Laws of the People's Republic of China

The State Administration of Taxation

Official Reply of the State Administration of Taxation Concerning Levying Corporate Income Tax on Interest Income Generated by Foreign Banks from China

GuoShuiHan [2000] No.656

August 22, 2000

State Taxation Bureau of Beijing:

Your Request for Instructions on Issues related to Levying Income Tax of Enterprises on Interest Income Generated by Foreign Banks from Chinese Banks (JingGuoShuiWai [2000] No.288) was received. Official reply is hereby given as follows:

1.

Issues concerning the application for exempting interest generated by short-tem loans of foreign banks from interest tax

In accordance with Article 19 of the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises and relevant provisions hereof, interest gained by foreign banks from providing loans with preferential interest rate to state banks of China may not be exempted from business income tax unless application of exemption is approved by provincial taxation authorities. Therefore, application must be filed according to the provisions of tax laws in order to exempt interest generated by foreign banks from providing loans, no matter long-term loans or loans at call, to state banks of China. As for call loans, due to frequent repetition and in order to reduce workload, you may, according to the specific business volume that each State Bank has, fix a time period and go through tax exemption procedure collectively and periodically.

2.

Issues concerning taxation on interest generated from deposits of foreign banks in domestic banks of our country

Taxation on interest generated from deposits of foreign banks in domestic banks of our country shall be subject to the Interim Provisions of the Ministry of Finance on Reduction and Exemption of Income Tax on Interest Generated by Foreign Investors from China (CaiShuiZi [82] No.348).