Laws of the People's Republic of China

Official Reply of the State Administration of Taxation concerning the Pre-Income-Tax Deduction of House Subsidies of the Employees in Foreign-funded Enterprises Such as Ameco Beijing

Guo Shui Han [2006] No. 867

The State Taxation Bureau of Beijing Municipality:

We have received your Request for Instructions on the Pre-Income-Tax Deduction of House Subsidies of the Employees in Foreign-funded Enterprises Such as Ameco Beijing (Jing Guo Shui Fa [2006] No. 177). We hereby give a reply as follows:

Ameco Beijing is a joint venture established through joint investment of Air China and Lufthansa German Airlines. In accordance with the company's Constitution as modified in 2004 and in view of its achievements as well as the contribution which is made by its employees, both the Chinese and Foreign parties shareholders agree, given that shareholders can obtain reasonable returns by their contributions in the registered capital within a profit-making year of the company, to provide to the Chinese employees of the company a one-off welfare subsidy of 0.34 billion yuan with a distribution term of 10 years with a view to reducing any extra financial burden of the Company wherever possible. In accordance with the aforesaid provisions of the Constitution of Ameco Beijing, it instituted an Implementation Plan of Ameco for Monetized Distribution of Houses so as to distribute the house subsidies in cash to those employees who have not enjoyed the welfare houses or whose houses have not met the standards prescribed by the company, as well as instituted the specific norms and payment plan with a term of 10 years. The Housing Reform Office of Beijing Municipal People's Government has approved the Implementation Plan of Ameco for Monetized Distribution of Houses. In accordance with Article 24 of the Detailed Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises as well as the Circular of the State Administration of Taxation Concerning the Follow-up Control of Certain Income Tax Treatment of Enterprises with Foreign Investment and Foreign Enterprises After Lifting the Examination and Approval Procedure for Such Treatment (Guo Shui Fa [2003] No. 127), the house subsidies in cash as actually distributed by Ameco Beijing subject to the provisions of its Constitution as well as the resolution of its board of directors can be taken as the salary remuneration of employees and be deducted from the taxable income of the company in the corresponding period. For the said salary remuneration, the related individual income taxes shall be levied in accordance with the related provisions. Beijing Air Catering Co., Ltd., which is under the same circumstance, can enjoy the same treatment as mentioned above.

The State Administration of Taxation

September 22, 2006