Laws of the People's Republic of China

Ministry of Finance of the People's Republic of China

Supplementary Notice of the Ministry of Finance on How to Deal with the Accounting Issues about the Assessed Increase and Decrease of the Overseas Investment Assets of Foreign-funded Enterprises

CaiQi [2004] No.134

The finance departments (administrations) of all provinces, autonomous regions, municipalities directly under the Central Government and the cities under separate state planning:

After we issued Notice of the Ministry of Finance on How to Deal with the Accounting Issues about the Assessed Increase and Decrease of the Overseas Investment Assets of Foreign-funded Enterprises (No. 181 [2003]), some areas and enterprises reflected that it is still not specific whether the undistributed profits of previous years coming from assessed increase of the overseas investment assets of foreign-funded enterprises may be used in the dividends paid to shareholders, and disputes arose in the implementation. With a view to favoring the sound development of foreign-funded enterprises and maintaining the benefits of Sino-foreign parties in the long run, supplementary notice concerning this issue is hereby given:

1.

Undistributed profits of the previous years coming from the assessed increase of overseas investment assets of foreign-funded enterprises, along with the assessed increase balance of assets that haven¡¯t amortized into profits, shall not be used to the dividends paid to shareholders any longer and shall be totally transferred into capital surplus.

After Notice of the Ministry of Finance on How to Deal with the Accounting Issues about the Assessed Increase and Decrease of the Overseas Investment Assets of Foreign-funded Enterprises (No. 181 [2003]) was issued and implemented, where foreign-funded enterprises has already transferred the assessed increase of overseas investment assets of the previous years into profits and distributed them, they shall not be adjusted retroactively.

2.

Sino and foreign shareholders shall be entitled to demand the enterprises to distribute profits ipso jure, but when the enterprises make decisions on the profit distribution program, they shall abide by the laws, administrative regulations and other relevant provisions provided for by financial departments of the State Council, and shall also carry out plenary negotiation.

3.

The present notice shall be implemented as of the promulgation date.

Ministry of Finance of the People's Republic of China

August 10th, 2004