Laws of the People's Republic of China

Guo Shui Fa [2006] No. 111

The bureaus of state taxes and the development and reform commissions of all provinces, autonomous regions, municipalities directly under the Central Government, and cities specially designed in the state plan, the Development and Reform Commission of Xinjiang Production and Construction Corps:

According to the relevant provisions of the State Council, the State Administration of Taxation and the National Development and Reform Commission jointly formulated the Trial Measures for Tax Refund Administration of the Purchase of Chinese-made Equipment for Foreign-funded Projects, which are hereby printed and issued to you for earnest implementation.

Appendixes:

1.

Confirmation Letter of the Foreign-funded Project Conforming to State Industrial Policies

2.

List of Chinese-made Equipment Purchased for Projects

3.

Application Form for Tax Refund due to the Purchase of Chinese-made Equipment for Foreign-funded Projects

State Administration of Taxation

National Development and Reform Commission

July 24, 2006

Trial Measures for Tax Refund Administration of the Purchase of Chinese-made Equipment for Foreign-funded Projects Chapter I General Provisions

Article 1

In order to encourage the use of Chinese-made equipment in foreign-funded projects, clarify the duties and working procedures, regulate and strengthen the administration of examination and approval of tax refund for Chinese-made equipment purchased by foreign-funded enterprises, these Measures have been formulated on the basis of the relevant provisions of the State Council

Article 2

Each development and reform commission (including the National Development and Reform Commission and a provincial one, the same hereinafter) shall be responsible for handling the Confirmation Letter of Foreign-funded Project Conforming to State Industrial Policies (see Appendixes 1, hereinafter referred to as project confirmation letter) and the List of Chinese-made Equipment Purchased for Projects as the necessary attachment to the project confirmation letter (see Appendixes 2, hereinafter referred to as "equipment list"); each bureau of state taxes (including the bureaus at the provincial level and at the prefecture or city level, similarly hereinafter) shall be responsible for ratifying, examining and approving the tax refund for the Chinese-made equipment purchased by foreign-funded enterprises.

Chapter II Scope of Tax Refund

Article 3

The enterprises enjoying tax refund for Chinese-made equipment refer to the foreign-funded enterprises approved as the ordinary value-added tax payers, foreign-funded enterprises engaging in transport or common dwelling houses development, as well as the Chinese£­foreign contractual joint ventures engaging in marine petroleum exploration and exploitation. Foreign-funded enterprises shall include Chinese-foreign equity joint ventures, Chinese£­foreign contractual joint ventures and wholly foreign-owned enterprises.

A foreign-funded enterprise which has purchased any Chinese-made equipment for self-use in the name of any of its branch offices (branch factory) shall use its branch office (branch factory) to apply to the local taxation authority for tax refund.

As to the Chinese-foreign cooperative oil and gas projects for marine petroleum exploration and exploitation, the tax refund shall be applied by the operator, or operating institution or operating branch of the oil and gas field.

The VAT refund policies shall not be applied to the Chinese-made equipment purchased by the foreign-funded enterprises the scope of VAT deduction of which is enlarged within their total investment amount.

Article 4

Scope of Projects Enjoying Tax Refund

The VAT refund policies shall be applied to the Chinese-made equipment purchased for the foreign-funded projects (hereinafter referred to as encouraged foreign-funded projects) falling within the Catalogue for Foreign Investment Priority Industries in Mid-West Region of China and the encouraged category of the Catalogue for the Guidance of Foreign Investment Industries (the two aforesaid catalogues shall be referred to as the encouraged foreign investment catalogue hereinafter. If the encouraged foreign investment catalogue is adjusted, the tax refund polices which have applied to the Chinese-made equipment purchased for projects shall be subject to the encouraged foreign investment catalogue implemented when the project is approved.

The tax refund policies shall not be applied to the Chinese-made equipment purchased for the encouraged foreign-funded projects within China which falls within the Catalogue for Imported Commodities of Foreign-funded Projects Not Exempted from Tax (hereinafter referred to as the Catalogue of Projects Not Exempted from Tax). If the state adjusts the Catalogue of Projects Not Exempted from Tax, whether the equipment falls within the Catalogue of Projects Not Exempted from Tax shall be subject to the Catalogue of Projects Not Exempted from Tax which is implemented when the VAT special invoices for the purchase of Chinese-made equipment are issued.

As to the engineering projects in the encouraged foreign-funded projects, if a foreign-funded enterprise entrusts any other enterprise to undertake these projects in the form of contracting for labor and materials, the foreign-funded enterprise may sign a contract with the undertaking enterprise on entrusting to purchase the Chinese-made equipment, while the undertaking enterprise shall purchase the Chinese-made equipment and acquire the VAT special invoices and submit them to the foreign-funded enterprise so as to apply for tax refund in accordance with the relevant provisions.

Article 5

"Chinese-made equipment" referred to in these Measures means the equipment which is produced within the territory of the People's Republic of China and under the management of fixed assets as purchased for the encouraged foreign-funded projects, and includes the supporting parts and spare parts, etc. purchased together with the equipment in light of the purchasing contract.

Chapter III Handling of the Project Confirmation Letter and the Equipment List

Article 6

A development and reform commission shall issue a project confirmation letter upon the prescribed scope of powers. The project confirmation letter of an encouraged foreign-funded project the investment of which totals $ 30 million or more shall be issued by the National Development and Reform Commission and the project confirmation letter of an encouraged foreign-funded project the investment amount of which is less than $ 30 million shall be issued by the development and reform commission of the province, autonomous regions, municipalities directly under the Central Government, cities specially designed in the state plan or Xinjiang Production and Construction Corps (hereinafter referred to as "the development and reform commission at the provincial level"). Projects here are meant to include:

(1)

Chinese-foreign equity joint projects, Chinese-foreign contractual projects, and wholly foreign-owned projects;

(2)

capital increase projects which Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures or wholly foreign-owned enterprises increase the project investment amount by increasing the foreign proportion of registered capital; and

(3)

Chinese-foreign cooperative marine petroleum exploration, exploitation and production projects.

Article 7

The application of a project confirmation letter shall be submitted, after the project ratification under the relevant provisions and the confirmation of the Chinese-made equipment purchasing list, to the development and reform commission at the provincial level by the project owner in light of the procedures within one month after the project is ratified, attached with the following documents.

(1)

a copy of the duplicate of the project ratification document;

(2)

a list of Chinese-made equipment purchased for the project affixed with the seal of the project owner and of the preliminary examination department in quintuplicate (see Appendixes 2) ;

(3)

a project application report including the Chinese-made equipment purchasing list; and

(4)

other documents to be specified or provided.

As to a project beyond quota, the development and reform commission at the provincial level shall, after preliminary examination of the project owner, the total investment amount, the total amount of the purchased Chinese-made equipment, the equipment list, the duration of the project, and the articles of the applicable industrial policies, submit a formal application in written form to the National Development and Reform Commission.

Article 8

The project confirmation letter (attached with an equipment list) shall be issued to the projects meeting all of the following conditions by the Foreign Investment Department of the National Development and Reform Commission or the development and reform commission at the provincial level in quadruple (one copy shall be kept in archives, and three copies shall be distributed) upon the scope of its powers.

(1)

The project falls within the industrial policies encouraged category of foreign investments;

(2)

The project ratification in accordance with these provisions of the state on the administration of foreign-funded projects;

(3)

The application contents meet the requirements of the project ratification documents; and

(4)

The project meets the requirements of other relevant laws and regulations on foreign investments.

Article 9

The equipment list shall be generally obtained while applying for the project confirmation letter.

Article 10

As to a project for which a project confirmation letter has been issued, if the project owner, the total investment amount, the amount of purchased Chinese-made equipment, the duration of the project, the Chinese-made equipment purchasing list, or any other major particular really needs to be modified in the implementation, it shall be examined and approved by the original issuing department and then a modification proof of the project confirmation letter and (or) the equipment list shall be issued.

Chapter IV Administration of Registration and Filing

Article 11

A foreign-funded enterprise which enjoys tax refund policies for the purchase of Chinese-made equipment shall, according to Article 12 and Article 13 of these Measures, apply to the local competent tax refund authority for making the registration and filing of the tax refund and then may apply for the tax refund for the purchased Chinese-made equipment. If the affirmation of tax refund for export has been approved, the registration and filing of tax refund for the purchase of Chinese-made equipment shall not be made separately.

Article 12

A foreign-funded enterprise shall, after obtaining the project confirmation letter as issued by the development and reform commission within 30 days, take the following documents to the local competent tax refund authority to apply for the registration and filing of tax refund for the purchase of Chinese-made equipment.

(1)

a copy of the duplicate of its business license;

(2)

a copy of the duplicate of its tax registration certificate;

(3)

an original copy of the Confirmation Letter of the Foreign-funded Project Conforming to State Industrial Policies; and

(4)

other documents as required by the taxation authority.

Article 13

If a foreign-funded enterprise is canceled, merged or modified, it must, within 30 days as of the approval of the cancellation, merger or modification by the relevant administrative authority, apply to the local competent tax refund authority for canceling or modifying the affirmation of tax refund for the purchase of Chinese-made equipment.

Chapter V Application and Examination of Tax Refund

Article 14

After a foreign-funded enterprise which is a general value-added tax payer has purchased Chinese-made equipments, it shall, within 30 days as of the day when the special VAT invoices for the equipment purchasing are issued, obtain the certification by its competent tax authority. If the special VAT invoices are not certified, or they do not pass the certification, the tax shall not be refunded.

Article 15

A foreign-funded enterprise shall, within 90 days as of the day when the special VAT invoices for the purchased equipments are issued, fill out the "Application Form about Tax Refund for the Purchase of Chinese-made Equipment for Foreign-funded Project" (see Appendixes 3), and shall be accompanied by all of the following documents to apply to the local competent tax refund authority for the tax refund for the Chinese-made equipment.

(1)

the special VAT invoices (deduction copies) or "Uniform Invoice for Motor Vehicle Sale" (limited to motor vehicles for special uses) ;

(2)

the "Confirmation Letter of the Foreign-funded Project Conforming to State Industrial Policies" issued by the development and reform commission;

(3)

the "List of Chinese-made Equipment Purchased for Project" issued by the development and reform commission; and

(4)

other documents required by the taxation authority.

Article 16

A competent tax refund authority must, after receiving the application for tax refund for the Chinese-made equipment purchased by a foreign-funded enterprise, examine the "Confirmation Letter of the Foreign-funded Project Conforming to State Industrial Policies" with encouraged foreign-funded projects in the encouraged foreign investment catalogue and the catalogue of no exemption of taxes, verify the relevant vouchers, make field investigations on the purchased equipment , and then handle the tax refund performance in the tax amount indicated on the special VAT invoices if there is no mistake in the verification. If the Confirmation Letter of the Foreign-funded Project Conforming to State Industrial Policies does not agree with the encouraged foreign-funded projects in the encouraged foreign investment catalogue or the catalogue of no exemption of taxes, the competent tax refund authority shall refuse the tax refund, and shall report the relevant information to the State Administration of Taxation level by level.

The tax refund application of a foreign-funded enterprise which is a general value-added tax payer shall be accepted if there is no mistake in the verification of the information on the special VAT invoices.; as to the tax refund application of a foreign-funded enterprise engaging in transportation or common dwelling house development, or a Chinese-foreign contractual joint venture engaging in marine petroleum exploration and exploitation, the competent tax refund authority shall send letters to investigate their special VAT invoices, and shall not refund the tax until it has confirmed that the invoices are true and the tax returns for the goods listed on the invoices have been filed according to provisions.

Chapter VI Tax Refund Supervision

Article 17

A competent tax refund authority shall, after the tax refund affirmation of a foreign-funded enterprise has been approved, set up accounts on the basis of the relevant contents of the Confirmation Letter of the Foreign-funded Project Conforming to State Industrial Policies, and make a register book of the foreign-funded enterprise's project confirmation letter, equipment list, total amount of purchased Chinese-made equipment, name, quantity, capital amount and other relevant information of the purchased Chinese-made equipment.

Article 18

The Chinese-made equipment purchased by a foreign-funded enterprise shall be supervised by the taxation authority in charge of tax refund, with the supervision period of 5 years. If there are any changes of the equipment ownership such as assignment, gift, or other means of lease, re-investment, and etc. within the supervision period, the foreign-funded enterprise must pay retroactively the refunded tax to the competent tax refund authority in light of the following calculation formula.

Amount of taxes to be retroactively paid = the amount indicated on the special VAT invoices ¡Á (equipment remaining value¡Â equipment original value) ¡Á applicable value-added tax rate

Equipment remaining value = equipment original value ¨C accumulative depreciations

The equipment original value and the depreciations shall be calculated according to the enterprise's accounting data.

Chapter VII Supplementary Provisions

Article 19

A development and reform commission shall issue project confirmation letters and equipment lists in strict accordance with the relevant scope of powers and policies. The taxation authority shall, in strict accordance with the project confirmation letter as issued by the development and reform commission and the scope of Chinese-made equipment listed in the list of equipment, handle tax refund when the special VAT invoices for the purchased Chinese-made equipment are found inerrable after examination.

Article 20

The bureau of state taxes of each province, autonomous region, municipality directly under the Central Government, or city specially designed in the state plan shall, before July 15 of each year and January 15 of the next year, report the relevant information about tax refund for the purchase of Chinese-made equipment by foreign-funded projects in the first half of these year and the second half of the last year to the State Administration of Taxation.

Article 21

Where a foreign-funded enterprise cheats for any tax refund for Chinese-made equipment by forging or altering the project confirmation letter or the equipment list or other means, the competent tax refund authority may punish the violators according to Article 63 of the Law of the People's Republic of China on the Administration of Tax Collection or other relevant provisions.

Article 22

These Measures shall enter into force as of July 1, 2006. As regards the projects approved in accordance with Article 3 or Article 4 of these Measures heretofore, if the tax refund has not been paid, the relevant enterprises shall, in light of the provisions of these Measures, apply to the development and reform commission for making up the project confirmation letter and the Chinese-made equipment purchasing list, and shall go through the tax refund procedures in accordance with other provisions of these Measures. In the event of discrepancies between the previous provisions and these Measures, these Measures shall prevail.