Laws of the People's Republic of China

The State Administration of Taxation

Letter of the State Administration of Taxation on Policy Question Related to Export Goods of Enterprises with Foreign Investment

GuoShuiFaZi [1994] No.558

October 12,1994

The State Tax Bureau of Jiangsu:

We have recently acknowledged the receipt of letters written to Director Liu Zhongli by Far East, Toyotas and eight other enterprises with foreign investment in Changzhou City, Jiangsu Province, saying that because the export goods of enterprise with foreign investment are not given tax reimbursement, these enterprises have faced a series of difficulties and have even suffered losses, demanding that the export tax reimbursement policy be materialized as quickly as possible. Similar opinions have been heard from other localities. Regarding this, we hereby specially make the following explanations, please do proper work with related enterprises respectively by the verbal method.

With regard to the question of taxation related to the export goods of enterprises with foreign investment, the Ministry of Finance and the State Administration of Taxation had made explicit stipulations in the Circular (CaiShuiZi(94)No.058) on August 25, 1994 . Its main contents are: The goods produced by enterprises with foreign investment which are exported directly are, except otherwise there are separate stipulations, exempt from value-added tax and consumption tax; goods sold to domestic export-oriented enterprises or entrusted to domestic export-oriented enterprises with exporting shall all be regarded as goods for internal sales, and value-added tax and consumption tax shall be levied on them; among the goods for direct export, the amount of tax borne for the purchase of domestic raw and semi-finished materials shall not be refunded. The above-mentioned stipulations are set down in line with the principle of introducing fair burden to facilitate equal competition among various types of enterprises and maintaining the continuity and stability of the taxation policy. Specifically, maintaining the original tax exemption policy toward the export goods of enterprises with foreign investment is based on an overall consideration of the comprehensive level of tax burden on enterprises with foreign investment and domestic enterprises, it is so determined in order to facilitate a gradual achievement of a rough balance of tax burden.

At present and for a period of time to come, enterprises with foreign investment are enjoying preferential tax policy in many aspects, their tax burden is much lower than that for similar domestic enterprises.

Firstly, from January 1 of this year, China introduced major reform of its tax system. After implementation of the new tax system, a unified turnover tax system was carried out among enterprises with foreign investment and domestic enterprises, the tax burden on various trades or products has become more rational. However: to ensure that tax burden on enterprises with foreign investment will not increase as a result of tax system reform, so as to maintain the continuity of policy, the Standing Committee of the National people's Congress on December 29, 1993 passed a decision that the increased tax burden on enterprises with foreign investment due to implementation of the new turnover tax system and that the part of extra tax payment shall be returned within five years, thereby enabling the tax burden on enterprises with foreign investment to remain at a relatively low level within the prescribed period.

Secondly, after the launch of tax system reform this year, enterprises with foreign investment have continued to implement the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises adopted by the National People's Congress in April 1991. In accordance with the stipulations of the law, enterprises with foreign investment enjoy a number of preferential policies superior to those for Chinese-funded enterprises in terms of income tax payment, the level of their tax burden is much lower than that of domestically funded enterprises.

Thirdly, in accordance with related stipulations of the state, some special preferential policies, enjoyed by enterprises with foreign investment for their import goods during the time when consolidated industrial and commercial tax was being implemented, continue to be in force.

From the above-mentioned points it can be seen that the state grants fully preferential taxation treatment to enterprises with foreign investment and their tax burden is obviously lower than that for domestic enterprises. Fair tax burden refers to tax burden in general, one should not see the weight of tax burden of only one certain link. The reason why the tax exemption policy, rather than the tax reimbursement policy, is implemented for enterprises with foreign investment in relation to their export goods is that the above-mentioned situation has taken into consideration and the principle of both maintaining the original rational preferential taxation policy and facilitating the gradual realization of a rough balance of tax burden on various types of enterprises.

We believe that doing so is beneficial to gradually unifying the state's taxation policy, promoting equal competition among various types of enterprises and proceeding to boost the development of the market economy.