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CIRCULAR OF THE STATE COUNCIL ON SEVERAL PROBLEMS CONCERNING THE APPLICATION OF THE PROVISIONAL REGULATIONS ON VALUE-ADDED TAX, CONSUMPTION TAX, BUSINESS TAX, ETC., TO ENTERPRISES WITH FOREIGN INVESTMENT AND FOREIGN ENTERPRISES

    According to "Decision of the Standing Committee of the National People's
Congress on the Application of the Provisional Regulations on Value-Added Tax,
Consumption Tax, Business Tax, etc., to Enterprises with Foreign Investment
and Foreign Enterprises" (hereinafter referred to as "the Decision") as
examined and approved at the Fifth Meeting of the Standing Committee of the
Eighth National People's Congress, several problems such as the categories of
taxes applicable to enterprises with foreign investment and foreign
enterprises and so on are hereby notified as follows:

    1. Problems Concerning the Categories of Taxes Applicable to Enterprises
with Foreign Investment and Foreign Enterprises

    According to provisions of "the Decision", the following provisional
regulations, in addition to "Provisional Regulations of the People's Republic
of China on Value-Added Tax", "Interim Regulations of the People's Republic of
China on Consumption Tax", "Interim Regulations of the People's Republic of
China on Business Tax" and "Income Tax Law of the People's Republic of China
for Enterprises with Foreign Investment and Foreign Enterprises", shall be
applicable to enterprises with foreign investment and foreign enterprises:

    (1) "Provisional Regulations of the People's Republic of China on Land
Appreciation Tax", promulgated on December 13, 1993 by the State Council;

    (2) "Provisional Regulations of the People's Republic of China on Resource
Tax", promulgated on December 25, 1993 by the State Council;

    (3) "Interim Regulations of the People's Republic of China on Stamp Tax",
promulgated on August 6, 1988 by the State Council;

    (4) "Interim Regulations Concerning Tax on Slaughtering Animals",
promulgated on December 19, 1950 by the Government Administration Council of
the Central People's Government;

    (5) "Interim Regulations Concerning Urban Real Estate Tax", promulgated on
August 8, 1951 by the Government Administration Council of the Central
People's Government;

    (6) "Interim Regulations Concerning the Vehicle and Vessel Usage License
Plate Tax", promulgated on September 13, 1951 by the Government Administration
Council of the Central People's Government; and

    (7) "Interim Regulations Concerning Deed Tax", promulgated on April 3,
1950 by the Government Administration Council of the Central People's
Government.

    With the progress of taxation system reform, the State Council shall be
revising and making other provisional regulations on taxation, and enterprises
with foreign investment and foreign enterprises shall accordingly comply with
the provisions of the relevant regulations.

    2. Problems Concerning Handling of the Increased Tax Burden of Enterprises
with Foreign Investment Due to the Imposition of Value-Added Tax, Consumption
Tax and Business Tax

    (1) As to an enterprise with foreign investment approved to be established
before December 31, 1993, where its tax burden increases as a result of the
imposition of value-added tax, consumption tax and business tax, the
enterprise may, upon application to and with the approval of the tax
authorities, have a refund on the excess tax payment due to the increased tax
burden within the approved operation period, with a maximum limit of not
exceeding five years; if no operation period has been specified, the
enterprise may, upon application to and with the approval of the tax
authorities, have a refund on the excess tax payment as mentioned above within
a period of not exceeding five years.

    (2) Where an enterprise with foreign investment pays both value-added tax
and consumption tax, the payment exceeding the original tax burden shall,
according to the proportion of the paid value-added tax to the paid
consumption tax, be refunded respectively.

    (3) Where the products manufactured by an enterprise with foreign
investment are to be exported directly or through selling to an export
enterprise, that enterprise with foreign investment may, according to the
provisions of "Provisional Regulations of the People's Republic of China on
Value-Added Tax", handle the refundment affairs at one stop by producing the
export declaration form and the tax payment receipt.

    (4) The refundment of the excess tax payment applied for by an enterprise
with foreign investment shall, in principle, be conducted at one time after
the end of the year; where the tax burden increases are comparatively higher,
the enterprises concerned may apply for the refund quarterly in advance, and
the clearance shall be done after the end of the year.

    (5) The State Administration of Taxation and its affiliated establishments
shall be responsible for dealing with the refundment affairs relating to the
value-added tax and the consumption tax, and the state treasuries at all
levels shall conduct examination and verification seriously and make strict
checks. The computation of the refund, as well as the procedures of the
application for refund and the approval thereof, shall be prescribed by the
State Administration of Taxation separately.

    (6) The refundment affairs relating to the business tax shall be
prescribed by the people's governments of the provinces, autonomous regions or
municipalities directly under the Central Government.

    3. Problems Concerning Taxation on Chinese-Foreign Cooperative
Exploitation of Petroleum Resources

    Crude oil and natural gas exploited by a Chinese-foreign cooperative oil
field shall be taxed of value-added tax in kind at a rate of 5%, and the
royalties shall be levied in accordance with the relevant provisions in
effect, with temporary exemption from the resource tax. The input tax shall
not balance the value-added tax payable. Where crude oil or natural gas is
exported, there shall be no refund of tax.

    Self-operative offshore oil field of China Offshore Petroleum Company
shall comply with the above provisions mutatis mutandis.

    This Circular shall go into effect as of January 1, 1994.