Laws of the People's Republic of China

Official Reply of the State Administration of Taxation about the Determination of Production Value Proportion of the Exported Products of Foreign-invested Export Enterprises

Guo Shui Han [2007] No. 426

State Taxation Bureau of Qingdao:

We have received your Request for Instructions on Whether Qingdao Malsushila Electronic Components (Free Trade Zone) Co., Ltd. May Enjoy the Tax Preference for Export Enterprises (Qing Guo Shui Fa [2006] No.125). We hereby render the reply in respect of how to determine the production value proportion of the exported products of foreign-invested exportenterprises as follows:

Under the stipulations of Item 7 of Article 75 of the Detailed Rules for the Implementation of the Income Tax Law of the People's Republic of China for Foreign-invested Enterprises and Foreign Enterprises, foreign-invested export enterprises may pay their enterprise income taxes in half under tax laws upon the expiration of their legal tax exemption and reduction period, in the event that the value of the products exported in that year accounts for no less than 70% of their total output value in that year. Because the policy aims at the total income of an enterprise, which includes both the income from the sales of its own products and the income from the sales of purchased products, the standards for calculating the value of the products exported in that year and for calculating the total output value in that year shall be consistent, and the value of the purchased products that have been sold are included in both of the two values so as to accurately and reasonably carry out this policy.

The State Administration of Taxation

April 16, 2007