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INTERIM PROVISIONS OF THE STATE COUNCIL CONCERNING THE REDUCTION OF AND EXEMPTION FROM ENTERPRISE INCOME TAX AND CONSOLIDATED INDUSTRIAL ANDCOMMERCIAL TAX IN THE SPECIAL ECONOMIC ZONES AND THE FOURTEEN COASTAL PORT CITIES

    In order to enable the four special economic zones, namely Shenzhen,
Zhuhai, Xiamen, and Shantou and the fourteen coastal port cities, namely
Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong,
Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang, and Beihai to expand
economic cooperation and technical exchange with foreign countries, attract
foreign capital, introduce advanced technology and accelerate the construction
of socialist modernization, companies, enterprises, and individuals from
foreign countries, Hong Kong, Macao, and other regions (hereinafter referred
to collectively as "external investors") that invest in the above mentioned
special zones and cities by setting up Chinese-foreign equity joint ventures,
Chinese-foreign contractual joint ventures and foreign-capital enterprises
shall be accorded preferential treatment in the form of reduction of or
exemption from enterprise income tax and consolidated industrial and
commercial tax.
Chapter I  Special Economic Zones

    1. Chinese-foreign equity joint ventures, Chinese-foreign contractual
joint ventures and foreign-capital enterprises (hereinafter referred to as
"special zone enterprises") established in the special economic zones
(hereinafter referred to as "special zones") shall be subject to enterprise
income tax at the reduced rate of 15% on income from production and business
operations and other income. Of such enterprises:

    (1) enterprises engaged in industry, communications and transport,
agriculture, forestry, animal husbandry and other production-oriented
industries that are scheduled to operate for a period of ten years or more,
shall, upon approval by the special zone tax authorities of applications filed
by them, be exempt from income tax for the first and second years commencing
the first profit-making year, and shall be allowed a 50% reduction of income
tax from the third through the fifth years.

    (2) enterprises engaged in service trades that are scheduled to operate
for 10 years of more, if the investments of foreign investors exceed 5 million
US$, shall, upon approval by the special zone tax authorities of applications
filed by them be exempt from income tax in the first profit-making year and
shall be allowed a 50% reduction of income tax in the second and third years.

    2. With respect to the local income tax imposed on the special zone
enterprises, the people's governments of the special zones shall determine
whether preferential treatment in the form of tax reduction or exemption needs
to be granted.

    3. The share of profit distributed to external investors by
Chinese-foreign equity joint ventures in special zones and remitted abroad
shall be exempt from income tax.

    4. With the exception of income which is exempt from income tax in
accordance with the law, dividends, interest, rentals, royalties and other
income derived from sources within the special zones by foreign investors
having no establishments in China shall be subject to tax at a reduced tax
rate of 10%. Foreign investors that provide capital or equipment on
preferential terms or transfer advanced technology and need to be given
additional preferential treatment with regard to tax reductions or tax
exemptions shall be decided by the people's governments of the respective
special zones.

    5. With respect to goods subject to consolidated industrial and
commercial tax which are imported by the special zone enterprises prior to
the establishment of the administrative borders of the special zones,
machinery, equipment, raw materials, spare parts and fittings; means of
transport and other production materials essential for production shall be
exempt from consolidated industrial and commercial tax. Means of transport
and durable consumer goods the importation of which is restricted by the
State shall be subject to consolidated industrial and commercial tax
according to the tax law. Consolidated industrial and commercial tax shall
be imposed at one half of the stipulated tax rates on various kinds of
imported mineral oils, tobacco, alcoholic beverages, and various other kinds
of articles for daily use. Following the establishment of the administrative
borders of the special zones, various kinds of imported mineral oils, tobacco
and alcoholic beverages, shall continue to be subject to consolidated
industrial and commercial tax at one half of the stipulated tax rates; the
remaining imported goods shall all be exempt from consolidated industrial and
commercial tax. Reasonable quantities of tobacco, alcoholic beverages, luggage,
articles for daily use and settling-in articles personally carried in by
individual external investors or personal use shall be exempt from
consolidated industrial and commercial tax.

    6. All products for export produced by special zone enterprises, except
for those whose export is restricted by the State and the small number of
products otherwise prescribed by the State, shall be exempt from  consolidated
industrial and commercial tax.

    7. Mineral oils, tobacco, alcoholic beverages and other such products
manufactured by special zone enterprises and sold within the same special zone
shall be subject to consolidated industrial and commercial tax at one half of
the tax rates stipulated in the tax laws. The people's government of the
special zone may also decide independently products at regular or reduced
rates. Other products shall no longer be subject to consolidated industrial
and commercial tax.

    8. Special zone enterprises that transport inland imported goods in
respect of which reductions of or exemptions from consolidated industrial and
commercial tax have been granted or products produced in the special zones
shall, at the time such goods are transported inland, make good such
reductions of or exemptions from consolidated industrial and commercial tax in
accordance with the provisions of the tax laws. Reasonable quantities of
luggage and articles for daily use that individuals or external investors
personally carry inland from the special zones for personal use shall be
exempt from consolidated industrial and commercial tax.

    9. The income of special zone enterprises engaged in commerce,
communication and transport and service trades shall be subject to
consolidated industrial and commercial tax according to the tax rates
stipulated in the tax laws. Consolidated industrial and commercial tax shall
be imposed at the rate of 3% on income derived from banking and insurance
operations. The special zone people's governments shall determine whether
special treatment in respect of reductions of or exemptions from consolidated
industrial and commercial tax needs to be granted to the above-mentioned
enterprises for a specified period of time during the initial period of
operations.

    10. Reductions of and exemptions from enterprise income tax and
consolidated industrial and commercial tax on Chinese-foreign equity joint
ventures, Chinese-foreign contractual joint venture and foreign-capital
enterprises established in the Hainan Administrative Region of Guangdong
Province shall be implemented with reference to the relevant provisions
applying to the special zones.
Chapter II  The Economic and Technological Development Zones of the
Fourteen Coastal Port Cities

    1. Production-oriented enterprises organized as Chinese-foreign equity
joint ventures, Chinese-foreign contractual joint ventures and
foreign-capital enterprises (hereinafter referred to as "development zone
enterprises") established in the economic and technological development
zones (hereinafter referred to as "development zones") shall be subject to
enterprise income tax at the reduced tax rate of 15% on income from
production and business operations and on other income. Among these
enterprises, those scheduled to operate for a period of 10 years or more,
upon approval by the municipal tax authorities of an application filed by the
enterprise, shall be exempt from income tax in the first and second years,
commencing the first profit-making year, and be allowed a 5% reduction in the
third through the fifth years.

    2. With respect to the local income tax imposed on the development zone
enterprises, the municipal people's governments in the locations of the
development zones shall determine whether preferential treatment in the form
of tax reduction or exemption needs to be granted.

    3. The share of profits distributed to external investors by
Chinese-foreign equity joint ventures in the development zones and remitted
abroad shall be exempt from income tax.

    4. With the exception of income which is exempt from income tax in
accordance with the law, dividends, interest, rentals, royalties and other
income derived from sources within the development zones by external investors
having no establishments in China shall be subject to tax at the reduced tax
rate of 10%. Of such external investors, with respect to those that provide
capital or equipment on preferential terms or transfer technology which is
advanced, their preferential treatment with regard to further tax reductions
or tax exemptions shall be decided by the municipal people's government
located in the respective development zone.

    5. Building materials, production equipment, raw materials, spare parts
and fittings, components, means of transport and office supplies imported by
development zone enterprises for their own use shall be exempt from
consolidated industrial and commercial tax. Development zone enterprises
that divert for sale on the domestic market products processed from imported
raw materials, spare parts and fittings and components that were exempt from
tax shall, in accordance with the tax laws, make up consolidated industrial
and commercial tax on imported material and parts used for such products.

    6. Products for export produced by development zone enterprises, other
than those whose export is restricted by the State, shall be exempt from
consolidated industrial and commercial tax; products for domestic sale shall
be taxed according to the tax laws.

    7. Reasonable quantities of settling-in articles and means of transport
that are personally brought in by external business personnel who work in
development zone enterprises or reside in development zones for their own
use shall, on the basis of certificate issued by the municipal development
zone administrative committee, be exempt from consolidated industrial and
commercial tax.
Chapter III  The Old Urban Districts of the Fourteen Coastal Port Cities
and the Urban Districts of Shantou, Zhuhai and Xiamen Municipalities

    1. Production-oriented enterprises organized as Chinese foreign equity
joint ventures, Chinese-foreign contractual joint ventures and
foreign-capital enterprises (hereinafter referred to collectively as "old
urban district enterprises") established in the old urban districts of the
fourteen coastal port cities and the urban district of Shantou, Zhuhai and
Xiamen municipalities (hereinafter referred to collectively as "old urban
districts") shall, upon approval of the Ministry of Finance, be subject
enterprise income tax at the reduced rate of 15% in respect of projects which
are technology-intensive or knowledge-intensive, or in which the amount
invested by foreign investors is 30 million US$ or more and the investment
recovery period is long or which involve energy development or the construction
of communications or port facilities.

    Old urban district enterprises that do not qualify for the tax reductions
prescribed in the preceding paragraph, but which involve one of the industries
listed below, may, upon approval by the Ministry of Finance, be subject to
enterprise income tax calculated at 80% of the tax rate stipulated in the tax
laws:

    (1) machine manufacturing and electronics industries;

    (2) metallurgical, chemical and building materials industries;

    (3) light industries, textiles and packaging industries;

    (4) medical apparatus and instruments and pharmaceutical industries;

    (5) agriculture, forestry, animal husbandry and aquaculture industries
and the related processing industries;

    (6) construction industries.

    Reductions of and exemptions from enterprise income tax for old urban
district enterprises shall be dealt with according to the above-mentioned
preferential tax rates and in conformity with the time limits and scope
stipulated in the Income Tax Law of the People's Republic of China for
Chinese-Foreign Equity Joint Ventures and the Income Tax Law of the People's
Republic of China for Foreign Enterprises.

    2. With respect to the local income tax imposed on old urban district
enterprises, the municipal people's government shall determine whether
preferential treatment in the form of tax reduction or exemption needs to
be granted.

    3. With the exception of income which is exempt from income tax in
accordance with the law, dividends, interest, rentals, royalties and other
income derived from sources within the old urban districts by external
investors not having establishments in China shall be subject to income tax
at the reduced tax rate of 10%. Of such external investors, with respect to
those that provide capital or equipment on preferential terms or transfer
technology which is advanced, their preferential treatment in regard to
further tax reductions or tax exemptions shall be decided by the municipal
people's government.

    4. Production equipment, equipment for business operations and building
materials imported as investment contributions or additional investment, as
well as means of transport and office supplies imported by old urban district
enterprises for their own use shall be exempt from consolidated industrial
and commercial tax.

    5. Products for export produced by old urban district enterprises,
excluding those whose export is restricted by the State, shall be exempt from
consolidated industrial and commercial tax; products that are sold
domestically shall be taxed according to the tax laws.

    6. The portion of raw materials, spare parts and fittings, components,
packaging materials and other such materials imported by old urban district
enterprises which is used in the production of export products shall be exempt
from consolidated industrial and commercial tax; the portion of imported
materials used in the production of products for domestic sale shall be taxed
in accordance with the tax laws.

    7. Reasonable quantities of settling-in articles and means of transport
personally brought in by external business personnel for their own use shall,
on the basis of a certificate issued by the relevant departments of the
municipal people's governments, be exempt from consolidated industrial and
commercial tax.
Chapter IV  Effective Date

    The stipulations of these Provisions concerning the reduction of and
exemption from income tax shall become effective as of the year of 1984;
the stipulations of these Provisions concerning the reduction of and
exemptions from consolidated industrial and commercial tax shall become
effective as of December 1, 1984.