Laws of the People's Republic of China

Circular of the Ministry of Finance, State Development and Reform Commission, General Administration of Customs and State Administration of Taxation on Import Taxation Policies to Implement the Opinions of the State Council of Invigorating Equipment Manufacturing

Cai Guan Shui [2007] No. 11

The competent departments of finance, development and reform (planning), economy and trade, and taxation at various levels in all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan, the finance bureau and development and reform committee of Xinjiang Production and Construction Corps, Guangdong Sub-Administration of China Customs and the customs offices directly affiliated to the General Administration of Customs, the offices of financial inspection commissioners in all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan:

For the purpose of raising core competitiveness and capacity for independent innovation of domestic enterprises, promoting the development of equipment manufacturing and implementing the preferential policies of import taxation to invigorate the equipment manufacturing, it is hereby notified:

I.

In the key equipment manufacturing areas which have been ascribed by the State Council to be effective in promoting the sustainable development of national economy and stimulating for industrial restructuring, upgrading and enterprise innovation (see Appendix I), the Ministry of Finance will formulate special import taxation policies together with State Development and Reform Commission, General Administration of Customs and State Administration of Taxation and refund the previously levied import tariffs and value-added taxes for the key parts and accessories imported for development and manufacturing of these equipment, and raw materials which cannot be produced domestically. The refunded money will be generally used as national investment to the research and development of new products and the cultivation of capacity for independent innovation.

II.

With the detailed knowledge of development, manufacturing, supply and demand at home and abroad, as well as the domestic production of key parts and accessories and raw materials of various key technological equipment, Ministry of Finance will, together with State Development and Reform Commission, General Administration of Customs and State Administration of Taxation, formulate special import taxation policies with respect to the key areas of equipment manufacturing, including the specifications and requirements of various key equipment, the scope of the key parts and accessories which have to be imported for equipment manufacturing and of the raw materials which cannot be produced domestically, as well as the disposition of refunded tax. The special import taxation policies for the aforementioned areas will be implemented after the Ministry of Finance discusses with the departments concerned.

III.

As of the announcement of special import taxation policies, the manufacturing enterprises of relevant key technological equipment, should they need to import the key parts and accessories and raw materials within the scope of the import taxation policy, may file the application of enjoying the preferential policy to the Ministry of Finance through the provincial government or the provincial department of finance; enterprises under the central government may file the application directly to the Ministry of Finance (see the Appendix II for the document of application).

IV.

The Ministry of Finance will examine the documents submitted by the enterprises for tax refund and will invite State Development and Reform Commission and so on to assess the specifications of technological equipment developed and manufactured by the applying enterprises and see whether they are in consistent with the policy. The Ministry of Finance shall give a response to the applying enterprises within 40 days after they receive the application. A confirmation will be issued by the Ministry of Finance to the enterprises which are confirmed to have met the conditions of tax refund and the time limit will be specified for the refunded tax to be used as national capital.

V.

The manufacturing enterprises of relevant key technological equipment shall make separate customs declaration for goods listed on the catalogue which enjoy special import taxation policies. Those which have obtained the confirmation of tax refund issued by the Ministry of Finance shall go through the procedures for the refund in the local customs with it. The specific procedures shall be in line with the Circular of the Ministry of Finance, State Economy and Trade Commission, State Administration of Taxation and General Administration of Customs on Rebating Some of the Imported Goods ([1994] No.42).

VI.

The enterprises shall, after they receive the refund, transfer the refunded money to national capital within time limits, differentiating the situations as follows:

1.

Enterprises exclusively funded by the state shall take the refund as the registered capital;

2.

Other enterprises shall transfer it to the national capital in ways as follows: incorporated enterprises with state-owned shares shall have them hold the shares transferred from the newly-added national capital (if more than one state owners exist, the proportion of shares held shall be decided by themselves); those without state-owned shares shall have the state-owned assets operation company authorized the local governments at various levels hold those shares.

3.

The listed companies shall act in accordance with the regulations of private placement issued by China Securities Regulatory Commission.

VII.

The offices of financial inspection commissioners across the country shall supervise and examine the progress of the transfer from refund to national capital. After the transfer, the enterprises shall submit the duplicate of accounting voucher to the Ministry of Finance as well as the local office of financial inspection commissioners, and do the registration of ownership of state-owned assets. If enterprises fail to make the transfer within the time limits, the refund shall be timely returned to the national treasury. Should any enterprises violate the aforementioned regulations, they will be punished in accordance with Measures for Punishment of Illegal Financial Activities (Decree No. 427 of the State Council).

VIII.

At the end of every year that a preferential policy of import taxation has been implemented, the Ministry of Finance will, together with State Development and Reform Commission and General Administration of Customs and State Administration of Taxation, adjust the catalogue of refunded goods for next year's special import taxation policies according the general situation of application of enterprises and policy implementation.

IX.

For the key technological equipment whose imported parts and accessories and raw materials have been refunded, the import tariff exemption policy for the complement plant and set of equipment shall be repealed after the examination and confirmation of Ministry of Finance, State Development and Reform Commission, General Administration of Customs and State Administration of Taxation; for some of the complete plants, the Ministry of Finance and State Development and Reform Commission will, on the basis of strict examination, adopt the transition measures of reducing the refunds or tightening the scope of tariff exemption according to the supply and demand of related industries, continue to grant the import taxation privilege for a certain period; after the transition period the import tariff exemption policy shall be repealed.

Appendix:

1.

The 16 Key Areas of Technological Equipment

2.

The Application Document for Tax Refund

Ministry of Finance

State Development and Reform Commission

General Administration of Customs

State Administration of Taxation

January 14, 2007 Appendix I: The 16 Key Areas of Technological Equipment

1.

Large sized clean and high-efficiency power equipment: new energy generating equipment such as nuclear power generating plant of a million Km/h, supercritical thermal power generating plant, gas-steam circulation power generating plant, large sized circulation fluidized bed boiler, large sized hydro-power generating plant and pumped storage power station, large sized direct air-cooled generating plant and high-power wind power generator.

2.

UHV Transmission Equipment: complete equipment of UHV transmission with alternating current of 1000000 volts and direct current of ¡À800000 volts, and key transmission equipment with alternating current of 500000 volts and direct current of 750000 volts.

3.

Large sized petrochemical equipment: large sized plant of petrochemical equipment of million-ton-level and complete equipment of Px, PTA and polyester.

4.

Complete plant of coal chemical equipment.

5.

Complete plant of cold and hot continuous sheet rolling and that of surface coating and plating.

6.

Large sized plant of underground coal mining, elevating and washing and that of opencast mining.

7.

Large sized plant of ship and ocean engineering: large sized equipment of ocean petroleum engineering, large sized high-tech and high added value ships such as ore and crude oil carrier of 300000 tons, floating production storage and offloading vessels, container carriers with more than 1000 containers, liquefied natural gas carriers and high-power diesel engines.

8.

Equipment of railway transport: express trains at the speed of 200km/h plus and new subway trains.

9.

Large sized equipment of environmental protection and integrated utilization of resources: large sized equipment of environmental protection such as equipment of air and urban pollution control and industrial sewage treatment and that of solid waste disposal, and equipment of integrated utilization of resources such as seawater desalination and scrap car salvage.

10.

Large sized construction plant: tunnel boring machines, etc.

11.

Key project automation control system and key testing precision instruments.

12.

Large sized, precision and high-speed numerical control equipment, numerical systems and functional units

13.

New textile machines: complete polyester staple fibre plant with daily output of 200 tons plus, high-speed adhesive filament continuous spinning machine, modern complete plant of cotton spinning, electromechanically integrated rapier loom and air jet loom.

14.

New and high-powered agricultural plant: high-powered tractor, head-feed rice combine, corn combine and cotton picker.

15.

Key equipment of integrated circuit, new flat panel display manufacturing machine, electronic components and elements, lead-free complete plant, digital medical imaging equipment and specialized equipment of bio-engineering and medical production.

16.

Civil aircraft, engine and other airborne equipment.

Appendix II: The Application Document for Tax Refund

I.

The nature, shareholding structure, registered capital and business scope of the applying enterprise;

II.

The financial status of the applying enterprise

III.

The progress of development and manufacturing and key technological equipment and the production plan of the applying enterprise, including the name and specifications of the key technological equipment which applies for tax refund;

IV.

The variety, quantity, import time and value of the key parts and accessories and raw materials which will be under the preferential policy of import taxation, as well as the estimated amount of import tariff that will be paid.

V.

The specific plan of transferring the refunded money to national capital, which shall be approved by the organs of power of the enterprise, either the general manager's meeting for the enterprises solely funded by the state or the meeting of stakeholders for incorporated enterprises. It shall include the stakeholders, the price of the potential shares, and the specific time of the transfer. The listed corporations shall offer the letter of commitment to the effect that the aforementioned plan has been submitted to the meeting of stakeholder for deliberation. Those without state-owned shares shall submit the letter of intention of equity participation signed with the state-owned asset operation companies authorized by governments at various levels.