Laws of the People's Republic of China

Circular of the Ministry of Finance and the State Administration of Taxation concerning the Related Preferential Policies of Enterprise Income Tax for Supporting the Development and Openness of Binhai New Area of Tianjin

Cai Shui [2006] No. 130

The Finance Department (bureau), State Taxation Bureau and Local Taxation Bureau of Tianjin Municipality:

For the purpose of implementing the Opinions of the State Council on the Rated Issues about Promoting the Development and Openness of Binhai New Area of Tianjin (Guo Fa [2006] No. 20), the related preferential policies of enterprise income tax for Binhai New Area of Tianjin (BNAT) are hereby notified as follows:

1.

As for the preferential tax policies for new and hi-tech enterprises

The enterprise income tax shall be levied at a reduced tax rate of 15% for Chinese-funded or foreign-funded newand hi-tech enterprises, which are established within the BNAT and recognized by the science and technology administrative department of Tianjin Municipality in accordance with the relevant provisions of the State.

The current preferential tax policies can be applicable to those enterprises within Tianjin Economic and Technological Development Zone, Tianjin Port Bonded Area, Tianjin Export Processing Zone or Tianjin New Technology Industrial Park continuously; and if any of the aforesaid enterprises simultaneously satisfies the provisions in the preceding Paragraph, a reduced enterprise income tax rate of 15% can be levied on it . In case that preferential tax policies overlap, an enterprise has the right to choose to apply one policy and may not enjoy two or more preferential policies simultaneously.

2.

As for increasing the depreciation rate of fixed assets

The depreciation period for the fixed assets (excluding houses and buildings) of an enterprise within the BNAT may be shortened at 40% or lower on the basis of the current provisions. The specific dimensions for implementation are shown as follows:

(1)

The "fixed assets for which the depreciation period is shortened at 40%" means the fixed assets that are newly bought by the enterprises after July 1, 2006 and those bought before July 1, 2006 and have not completed the depreciation yet, of which, the depreciation period of the fixed assets (excluding houses and buildings) that are bought by the enterprises prior to July 1, 2006 shall be shortened at 40% or lower on the basis of the period that the depreciation has not been conducted.

(2)

The "current provisions" about depreciation period means the financial rules for different industries promulgated by the Ministry of Finance and other related State provisions that are currently carried out by the enterprises. Where any enterprise has adopted the balance declining method or the method of total number of years for its fixed assets as prescribed in the Notice of the State Administration of Taxation concerning the Follow-up Administrative Work on Transferring the Power of Examination and Approval for the Accelerated Depreciation of Fixed Assets to Lower Levels (Guo Shui Fa [2003] No. 113) prior to July 1, 2006, it shall be deprived of changing to use the method of shortening the depreciation period.

(3)

With regard to the fixed assets (excluding houses and buildings) that are purchased after July 1, 2006, an enterprise can choose one from the three methods: the method of shortening the depreciation period, the balance declining method, and the total number of years method, and may not implement two or more of the said methods at the same time. After the method is determined, the enterprise may not make change at random.

(4)

An enterprise may freely choose the proportion for shortening the depreciation period of fixed assets no more than 40%. After the proportion is determined, it may not change the proportion at random in the following years. And an enterprise may also choose a certain part of fixed assets for accelerated depreciation according to the requirements for its production and business operation, and may not change the scope at will in the following years since the scope is determined.

3.

As for shortening the amortization year for intangible assets

With respect to the intangible assets as accepted or invested in by the enterprises in the BNAT, the depreciation period may be shortened at 40% or lower on the basis of that currently prescribed. Where the agreement or contract stipulates the use life for the intangible assets, the amortization shall be conducted in accordance with the use life as stipulated in the agreement or contract.

The specific dimensions for amortization of intangible assets of enterprises shall be carried out by reference to the provisions in Item 1 of Article 2 of the present Circular.

4.

With regard to the shortening of depreciation (amortization) period of fixed assets and intangible assets of enterprises, the taxation authority shall employ the follow-up archival filing management method or require taxpayers to attach explanations in tax returns, and no examination and approval shall be implemented; and shall carry out the dynamic administration of the ledgers on depreciation (amortization) of fixed and intangible assets.

5.

The present Circular shall only apply to such three ecological urban areas as Tanggu, Hangu and Dagang and such seven functional areas as Advanced Manufacturing Zone, Binhai Hi-Tech Industry Park, Binhai Chemical Zone, Airport-based Industrial Zone, Seaport Logistics Zone, Binhai CBD and Binhai Coastal Leisure and Tourism Zone.

6.

The present Circular shall come into effect as of July 1, 2006. If the State reforms the tax system in the future, the related new tax provisions shall be implemented.

Please carry out the present Circular accordingly.

The Ministry of Finance

The State Administration of Taxation

November 15, 2006