domestically or because domestically made products cannot meet the specifications, the items may be exempt:
    • Equipment imported for self-use.
    • Technology, accessories, or parts imported together with the equipment.

Purchases of Domestically Made Equipment

  • Where enterprises with foreign investment purchase domestically made equipment, the VAT paid on the equipment may be totally refunded if both of the following criteria are met:
    • The purchase falls within the total investment sum.
    • The items are stipulated as tax-exempt by the State.

    Materials or parts purchased together with the equipment are afforded the same treatment.

Transfers of Technology

  • Where foreign enterprises or foreigners derive revenue from the transfer of technology from outside China to inside China, the revenue may be exempt from Business Tax.

Special Regions

Enterprise Income Tax

Reduced Rates of 15%

Enterprises in certain areas may be taxed at a 15% rate for Enterprise Income Tax.

  • Enterprises with foreign investment that are established in Special Economic Zones may be eligible. Examples are listed below:
    • Shenzhen.
    • Zhuhai.
    • Shantou.
    • Xiamen.
    • Hainan.
  • Foreign enterprises whose establishments/places are engaged in production or business operations in Special Economic Zones may be eligible.
  • Enterprises with foreign investment may be eligible if they satisfy both of the following criteria:
  • They are of a production nature.
  • They are established in Economic and Technological Development Zones approved by the State Council.
  • Enterprises with foreign investment may be eligible, upon approval by the SAT, if they are engaged in the following sectors:
    • Energy.
    • Transportation.
    • Port construction.
  • Upon approval by the SAT, enterprises with foreign investment that are established in the following areas, may be eligible, if they are engaged in technology- or knowledge-intensive projects, their foreign investment exceeds US$30 million, and they have long investment recovery periods:
    • Special Economic Zones.
    • Economic and Technological Development Zones.
    • The old urban districts of cities where the Coastal Open Economic Areas are located.
  • Foreign banks, banks with Sino-foreign joint investment, or other financial institutions established in Special Economic Zones or other areas approved by the State Council, may be eligible, if they satisfy the following criteria:
    • The capital input of the foreign investors or the operating funds of the branches appropriated by the head office exceed US$10 million.
    • The operational period exceeds 10 years.
  • Enterprises with foreign investment may be eligible if they satisfy both of the following criteria:
    • They are recognized as new- and high-technology enterprises.
    • They are established in State New- and High-Tech Industry Development Zones approved by the State Council.
  • Enterprises with foreign investment of a production nature may be eligible if they satisfy both of the following criteria:
    • They are established in Bonded Zones approved by the State Council.
    • They are engaged in export processing.
Reduced Rates of 24%

Enterprises with foreign investment of a production nature in certain areas may be taxed at a 15% rate for Enterprise Income Tax.

  • Those established in the old urban districts of cities located in the following areas may be eligible:
    • Coastal Open Economic Zones.
    • Special Economic Zones.
    • Economic and Technological Development Zones.
  • Those established in the following cities may be eligible:
    • Coastal Open Cities.
    • River Open Cities.
    • Inland Open Cities.
    • Border Open Cities.
    • Other areas approved by the State Council.
  • Those established in National Holiday Resort Areas may be eligible, even if they are not of a production nature.

Enterprise Income Tax: Periodic Exemptions/Reductions

Certain enterprises may enjoy periodic reductions or exemptions for Enterprise Income Tax.

Enterprises with Foreign Investment

  • Where enterprises with foreign investment satisfy the following criteria, they may, from the first profit-making year, enjoy exemptions in the first to second years, and 50% reductions for the third to fifth years:
    • They are of a production nature.
    • They directly serve production.
    • Their operational period exceeds 10 years.

      Those enterprises engaged in the following activities are excluded:

    • Oil and natural gas exploitation.
    • Exploitation of rare metals and precious metals.

    Where the enterprises are newly established software enterprises, they may enjoy the preferential treatment described above without any restrictions on their operational period.

  • Where enterprises with foreign investment satisfy the following criteria, they may pay Enterprise Income Tax at a 15% rate for 3 years after the expiry of their statutory tax holidays (2-year exemption; 3-year reduction):
    • They are established in the central and western parts of China.
    • They are engaged in industries that are encouraged by the State.

      Where the enterprises satisfy the following criteria as well, they may enjoy a 10% rate for Enterprise Income Tax:

    • They are verified as export-oriented enterprises.
  • Enterprises with foreign investment may apply to the tax department, to be granted a lower tax rate of 15% over the period 2001–2010, if they satisfy all of the following criteria:
    • They are set up in State-specified regions in the western part of China or other regions.
    • They are engaged mainly in State-encouraged industries.
    • Their main business income accounts for more than 70% of their total income.
  • Newly established enterprises with foreign investment may apply to the tax department, to be granted exemptions for 2 years and 50% reductions for 3 years, if they satisfy all of the following criteria:
    • They are set up in State-specified regions in the western part of China or other regions.
    • They are engaged in the transportation, electrical power, water conservancy, postal services, or radio and TV broadcasting industries.
    • Their income from the industries listed above accounts for more than 70% of their total income.
  • Enterprises with foreign investment that satisfy either of the following criteria may apply for approval from the SAT to have their tax payable reduced by 15%–30% for another 10 years following the expiry of their statutory exemption and reduction periods:
    • They are engaged in agriculture, forestry, or animal husbandry.
    • They are established in remote, underdeveloped areas.

Sino-Foreign Joint Ventures

  • Where Sino-foreign joint ventures satisfy both of the following criteria, they may be granted, from their first profit-making year, exemptions for the first to fifth years, and 50% reductions for the sixth to tenth years:
    • They are engaged in port and dock construction.
    • Their operational periods exceed 15 years.

    Approval must be granted by the provincial-level SAT offices in the provinces where the enterprises are located, as specified on their applications.

Enterprises in the Services, Financial Industries

Upon approval by the local tax department, certain enterprises may be granted, from their first profit-making year, exemptions for the first year and 50% reductions for the second to third years.

  • Where enterprises with foreign investment satisfy all of the following criteria, they may be eligible for the incentives described above:
    • They are established in Special Economic Zones.
    • They are engaged in the services industry.
    • Their foreign investment exceeds US$5 million.
    • Their operational period exceeds 10 years.
  • Where foreign banks, banks with Sino-foreign joint investment, or other financial institutions satisfy all of the following criteria, they may be eligible for the incentives described above:
    • They are established in Special Economic Zones or other areas approved by the State Council.
    • The capital input of the foreign investors or the operating funds of the branches appropriated by the head office exceed US$10 million.
    • Their operational period exceeds 10 years.

New- and High-Technology Enterprises

  • Where Sino-foreign joint ventures are recognised as new- and high-technology enterprises, they may be granted, from their first profit-making year, exemptions for the first to second years.
    • They are established in State New- and High-Tech Industry Development Zones.
    • Their operational period exceeds 10 years.

Enterprises Engaged in Export Production

  • Where enterprises with foreign investment are engaged in production for exports, and where their statutory exemption and reduction periods have expired, the enterprises may be granted either of the following incentives for Enterprise Income Tax, if the value of their exports for the year amounts to more than 70% of their total annual production value:
    • 50% reductions computed at the statutory tax rate for the current year.
    • A 10% tax rate, if the enterprises are already subject to a 15% rate.

Advanced Technology Enterprises

  • Where the statutory exemption and reduction periods for advanced technology enterprises have expired, and where the enterprises still retain their advanced technology status, they may be granted either of the following incentives for Enterprise Income Tax, for 3 years, upon approval by the local tax department:
    • 50% reductions computed at the statutory tax rate for the current year.
    • A 10% tax rate, if the enterprises are already subject to a 15% rate.

State-Encouraged Enterprises

  • Where enterprises with foreign investment are engaged in State-encouraged projects, and where they derive income from additional investment, beyond the scope of the original contracts, that income may, upon approval by the tax department at the provincial level, be subject to exemptions or reductions for Enterprise Income Tax over certain periods, if either of the following criteria are met:
    • The additional investment results in new registered capital amounting to US$60 million or more.
    • The additional investment results in new registered capital amounting to US$15 million or more, and is equivalent to 50% or more of the original registered capital of the enterprises.

      Where the following circumstances apply, enterprises with foreign investment should reimburse the tax reductions or exemptions, unless they suffer heavy losses due to natural disasters or unexpected accidents:

    • They have already enjoyed exemptions or reductions in accordance with relevant rules under prevailing tax laws.
    • Their actual operational period is less than the required number of years.

Purchases of China-Made Machinery

  • Where enterprises with foreign investment are engaged in investment items that are in line with State Council rules, and where they make purchases of China-made machinery that fall within the total investment sum, 40% of the machinery investment may be credited against the increase in tax payable for Enterprise Income Tax between the year of purchase and the preceding year.

    Where the increase is not enough to offset the investment, the balance of the investment may be carried forward to subsequent years (based on the tax payable in the year preceding the year of purchase), for a maximum of 5 years.

    Where enterprises with foreign investment enjoy exemptions and reductions for Enterprise Income Tax, in accordance with relevant laws and administrative regulations, the credit period during tax holidays may be appropriately prolonged, for a maximum of 7 years.

  • Where enterprises with foreign investment make purchases of China-made machinery that exceed the total investment sum in the course of utilizing advanced and suitable new technology, new crafts, new equipment, or new materials, to transform their current facilities or production technology for the following purposes, 40% of the machinery investment may also be credited against the increase in tax payable for Enterprise Income Tax between the year of purchase and the preceding year:
    • To improve economic efficiency.
    • To improve product quality.
    • To diversify products.
    • To update products.
    • To expand exportation.
    • To decrease costs.
    • To save energy.
    • To optimize comprehensive use of resources.
    • To tackle waste residues, waste water, or waste gas.
    • To implement labor protection policies.

    Where the machinery is transferred within 5 years of the purchase, the Enterprise Income Tax already credited should be reimbursed at the time of the transfer or the lease.

  • Where foreign enterprises that have establishments/places in China are engaged in production or business operations, they may obtain tax credits on purchases of China-made machinery with reference to the rules described above.

Re-Invested Profits

  • Where the foreign investors of enterprises with foreign investment use profits from the enterprises for the following purposes, 40% of the Enterprise Income Tax paid on the profits may be rebated, upon approval by the relevant tax department:
    • To re-invest in the same enterprises.
    • To open other enterprises with foreign investment whose operational periods exceed 5 years. Where the operations of the enterprises benefiting from the re-investment last less than 5 years, the tax rebated should be paid back.
  • Where the foreign investors of enterprises with foreign investment use profits from the enterprises for the following purposes, the foreign investors may, upon approval by the tax department, be granted full rebates:
    • They directly re-invest in China to open or expand export-oriented or advanced technology enterprises.
    • The enterprises have operational periods exceeding 5 years.

      Where the enterprises do not satisfy the criteria for export-oriented enterprises or advanced technology enterprises within 3 years of the date that they commence production or business operations, 60% of the tax rebated should be paid back.

  • Where overseas economic organizations apply their profits post-Enterprise Income Tax to the following activities, before the end of 2010, 80% of the tax paid on the re-investment may be rebated. Where they withdraw the investment within 5 years, the tax rebated shall be pursued back.
    • To invest, using the profits as capital, in western China through the opening of integrated circuit production enterprises, packaging enterprises or software enterprises, with operational periods of not less than 5 years.

Encouragement of Foreign Investment

  • For sectors or projects that encourage foreign investment, the People's Government at the provincial level may determine reductions or exemptions for local Income Tax, based on local conditions.
  • Profits derived by foreign investors from enterprises with foreign investment may be exempt from Income Tax.

Interest, Dividends, Royalties, Rentals

  • Exemptions for Income Tax may be granted for interest on the following types of loans:
    • Loans made to the Chinese Government and Chinese State banks by international financial organizations.
    • Loans made at a preferential interest rate to Chinese State banks by foreign banks.
  • Where foreign enterprises derive royalty income from the provision of technical know-how for the development of production in any of the following areas, the tax rate may be reduced to 10%:
    • Scientific research.
    • Exploitation of energy resources.
    • Development of the communications industry.
    • Agricultural, forestry, or animal husbandry production.
    • Development of important technologies.

      Where the enterprises use advanced technology, or the terms are preferential, tax may be exempt.

  • Interest, rental, royalty or other income derived from within China by the following types of foreign enterprises, shall be subject to a 10% rate:
    • Enterprises that have no establishment/place in China.
    • Enterprises that have establishments/places in China, if those establishments/places are unrelated to the interest income.

      Foreign enterprises that already enjoy exemptions shall be excluded.

  • Dividend, interest, rental, royalty, or other income derived by foreign enterprises from the following regions, may be eligible for exemptions, or a reduced rate of 10%:
    • Special Economic Zones.
    • Economic and Technological Development Zones.
    • Coastal Open Economic Zones.
    • Other open areas approved by the State.

      In addition, where enterprises satisfy either of the following criteria, further exemptions or reductions may be available at the discretion of the Provincial Governments or Municipal Governments in the locales where their establishments are situated:

    • They provide funds or equipment under special preferential terms.
    • They transfer advanced technology.

City Maintenance and Construction Tax

  • Exemptions for City Maintenance and Construction Tax may be granted for enterprises with foreign investment and foreign enterprises.

Farmland Occupation Tax

  • Farmland used by enterprises with foreign investment for engagement in production construction may be exempt from Farmland Occupation Tax.

Foreigners, Foreign Experts

Individual Income Tax

Deductions
  • For the following individuals, additional deductions of 3,200 yuan may be allowed (standard deduction: 800 yuan per month), when computing taxable income for Individual Income Tax on wages/salaries:
    • Foreigners working with enterprises with foreign investment or foreign enterprises in China.
    • Foreign experts hired by enterprises, institutions, social groups, or government organs in China.
Temporary Exemptions for Income
  • The following types of income earned by foreigners may be temporarily exempt from Individual Income Tax:
    • House subsidies, meal allowances, removal expenses, or laundry expenses obtained in non-cash forms or as reimbursements.
    • Business trip allowances obtained in line with reasonable standards.
    • Expenses on visits to relatives, language training, or their children's education.
    • Dividends or bonuses obtained from enterprises with foreign investment.
Temporary Exemptions for Wages/Salaries
  • The wages/salaries of the following foreign experts may be temporarily exempt from Individual Income Tax:
    • Foreign experts directly dispatched to China by the World Bank under World Bank loan agreements.
    • Foreign experts directly dispatched by the United Nations to China.
    • Foreign experts coming to China to work for United Nations assistance programs.
    • Foreign experts dispatched to China by assisting countries under free assistance programs.
    • Foreign cultural or education experts coming to work in China under cultural exchange programs arranged by the Chinese government and foreign governments, where their wages/salaries are paid by foreign sources, and where they work for less than 2 years.
    • Foreign cultural or education experts coming to work in China under international exchange programs arranged by universities in China, where their wages/salaries are paid by foreign sources, and where they work for less than 2 years.
    • Foreign experts coming to work in China under civil science and research agreements, where their wages/salaries are paid by foreign governments.

Customs, Import Duties

  • Where permanent staff are resident in China for more than 1 year (i.e., their work/student visas are valid for at least 1 year), where they bring into China the following articles for family use during the period that their visas are valid, and where the articles are being brought into China for the first time, the articles may be exempt from import duty, upon approval by Customs. The limit is one piece per category.
    • Video cameras, cameras.
    • Portable receiving/recording players.
    • Laser CD players.
    • Computers.

In addition, where foreign experts bring the following articles for self-use into China, and where the quantities are reasonable, the articles may be exempt from duty:

  • Books.
  • Science and research instruments.
  • Tools.
  • Samples.
  • Reagents.
  • Other articles for teaching or research.

Vehicle Acquisition Tax

  • Where experts residing long-term in China import cars for self-use, the cars may be exempt from Vehicle Acquisition Tax.

    The limit is 1 car per person.

Urban Real Estate Tax

  • Where foreigners purchase houses for non-business use, the houses may be exempt from Urban Real Estate Tax.

DIPLOMATIC TAX IMMUNITY

According to international conventions participated in by the Chinese government, and under the relevant laws and administrative regulations of China, foreign embassies and diplomatic representatives in China may enjoy the tax treatment discussed below.

  • The houses of foreign embassies in China may be exempt from taxes, including House Property Tax and City and Township Land Use Tax.

    Also exempt are the buildings constructed for the embassies and ambassador's residences, as well as attachments to the land.

  • Fees and commissions charged by embassies for handling business affairs may be exempt from taxes.
  • The following items transported into China may be exempt from Customs duties and other taxes:
    • Articles for official use brought in by the embassies.
    • Articles for self-use brought in by diplomatic representatives.
    • Home settlement articles brought in by executives of the embassies within half a year of taking up their positions.
  • Where embassies or diplomatic representatives purchase VAT-inclusive goods in the Chinese market, and where each invoice totals 800 yuan or more, the VAT paid may be refunded on a quarterly basis.

    There is no restriction on value for the purchase of water, electricity, gas, heating, or repair services.

    Where either of the following circumstances apply, no claims for tax refunds on the goods shall be allowed, and any refunded VAT should be paid back:

    • Goods are returned after purchase.
    • Goods are transferred to other units or individuals for their use.
  • Where embassies or diplomatic representatives purchase gas filling cards in accordance with prevailing rules, the following items for self-use may be exempt from VAT:
    • Gasoline, on a regular and fixed amount basis.
    • Diesel oil, on a regular and fixed amount basis.
  • Vehicles or vessels used by foreign embassies in China or diplomatic representatives may be exempt from Vehicle Acquisition Tax, Vessel and Vehicle Usage License Plate Tax, and Vessel Tonnage Tax.
  • Land or house titles received by embassies and diplomatic representatives within China may be exempt from Deed Tax.
  • Diplomatic representatives may be exempt from taxes. Exceptions are listed below:
    • Taxes normally included in the price of commodities or in the price of services. At present, such taxes include Consumption Tax, Business Tax, and City Maintenance and Construction Tax.
    • Taxes levied on inheritances. Movable property within China left by deceased diplomatic representatives shall be excluded.
    • Taxes on private income coming from sources within China.
  • Where embassy executives live together with their spouses or children who are still minors, the spouses and children may enjoy the tax immunities described above, if they are not Chinese citizens or permanent residents.
  • Where the following officials or dignitaries visit China, they may enjoy the tax immunities described above:
    • Heads of foreign countries.
    • Heads of foreign governments.
    • Foreign ministers.
    • Other officials holding equivalent positions.
  • Where the tax immunity granted by a foreign country to Chinese embassies/embassy staff in that country or to Chinese individuals temporarily visiting that country, is lower than that granted by the Chinese government to the embassies/embassy staff of that country in China or to individuals of that country temporarily visiting China, the Chinese government may give matching immunity to embassies/staff of that country in China or individuals of that country temporarily visiting China, in accordance with the reciprocal principle.
  • The following entities may enjoy almost the same tax treatment as that described above:
    • Foreign consulates.
    • Consuls.
    • Technical executives of the consulates.
    • Representative offices of international organizations.
    • Foreign nationals.
  • Temporary exemptions for Individual Income Tax may be granted for the following entities:
    • Foreign national employees working in foreign embassies or consulates.
    • Representative offices of international organizations that do not have diplomatic representative status.

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