Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation Concerning Transmiting the Interim Measure for the Administration of Tax Refund to Enterprises with Foreign Investment for Their Domestic Equipment Purchases

GuoShuiFa [1999] No.171

September 20,1999

Recently, the State Council has decided to refund value added tax to enterprises with foreign investment for their domestic equipment purchases within their investment amount, if the equipments fall under the Tax-free Categories. Therefore, the State Administration of Taxation has formulated the Interim Measure for the Administration of Tax Refund to Enterprises with Foreign Investment for Their Domestic Equipment Purchases, which is now issued to you and shall be abided by and carried out in real earnest.

Attachment:

Interim Measure for the Administration of Tax Refund to Enterprises with Foreign Investment for their Domestic Equipment Purchases

Chapter 1 General Provisions

Article 1

This Measure is formulated to encourage enterprises with foreign investment to use domestic equipments, set down responsibilities and handling procedures, and regulate operation in accordance with laws and regulations.

Article 2

The State Administration of Taxations at the places where enterprises with foreign investment are located shall be responsible for the registration, tax refund, supervision, verification and cancellation of domestic equipments in accordance with regulations concerned.

Chapter 2 Scopes and Conditions for Tax Refund

Article 3

The enterprises with foreign investment that can enjoy tax refund are those which have undergone taxation registrations, including Sino-foreign contractual joint ventures, Sino-foreign cooperative joint ventures and exclusively foreign-owned enterprises. The investment of foreign investors of enterprises with foreign investment shall account for more than 25 percent of the total investment of all the investors of the enterprises.

Article 4

The equipments for tax refund are: those falling under the Encouraged Category and the Restricted B Category of the Directive Category of Foreign-funded Industries stipulated in the Circular of the State Council concerning the Adjustment of the Taxation Policies of Imported Equipments (GuoShuiFa [1997] No.37); as well as those purchased from domestic markets for the investment projects listed in the Catalogue of Key Industries, Products and Technologies Encouraged for Development by the State. Part of the plastic, rubber, ceramic and porcelain accessories which are listed in the purchase contracts and bought together with the equipments for the projects which meet the above requirements, as well as the tube materials for petrochemical projects, shall also enjoy tax refund. The equipments purchased from domestic markets and listed in the Category of the State Council for Imports without Tax Exemption for Foreign-Invested Projects and the Category of the State Council for Imports without Tax Exemption for Domestic-invested Projects, shall not enjoy tax refund.

Article 5

The equipments subject to tax refund shall meet both of the following two conditions:

(1)

They must be unused domestic equipments purchased with currencies, excluding investment in kind and investment in intangible assets.

(2)

They must be purchased after September 1, 1999, with total amount within the tax refund investment total controlled by taxation administrations. The term "domestic equipments" refers to those manufactured by the enterprises within the territory boundaries of the PRC. Tax refund investment total controlled by taxation administration shall be calculated in accordance with the following formula: Tax Refund Investment Total=Currency Investment Total of All Investors - Total Value of Imported Equipments with Customs Duty Exemption.

Chapter 3 Administration of Registration

Article 6

The enterprises with foreign investment which have met the requirements for tax refund, shall apply to relevant taxation administration in charge of tax refund for domestic equipment purchase registration before their performance of purchase contracts for their first purchases of domestic equipments. They shall bring forward the Registration Manual for Domestic Equipment Purchase of Enterprises with Foreign Investment (hereinafter called the Registration Manual), which are printed by the taxation administrations of all the provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan. The format of the Registration Manual is attached behind. The following documents shall also be submitted at the same time:

(1)

Copies of the Licenses of Business of Corporations;

(2)

Copies of the Tax Registration Certificates of Corporations;

(3)

Copies of the Drawback Certificates of Corporations;

(4)

Copies of the Feasibility Research Reports of Corporations and copies of the Articles of Incorporation, contracts and agreements;

(5)

Copies of the Project Approval Letters of the Ministry of Foreign Economic Cooperation and Trade of the PRC;

(6)

Lists of Imported Equipments

(7)

Copies of the Original Certificates of Investment in Kind;

(8)

Copies of the Purchase Contracts of Domestic Equipments;

(9)

Certificates on verification of capital.

Article 7

After their receipt of applications from enterprises with foreign investment, the administrations in charge of tax refund shall fill in registration manuals faithfully according to the applications, stamp on the registration manuals and then give them back to the enterprises.

Article 8

The administrations in charge of tax refund shall establish exclusive accounts for records of investment total, names, quantities and prices of the domestic equipments to be purchased, and input the data concerned into computers.

Article 9

If any foreign-funded enterprise fails to perform purchase contracts due to various causes, it shall bring forward the original registration manuals and apply for cancellation registrations to the administrations in charge of tax refund., which shall cancel corresponding records in accounts.

Chapter 4 Administration of Purchases and Sales

Article 10

When enterprises with foreign investment purchase domestic equipments, the Suppliers of domestic equipments shall provide the purchasing enterprises with foreign investment with invoices for the exclusive use of value added tax (VAT invoices) in accordance with the contents of contracts and the copies of the Eleventh Page of the Registration Manual brought forward by the purchasers.

Article 11

The taxation administrations responsible for collecting taxes from supplying enterprises shall provide them with Tax Payment Certificates (exclusively used for exported goods), on the basis of the verified copies of contracts, the Eleventh Page of Registration Manuals and other documents concerned. The issuance of VAT invoices shall be conducted in accordance with existing regulations concerned.

Article 12

When purchasing enterprises settle their payments for domestic equipment purchases with supplying enterprises, either foreign currencies or RMB may be used for settlement. If settlement is carried out with foreign currencies, regulations of the Foreign Currency Administration shall be observed.

Chapter 5 Tax Refund and Supervision

Article 13

After their purchases of domestic equipments, enterprises with foreign investment shall fill in the Declaration Forms for Tax Refund (or Exemption) for Exported Goods on the basis of their purchases of domestic equipments in accordance with purchase contracts, submit the following documents, and apply to the responsible taxation administrations for tax refund for their domestic equipment purchases:

(1)

VAT invoices

(2)

Tax Payment Certificates (exclusively used for exported goods)

(3)

Payment Certificates

(4)

Registration Manuals

(5)

Copies of Purchase Contracts of Domestic Equipments

Article 14

After the tax refund for domestic equipment purchases, the responsible taxation administrations shall keep the registration manuals for review.

Article 15

The amount of refunded tax for domestic equipment purchases shall be calculated in accordance with the following formula: The Amount for Tax Refund =the Amount Marked in VAT Invoices * Applicable Value Added Tax Rate

Article 16

The responsible taxation administrations shall take charge of supervision over the domestic equipments purchased by enterprises with foreign investment. A supervisory period lasts for 5 years. Any lease or reinvestment or ownership transfer including conveyance and donation of the equipments, shall observe the following formula. Responsible taxation administrations shall collect the refunded tax for tax supplement back to the National Treasury. The Amount for Tax Supplement = the Amount Marked in VAT Invoices * the Remaining Value of Equipments after Depreciation The Original Value of Equipments * the Remaining Value of the depreciated Equipments Applicable for VAT Rate = The Original Value of Equipments-Accumulative Depreciated Value The original and depreciated value of equipments shall be calculated in accordance with the accounting data of the enterprises' accountants

Article 17

The equipments purchased by enterprises with foreign investment outside the controlled tax refund investment total shall not enjoy tax refund. As for those that have already enjoyed tax refund, responsible taxation administrations shall recollect the refunded tax.

Chapter 6 Other Provisions

Article 18

Responsible taxation administrations shall supervise over the usage of the purchased domestic equipments of enterprises with foreign investment within the settlement periods of export drawback of every year.

Article 19

The enterprises with foreign investment that have got tax refund by fraud including forging or altering registration manuals shall be punished in accordance with Article 40 of the Managerial Law for Tax Collection of the People's Republic of China, and shall be deprived of their qualifications for tax refund for domestic equipment purchases.

Article 20

The Measure shall come into force from September 1, 1999.

Attachment: The Registration Manual of Domestic Equipment Purchases of Enterprises with Foreign Investment (omitted)