Laws of the People's Republic of China

Official Reply of the State Administration of Taxation concerning Handling the Tax Issues on the Expenses occurred before Forest Sales Revenues by the Foreign Funded Enterprises engaged in Forest Planting

Guo Shui Han [2006] No. 806

The State Tax Bureau of Guangxi Zhuang Autonomous Region:

The "Request of Instruction concerning the Taxation Policies for Guangxi Stora Enso Forestry Limited Company" (Gui Guoshui Fa No [2005]383 ) from your bureau has been received. As for tax issues on the expenses occurred before sales revenue from commercial forest felling by the foreign-invested enterprises engaged in forest planting (hereinafter referred to the enterprises), we reply as follows:

I.

The expenditures of preparation for establishment of an enterprise only engaging in forest planting during the period of preparatory establishment, and the costs of production and operation, which occurred from the beginning of production and operation (planting forest) to the time when the enterprise gain the forest sales revenues first from commercial forest felling. in addition to those which shall be credited to the original value of the relevant assets, the said expenditures shall be accumulated and classified to amortize by installments within at least a five-year period from the next month of the month that the date belongs to when the forest sales revenue is made for the first time.

II.

The revenues achieved by an enterprise from odd sales of original forest on purchased or rented land prior to starting commercial felling and gaining sales revenue may, as for income tax treatment, be used to offset current costs, and shall not be regarded as sales revenue, apart from paying the taxes including the transfer tax according to the relevant provisions on the tax.

State Administration of Taxation

August 23, 2006