Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation on Some Issues Concerning Tax Reimbursement for Reinvestment Made by Foreign Investors of Enterprise with Foreign Investment

GuoShuiFa [1993] No.9

June 15, 1993

The tax bureaus of various provinces, autonomous regions and municipalities directly under Central Government, the tax bureaus of various municipalities separately listed on the State plan, and various sub-bureaus of Offshore Oil Tax Administration:

In accordance with the stipulations of Article 10 of the Income Tax Law of the People's Republic of China on Enterprise with Foreign Investment and Foreign Enterprises (hereinafter referred to as Tax Law) and Article 80 , 81 and 82 of the Rules for Implementation of the Tax Law (hereinafter referred to Rules), related questions concerning foreign investors of enterprise with foreign investment enjoying tax reimbursement for reinvestment are hereby made clear as follows:

I.

The "operational period" referred to in Article 10 of the Tax Law should be calculated in accordance with the following principles: For the foreign investor of an enterprise with foreign investment who reinvests the profits gained from the enterprise directly in the same enterprise or in other enterprise with foreign investment which have started production and operation (including trial production and trial business), the operational period shall be calculated from the day of the actual input of funds for reinvestment; for those who reinvest in newly established enterprise with foreign investment, the operational period shall be calculated from the day the newly established enterprise starts production and operation (including trial production and trial business).

II.

In line with the stipulations of Paragraph 2 of Article 80 of the Rules, the foreign investor, while applying for tax reimbursement for reinvestment, should provide certificates which can confirm the year in which the profits are used for reinvestment, For those who fail to provide certificates, tax authorities can, on the basis of the payable dividend recorded in the book of the enterprise before the reinvestment is made by the foreign investor, or of that part of undistributed profits which is due to the foreign investor, calculate from the earliest year sequentially up to the subsequent year in which the profits are used for the reinvestment, thereby calculating the income tax to be returned to the enterprise.

III.

Foreign investor, who uses the liquidation income gained from the enterprise with foreign investment for reinvestment, shall not enjoy the preferential treatment of tax reimbursement for reinvestment.

IV.

In accordance with the stipulations of Clause 3 of article 81 of the Rules, those who meet the following situations shall repay 60 percent of the tax already refunded:

1.

Export-oriented enterprise set up or expanded with reinvestment by foreign investor which fails to reach the standard for export-oriented enterprise in three years beginning from the day the enterprise starts production and operation, or within three years after the funds for reinvestment are put in;

2.

Technically advanced enterprise set up or expanded with reinvestment made by foreign investor which proves not up to the required standard through check and has thus had its title as a technically advanced enterprise cancelled within three years beginning from the day the enterprise starts production and operation or after the funds are put in.

V.

For foreign investor who reinvests in another place, the tax authorities in the original tax payment place, while handling tax reimbursement in accordance with the stipulations of Paragraph 3 of Article 80 of the Rules, should simultaneously send the Advice Note on the Already Refunded Tax for the Reinvestment Made by the Foreign Investor in Other Regions to the tax authorities which accept the reinvestment enterprise in its location. When the foreign investor is examined and confirmed by tax authorities in the location of the accepted reinvestment enterprise that he withdraws from the locality before the five-year operational period expires after reinvestment as stated in Article 10 of the Tax Law, or he meets the situation as stated in Paragraph 3 of Article 81 of the Rules, the foreign investor should perform the formalities for repaying all or part of the already refunded tax with the tax authorities in the location of the reinvestment enterprise.

VI.

This Circular shall enter into force as of the day of the receipt of the document. If past stipulations are inconsistent with this Circular, the matter should be handled in accordance with this Circular.

Attachment: Advice Note on the Already Refunded Tax for the Reinvestment Made by the Foreign Investor in Other Regions (omitted)