Extract of current foreign trade and economic cooperation policy

I. Customs duty and added tax

1. Starting from January 1,1998,imported equipment of foreign investment projects will be exempted from customs duty and import value added tax if the projects are in conformity with the provision of promotion and restriction II of "Foreign Investment Property Guide". If the project feasibility is approved after October 1,2002,and the project belongs to "wholly export projects" of "Foreign Investment Property Guide" ,then the imported equipment of the project will be levied on customs duty and import value added tax first. From Ministry of Foreign Trade and Economic Cooperation and other related departments will last for five years. Project which pass the examination will get return of twenty percent of the customs duty and value added tax paid on yearly basis. The return of tax payment will be finished in five years. Projects which do not pass the examination will not get return o f the duty and tax paid of the year and will be have to repay the returned duty and tax and subject to punishment according to law. Tax exemption policy will still be implemented on imported equipment of "wholly export projects" approved before October 1,2002. But the direct export of the Project products should be examined by related departments during the five years of examination period starting the commissioning date of the project. In the case that "wholly export projects" approved before policy readjustment have completed equipment import, the project products exported before policy readjustment date during examination period will still be examined optionally.

2. Tax exemption policy will also be applied for imported equipment of foreign-invested enterprise which are approved as hi-tech projects by provincial and higher approval authorities.

3. Starting from the import customs declaration date of October 1,2002,merchandise,imported by surplus margin, of technical innovation project, basic construction project(including key construction project)and foreign investment project enjoying foreign investment policy)which were approval before April 1,1996,and self-use equipment imported within project margin or investment amount and the technology and parts and components imported with equipment enjoy exemption of import customs duty and value added tax unless the merchandise is included in "List of taxed imported goods of domestic investment project" and "List of taxed imported goods of foreign investment project".

4 .Foreign investment enterprises which purchase China-made equipment within investment amount will enjoy full return of value added tax of the China-made equipment if the equipment is included in tax-free list. Investment projects which meet the provision of promotion and restriction II of "Foreign Investment Property Guide" stated by "Notification of Regulating Imported Equipment Tax Policy by State Council" will enjoy tax exemption ***over the previous year .If the newly-increased enterprise income tax is less than the tax to be exempted, exemption can be applied to previous five years maximum.

5. Articles used for research and teaching by provincial and municipal scientific research institution and full-time college and university admitted by State Educational Council will also enjoy exemption of import customs duty, value added tax and consumption tax if the quantity of the articles is within reasonable limit. Articles specially used for the handicapped, imported by welfare institution, artificial limb plant, convalescent home for army man, which are affiliated to provincial civil affairs department, will enjoy exemption of import customs duty, value added tax and consumption tax if the import is approved by Ministry of Civil Affairs, China Handicapped Union or General Administration of Customs.

6.Enterprises equipment with plant buildings, equipment, personnel and production capability, which enjoy processing contract with foreign customers, are allow to apply for processing business, no matter they are state-owned, collectively-owned, privately-owned, individual or joint enterprises.

7. Foreign-invested enterprises which manufacture products for export by China-made raw material can get BMB three cents of export merchandise discount per one US dollar or actual exchange settlement from financial department on yearly basis.

8. The export tax reimbursement rate will be increased for some merchandise from July 1,1997.The export tax reimbursement rate for garment will be increased to 17%.Fifteen percent of export tax reimbursement rate will be unitedly applied to textile raw material and finished product other than garment, electromechanical product other than the four types of products like machinery, equipment, electrical and electronic appliance, transportation means which have 17% tax reimbursement rate, as well as goods with current 13% and 11% tax reimbursement rate which should originally have 17% official tax reimbursement rate. Thirteen percent of export tax reimbursement rate will be unitedly applied to other goods with 9% tax reimbursement rate which should originally have 17% official tax reimbursement rate. Thirteen percent of export tax reimbursement rate will be unitedly applied to goods other than agricultural products with less than 13% tax reimbursement rate which should originally have 13% tax reimbursement rate.

9. The non-evaluated equipment supplied by the foreign parties of foreign-funded and processing enterprises enjoy exemption customs duty and value added tax .Products for export processed by foreign-funded enterprises with materials supplied by customs also enjoy exemption of value added tax.

II. Income tax

1. Foreign-invested production enterprise of more than 10 years of operating period will enjoy tax exemption for two years and half tax payment for three years starting from its profit-making year.

2 .Foreign-invested enterprise which uses its after-tax profit for direct re-investment and have more than five years of operating period will enjoy 40% reimbursement of the income tax paid for reinvestment. If the above investment is made by export-oriented and technically advanced enterprise, then the enterprise will enjoy 100% reimbursement of the income tax paid for reinvestment.

3. Foreign-invested enterprise run in Chenghai District of Shantou will pay enterprise income tax on 24% tax rate. Foreign-invested production enterprise will enjoy exemption of local income tax. Foreign-invested non-production enterprise will enjoy exemption or half payment of local income tax as per approval of competent authority subject to application in advance.

4. After the expiration of tax reduction or exemption period, enterprise which is approval as export-oriented enterprise will enjoy 50% income tax reduction on condition that the export output value accounts for over 70% of the total output value of the enterprise of the years, and the enterprise meets the related requirement of the state. Enterprise which is approved as technically advanced enterprise will enjoy 50% reduction of enterprise income tax for three years more. The above-mentioned two kinds of enterprise will also enjoy exemption of various subsidies other than labor insurance ,welfare charges and household subsidy funds.

III. Sales of products

1. Foreign-invested enterprise is authorized to directly export its products, or entrust agent to export as regulation of the state.

2. Proportion restriction on domestic and foreign sales is cancelled for foreign-invested project products

IV. Others

1 .Foreign-funded enterprise will be exempted from land use tax.

2. Foreign-funded enterprise will be exemption from urban real estate tax within three years after the requisition or establishment.

3. Foreign-funded enterprise will be exemption from urban construction tax and additional educational charges temporarily.

4. Foreign-funded enterprise and its overseas managers will enjoy national treatment.

5. Enterprise with more than BMB one million yuan of registered capital and talent personnel is allowed to apply for its own import and export power and permission of becoming foreign trade circulation company.

6. Starting from January 1,2003,China will apply less strict control of merchandise export permit by a large margin. The types of goods under export permit control will be reduced 66 types to 50 types.

7. Foreign-investment enterprise which is member of National Special Chamber of Commerce is allowed to apply for participating for export to Europe and America.

8. The restriction of import and export power of foreign-invested enterprise will be eased. Foreign-invested productive enterprise which matches the following conditions is allowed to develop purchasing and export business of non-special goods without quote permit management, and to participate in export quota invitation to bid for its self-made products. The conditions are as follows.

8.1 ?The foreign-invested productive enterprise enjoy more than ten millions US dollars of annual export amount.

8.2 ?The enterprise has no law-breaking or regulation-violating record in the aspect of tax payment, foreign exchange management and import and export for two consecutive years before application.

8.3 ?The enterprise is equipped with professionals of international trade.

9. The restriction of import and export power of foreign-invested enterprise whose parent company is production group will be eased. Questions on import of system-integrated supporting or trial sales products by foreign-invested company should be resolved according to supplementary regulation(II)of "Interim provision on establishment of investment company by foreign investors" issued by Ministry of Foreign Trade and Economic Cooperation(Order No.1 of 2001 by Ministry of Foreign Trade and Economic Cooperation).

10. Import and sales of parent company's hi-tech products used by foreign-invested research and development center for market test on the condition that imported parent's products are used for market test of the research and development project of R&D center, and that the import quantity of products matches market test demand.