Laws of the People's Republic of China

The Ministry of Finance, the State Administration of Taxation, the General Administration of Customs

Circular of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs on Printing and Distributing the Interim Provisions on Exempting Import Tax on the Imported Materials for Exploiting Oil (natural Gas) in Oceans of China and the Interim Provisions on Exempting Import Tax on the Imported Materials for Exploiting Oil (natural Gas) in Certain Land Areas of China

CaiShui [2001] No.186

December 21,2001

In accordance with the spirit of the Request for Instructions by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs on the Preferential Taxation Policies Expiring at the End of 2000 (CaiShui [2001] No.3) approved by the State Council on keeping the taxation policies on exemption of import tax for the import materials used for exploiting oil (natural gas) in the oceans and certain land areas of China after the adjustment of the "tenth-five-year plan", the Interim Provisions on Exempting Import Tax on the Imported Materials for Exploiting Oil (Natural Gas) in Oceans of China (attachment 1) and the Interim Provisions on Exempting Import Tax on the Imported Materials for Exploiting Oil (Natural Gas) in Certain Land Areas of China (attachment 2) are hereby formulated, please carry them out accordingly.

Attachment: 1Interim Provisions on Exempting Import Tax on the Imported Materials for Exploiting Oil (Natural Gas) in Oceans of China

1.

These Provisions are formulated in accordance with the instructions of the State Council on adjusting the taxation policies on import materials for exploiting oil and natural gas in the oceans and certain land areas of China during the "tenth-five-year-plan".

2.

The oceans as referred to in these Provisions are: the interior sea, marginal sea, continental shelf of China and other sea areas (including shallow seas and mudflats) subject to the jurisdiction of ocean resources of the People's Republic of China.

3.

Where any project of exploitation of oil and natural gas in the oceans of China imports equipments, instruments, spare parts and accessories, special tools (see attachment 1 for the list of the specific materials) directly used in the exploitation operations, the import duty and added value tax for import links shall be exempted according to these Provisions. The import commodities for which the taxes may not be reduced or exempted as prescribed by the State Council shall not be included in the aforesaid scope of tax exemption.

4.

The list of attachment 1 includes the tariff nomenclature heading numbers and the commodity names, focus shall be put on the consistence of commodity name and actual use. That list shall be adjusted once a year in principle. When the customs examine the tax exemption of import commodities of that category, if the commodity name and the classification of tariff nomenclature are inconsistent with these provisions, the commodity names listed in these Provisions shall be the standard ones for the tax exemption formalities.

5.

The General Administration of Customs jointly with the Ministry of Finance and the State Administration of Taxation shall examine and approve the equipments, instruments, spare parts and accessories, special tools that are not listed in attachment 1 but are indeed necessary to be imported for use in the exploitation of oil (natural gas) in the oceans of China.

6.

Where the project units and the foreign cooperators import the materials within the scope of the list attached to these Provisions temporarily, tax exemption shall be granted. The customs shall handle the formalities as those for the temporarily imported goods. Where it is needed to use the materials exceeding the import time limit, the period may be extended upon the approval of the customs, and tax exemption shall be granted within the period of temporary import (including the period extended).

7.

With respect to the oil field, prospecting and development projects within the "ocean" scope as referred to in Article 2 of these Provisions, the departments in charge of the projects shall gather the information and report to the Ministry of Finance, and the latter shall, consulting with the relevant departments, make examination and determination.

8.

With respect to the tax-free import materials listed in Article 3 and Article 7 of these Provisions, the China National Petroleum Corporation, China Offshore Oil Corporation, China Petroleum & Chemical Corporation and the Ministry of Land Resources shall present their uniform annual plan or list of import equipments respectively to the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs for record. The importing units shall send the list of imported materials to the customs directly under the General Administration of Customs of the places where the projects are located for the formalities for tax reduction and exemption. The specific procedures for examination and verification and the measures for supervision shall be formulated separately by the General Administration of Customs.

9.

The "old projects" as indicated in attachment 1 shall refer to the foreign cooperation projects that were approved prior to Dec. 31 of 1994 (see attachment 2).

10.

The lease of imported materials within the scope of the list shall be exempted from tax, and the lease of materials not included in the import list shall be subject to taxation according to the provisions.

11.

The tax-free imported materials used in exploitation of oil (natural gas) in oceans and land areas may not be mortgaged, pledged, transferred, used for other purposes or disposed of in other ways. Any violation shall be dealt with according to the relevant laws and regulations of the State.

12.

The time for execution of these Provisions shall be from January1, 2001 to December 31, 2005.

13.

The power to interpret these Provisions shall be remain with the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs.

Attachment 2Interim Provisions on Exempting Import Tax on the Imported Materials for Exploiting Oil (Natural Gas) in Certain Land Areas of China

1.

These Provisions are formulated in accordance with the instructions of the State Council on adjusting the taxation policies on imported materials for exploiting oil and natural gas in the oceans and certain land areas of China during the "tenth-five-year-plan".

2.

The certain areas as refer to in these Provisions are: the deserts, gobi and wilderness areas within the territory of China (see attachment 1) and the land oil and natural gas bid-winning sections of Chinese-foreign cooperated exploitation approved by the State.

3.

Where any project of exploitation of oil and natural gas in the certain areas of China imports equipments, instruments, spare parts and accessories, special tools (see attachment 2 for the list of the specific materials) that can't be produced in China or the performance of those produced in China fail to meet the requirements and that are directly used in the prospecting and development operations, the import duty and added value tax for import links shall be exempted according to these Provisions. The imported commodities for which the taxes may not be reduced or exempted as prescribed by the State Council shall not be included in the aforesaid scope of tax exemption.

4.

The list of attachment 2 includes the tariff nomenclature heading numbers and the commodity names, focus shall be put on the consistence of commodity name and actual use. That list shall be adjusted once a year in principle. When the customs examine the tax exemption of imported commodities of that category, if the commodity name and the classification of tariff nomenclature are inconsistent with the these provisions, the commodity names listed in these Provisions shall be the standard ones for the tax exemption formalities.

5.

The General Administration of Customs shall, in collaboration with the Ministry of Finance and the State Administration of Taxation, examine and approve the equipments, instruments, spare parts and accessories, special tools that are not listed in attachment 1 but are indeed necessary to be imported for use in the exploitation of oil (natural gas) in the certain land areas of China.

6.

Where the project units and the foreign cooperators import the materials within the scope of the list attached to these Provisions temporarily, tax exemption shall be granted. The customs shall handle the formalities as those for the temporarily imported goods. Where it is needed to use the materials exceeding the import time limit, the period may be extended upon the approval of the customs, and tax exemption is granted within the period of temporary import (including the period extended).

7.

With respect to the oil field, prospecting and development projects in conformity to the "certain areas" conditions as referred to in Article 2 of these Provisions, the departments in charge of the projects shall gather the information and report to the Ministry of Finance, and the latter shall, after inquiring the relevant departments, make the examination and determination.

8.

With respect to the tax-free import materials listed in Article 3 and Article 7 of these Provisions, the China National Petroleum Corporation, China Offshore Oil Corporation, China Petroleum & Chemical Corporation and the Ministry of Land Resources shall separately present their uniform annual plan or list of imported equipments to the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs for record. The importing units shall send the list of imported materials to the customs directly under the General Administration of Customs of the places where the projects are located for the formalities for tax reduction and exemption. The specific procedures for examination and verification and the measures for supervision shall be formulated separately by the General Administration of Customs.

9.

The import materials (same as attachment 2) needed by the projects of prospecting and exploitation of coal bed methane by the China United Coalbed Methane Corporation shall be exempted form import duties and value-added tax for import links in analogy of these Provisions.

10.

The lease of imported materials that within the scope of the list shall be exempted from tax, the lease of materials not included in the import list shall be subject to taxation according to the provisions.

11.

The tax-free imported materials used in exploitation of oil (natural gas) in oceans and land areas may not be mortgaged, pledged, transferred, used for other purposes or disposed of in other ways. Any violation shall be dealt with according to the relevant laws and regulations of the State.

12.

The time for execution of these Provisions shall be from January 1, 2001 to December 31, 2005.

13.

The power to interpret these Provisions shall be remain with the Ministry of Finance jointly with the State Administration of Taxation and the General Administration of Customs.