Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation Concerning Handling the Issues on the Business Income Tax of Enterprises with Foreign Investment When Foreign Investment is Uncompleted

GuoShuiFa [1999] No.60

April 14,1999

The state taxation bureaus various provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan, Shenzhen local Taxation Bureau:

In order to implement the preferential tax policy for the enterprises with foreign investment and reinforce the administration of taxation, the issues on handling the problems of the income tax of the enterprises with foreign investment that the investment of foreign investors is uncompleted are clarified as following according to the Law of Income Tax of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises:

I.

The situation that the investment of foreign investors of the enterprises with foreign investment is uncompleted means that foreign investors of the enterprises with foreign investment do not fulfilled or fulfilled totally the investment obligations of registered capital during the time limit confirmed in the relevant laws, the rules and regulations or the investment contract

II.

The enterprises with foreign investment which are cancelled legally the qualifications by the relevant departments resulting from uncompleted investment of foreign investors are not applied taxation obligations prescribed in the tax law and provisions on the income tax for the enterprises with foreign investment if they engage in the various businesses with the name of enterprises with foreign investment. They should pay the business income tax under the relevant tax laws on the domestic-funded enterprises.

III.

The enterprises with foreign investment whose investment of foreign investors is uncompleted may pay the income tax under the tax law and provisions for the enterprises with foreign investment before their qualifications are cancelled legally by the relevant departments. The enterprises with foreign investment whose capital of the foreign partner cannot account for 25% of all investors' capital in place should not enjoy the preferential income taxation.

IV.

If the enterprises with foreign investment without the qualification cancelled whose investment of foreign investors is uncompleted can invest capital lacked or its capital accounts for 25% of all investors' capital in place in later years, they can enjoy the preferential policy of the lower tax rate from then on and the remaining term of derating tax term at fixed time since enterprise profit-making year after verification by the local competent taxation authority. The preferential tax hereinbefore should not be made up.

V.

The local taxation institutions should carry out strictly this Circular when they compute and collect the business income tax in 1998. During the effective time prescribed in the second Paragraph of Article 31 in the Law of the People's Republic of China on the Administration of Tax Collection, the events concerning hereinabove before 1998 should be executed according to this Circular.