Taxation Polices

Currently,  the tax varieties applicable to foreign-invested enterprises and foreign individuals (including those from Hong Kong, Macao and Taiwan) include income taxes, intermediate taxes (including value-added tax, consumption tax and business tax), and import duties, etc.  Preferential treatment is largely granted to foreign-invested enterprises in terms of income taxes.   For example, foreign-invested enterprises may receive preferential treatment such as 'zero income tax for two years from when they begin to earn profits, and half for another three years'. Foreign-invested enterprises located in the middle/western regions that are encouraged by the state are treated with a further extended three year period for paying only half-rate income taxes, based on the above-mentioned 'zero income tax for two years from when they begin to earn profits, and half for another three years'.  In terms of intermediate taxes, foreign-invested enterprises started to pay value-added tax, consumption tax and business tax according to the same policy implemented for domestic enterprises since January 1, 1994.    Additionally, foreign enterprises and foreign-invested enterprises may also be exempt from business tax incurred when there has been a transfer of technology.  In terms of import duties, the Chinese government, beginning in 1991, has reduced import tariff rates many times. The current tariff rate for mineral products has been cut to 9.03%.  The imported equipment purchased for projects that are run with foreign or domestic investment that are encouraged and supported by the state shall be exempt from import duties and import duties.

Financial Policies

For those foreign-invested enterprises with domestic financing, the Chinese-owned commercial banks may accept guarantees from the foreign shareholders.  Foreign-invested enterprises are allowed to apply for RMB loans from designated Chinese-owned foreign exchange banks in China through placing foreign exchange deposits. All of a foreign-invested company's capital may be used as foreign currency 3eposits for obtaining RMB loans. Overseas financial institutions or foreign-invested financial institutions in the PRC can act as guarantors for foreign currency deposits which secure RMB loans, thus canceling foreign exchange registration formalities, The specific restrictions regarding the credit rate of for foreign-owned banks providing foreign exchange guarantees are also removed.  Foreign shareholders guarantees and FOREX-warranted RMB loans must comply with industrial policies and be sufficient to meet the requirements of fixed-asset investment and working fund but must not be used for purchasing foreign exchange.

Special industry investment funds will be set up to release the burden of and Chinese parties with insufficient equity funds for additional investment in the foreign-invested enterprises. At the same time, Chinese-owned commercial banks in China may release a certain ratio of equity loans to the Chinese shareholders if the due amount of additional equity investment from the foreign shareholders of the Sino-foreign equity or cooperative joint ventures is ready at the same time.

Foreign-invested enterprises in China are allowed to use the foreign parties overseas assets to provide as a guarantee for RMB loans to overseas branches of domestic Chinese-owned banks. The loans will be released from the overseas or domestic branches of those Chinese-owned commercial banks.

Foreign investors who have invested the energy resources areas which are particularly encouraged by the state will be provided with political risk insurance, contract implementation insurance, guarantee insurance and other insurance services, subject to the principles of active involvement and fair play.