Laws of the People's Republic of China

the Ministry of Finance, the State Administration of Taxation

Circular of the Ministry of Finance and the State Administration of Taxation on the Issue Concerning Pre-income-tax Deduction of the Insurance Guarantee Funds Paid by Insurance Companies

Cai Shui [2005] No. 136

The public finance departments (bureaus), bureaus of state taxation and those of local taxation of all provinces, autonomous regions, municipalities directly under the Central Government and municipalities under separate state planning, the Financial Bureau of Xinjiang Production and Construction Corps:

With a view to effectively preventing and eliminating financial risks, maintaining financial stability, and guaranteeing the benefits of policy holders, and in accordance with the Measures for the Administration of Insurance Guarantee Funds, you are hereby notified of the issue concerning pre-income-tax deduction of the insurance guarantee funds paid by insurance companies:

I.

The insurance guarantee funds paid by insurance companies in accordance with the following provisions can be deducted before taxation on the basis of the actual amount:

1.

As for the property insurance, accidental injury insurance or short-term health insurance, the amount deductible may not exceed 1% of the retention premium;

2.

As for long-term life insurance with a guaranteed interest rate or long-term health insurance, the amount deductible may not exceed 0.15% of the retention premium;

3.

As for long-term life insurance without a guaranteed interest rate, the amount deductible may not exceed 0.05% of the retention premium; and

4.

As for other insurance products, the amount deductible may not exceed the proportions as provided by the CIRC.

II.

Where an insurance company is under any of the following circumstances, the insurance guarantee funds it has paid may not be deducted before taxation:

1.

The balance of the insurance guarantee funds of a property insurance company, comprehensive reinsurance company or property reinsurance company reaches up to 6% of its total assets; or

2.

The balance of the insurance guarantee funds of a life insurance company, health insurance company or life reinsurance company reaches up to 1% of its total assets.

III.

This Circular shall go into effect as of January 1, 2005. Paragraph 2 of Article 12 of the "Circular of the State Administration of Taxation on Some Issues concerning Income Tax for Financial Insurance Enterprises" (Guo Shui Han [2000] No. 906) shall be abolished simultaneously.

the Ministry of Finance

the State Administration of Taxation

September 17, 2005