Laws of the People's Republic of China

Ministry of Finance, State Administration of Taxation

Notice of the Ministry of Finance and the State Administration of Taxation Regarding the Relevant Policies of Enterprises Income Taxes on the Purchase of Home-made Equipment by Foreign Investment Enterprises and Foreign Enterprises

Cai Shui [2005] No. 74

The bureaus of finance of all provinces, autonomous regions, municipalities directly under the Central Government and the cities specifically designated in the state plan, the state taxation bureaus, the local taxation bureaus and the bureau of finance of Xinjiang Construction and Production Corps, the financial supervision commissioners' offices of the Ministry of Finance of all provinces, autonomous regions, municipalities directly under the Central Government and the cities specifically designated in the state plan:

For the relevant polices concerning the deduction or exemption of the enterprise income taxes by investment for the purchase of home-made equipment by foreign investment enterprises and foreign enterprises, and the policies concerning the refund of enterprise income taxes for re-investment of the relevant profits, we hereby make the following notice after deliberation:

I.

In accordance with the provisions of Article 9 of the Law of the People's Republic of China on the Income Taxes of Foreign Investment Enterprises and Foreign Enterprises, as for the deduction or exemption of the enterprise income taxes by investment for the purchase of home-made equipment by foreign investment enterprises and foreign enterprises, the tax amount as deducted or exempted shall be computed in the light of the enterprise income taxes and the local income taxes as actually collected.

II.

Where a foreign investor of a foreign investment enterprise re-invests the profits got from his investment in China, and if the enterprise income tax amount of the foreign investment enterprise as actually collected has already deducted or exempted the amount of enterprise income tax by investment for the purchase of home-made equipment as allowed, the tax refund amount for re-investment shall be computed according to the actual burden of the enterprise. To be specific, the "original actual applicable enterprise income tax rate" and the "local income tax rate" in the provisions of Article 82 of the Detailed Rules of Implementing the Law of the People's Republic of China on the Income Taxes of Foreign Funded Enterprises and Foreign Enterprises shall be determined in the light of the formulas as follows:

Original actual applicable enterprise income tax rate = Enterprise income tax amount as actually paid by foreign investment enterprises in the year of after-tax profits/Payable income tax amount of the foreign investment enterprise in the year

Original actual applicable local income tax rate = Local income tax amount as actually paid by the foreign investment enterprise in the year of after-tax profits/Payable income tax amount of the foreign investment enterprise in the year

Ministry of Finance

State Administration of Taxation

July 20, 2005