Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation on the Issue Concerning How Enterprises with Foreign Investment which Concurrently Engage in Productive and Non-productive Business Enjoy Preferential Tax Treatment

GuoShuiFa [1994] No.209

September 19, 1994

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

In line with the related stipulations of the Income Tax Law of the People's Republic of China on Enterprise with Foreign Investment and Foreign Enterprises and the Rules for Its Implementation (hereinafter referred to as the Tax Law and Rules), we hereby notify you of the following question concerning applicable preferential tax treatment to enterprise with foreign investment which engage concurrently in productive and non-productive business (hereinafter referred to as enterprise with foreign investment engaging in concurrent operations):

I.

If no productive business is included in the business scope prescribed in their business license, no enterprise with foreign investment shall enjoy related preferential tax policies as granted to productive enterprises, no matter how large is the proportion of the productive business is in their actual business activities.

II.

If the business scope prescribed in the business license of an enterprise with foreign investment covers both productive and non- productive business, or if the business scope prescribed in the business license covers only productive business, but the enterprise actually engages in non-productive business, the applicable preferential tax policy can be determined in accordance with the following methods:

(1)

Within the period of tax reduction and exemption calculated from the profit-making year of an enterprise as specified in Article 8 of the Tax Law, an enterprise with foreign investment engaging in concurrent operations may, in the year when the enterprise's productive business income exceeds 50 percent of all its business income, file an application which, after being examined and approved by the competent tax authorities, enjoy appropriate treatment of tax reduction and exemption in the year' but if its productive business income does not exceed 50 percent of all its business income in the year, the enterprise shall not enjoy the appropriate preferential treatment of tax exemption and reduction in that year.

(2)

An enterprise with foreign investment engaging in concurrent operations which is set up in the area where tax is levied at a reduced tax rate as specified in Article 7 of the Tax Law and by the State Council shall begin to enjoy related preferential treatment of taxation at a reduced rate from the year when its productive business income exceeds for the first time 50 percent of all its business income.

This Circular shall enter into force as of January 1, 1994.