Laws of the People's Republic of China

The Ministry of Finance, the State Administration of Taxation

Circular of the Ministry of Finance and State Administration of Taxation on Levying Income Tax on Royalties Received by Foreign Enterprises from Transferring Software relating to Postal and Telecommunication Equipment

CaiShui [2000] No.144

January 3, 2000

The Finance Department (Administration) of every province, autonomous region, municipality directly under the Central Government and municipality separately listed on the State plan, and the Administration of Local Taxation of Guangdong province, Hainan province and Shenzhen city:

Recently, certain localities reported that some foreign enterprises without any establishment or office in China often transfer software relating to the use of postal and telecommunication equipment when selling these equipment to Chinese enterprises, and requested definite provisions for whether enterprise income tax is to be levied on the royalties from transferring such software. After due consideration, this Circular is hereby issued as follows:

1.

Income tax shall be paid, in accordance with the provisions of Article 19 of the "Income Tax Law of the People's Republic China for Enterprises with Foreign Investment and Foreign Enterprises" by foreign enterprises on their incomes received as royalties from transferring to Chinese enterprises software relating to postal and telecommunication equipment either solely or together with relevant equipment.

2.

This Circular shall come into force as of January 1, 2001. Incomes as mentioned above which occurred or are paid after the implementation of this Circular but under contracts or agreements that have already been concluded before the implementation of this Circular are free from income tax.