Favorable Tax Policies
Favorable Tax Policies
1. Foreign-investment manufacturing enterprises with over ten years of operations are exempt from business income tax in the first two years from the first profitable year and enjoy half deduction of business income tax from the third year to the fifth year. (This practice is referred to as Two Exemptions and Three Deductions hereafter)
2. The business income tax rate for foreign-investment enterprises can be deducted by 15% in the following three years after Two Exemptions and Three Deductions period, if the scope of business covers the encouraged items and the Class B restricted items in the Catalogue for the Guidance of Foreign Investment Industries, which is approved by the State Council and released jointly by State Development Planning Commission, State Economic and Trade Commission, and Ministry of Foreign Trade and Economic Cooperation.
3. The business income tax rate for foreign-investment enterprises can be deducted by 15% in the following three year after the Two Exemptions and Three Deductions period, if the enterprise operates in the preferential industries of Hunan Province which are approved by the State Council.
4. Foreign-investment enterprises, which operate in industries of agriculture, forestry and animal husbandry or locate in economically less-developed and remote regions, can apply for other preferential tax treatment after the Two Exemptions and Three Deductions period. If the application is approved by the State Administration of Taxation, the enterprise can enjoy a 15% to 30% deduction of payable business income tax in the following 10 years.
5. Export-oriented enterprises can pay only half of payable business income tax based on specified tax rate after the Two Exemptions and Three Deductions period, as long as the output of exports accounts for over 70% of their total output in the same year. However, the halved tax rate cannot be less than 10% of the original tax rate.
6. Enterprises possessing advanced technology may enjoy the half deduction of payable business income tax in the following three years after the Two Exemptions and Three Deductions period. However, the halved tax rate cannot be less than 10% of the original tax rate.
7. If foreign investors of foreign-investment enterprises with operation period over 5 years reinvest the profit to increase their registered capital or use the profit as investment capital to start a new company, they may receive a 40% refund of paid business income tax for the reinvestment after the application of refund is approved by city/autonomous prefecture administration of taxation. If foreign-investment enterprises with operation period over 5 years reinvest the profit to start or expand export-oriented enterprises/enterprise possessing advanced technology, they may get full refund of paid business income tax for reinvestment sections.
8. The foreign investors are exempt from income tax for the profits from foreign-investment enterprises.
9. The business income tax rate for foreign-investment enterprises, which are accredited as new high-tech enterprises and locate in high and new technology industrial development zone approved by the State Council in Hunan Province, can be deducted by 15%.
10. Foreign-investment enterprises, of which the business scope covers the encouraged items in the Catalogue for the Guidance of Foreign Investment Industries approved by the State Council, can get full refund of value-added tax and claim for income tax credit according to pertinent regulations if they purchase home equipments within aggregate investment; they may be exempt from tariff and value-added tax for importing links if they import equipments for in-house use within aggregate investment. (Not including goods in the List of Non-tax-exempt Commodities Imported for Foreign-invested Projects)
11. Foreign enterprises are exempt from sales tax if they transfer technology to foreign-investment enterprises in Hunan Province. If foreign enterprises transfer advanced technology or provide favorable conditions to foreign-investment enterprises in Hunan Province, they can be exempt from income tax after getting approved by department of taxation under the State Council. Foreign-investment enterprises are exempt from sales tax on the income of technology transfer.
12. If the expenditure on technology development increases by 10% or above over previous year, foreign-investment enterprises can deduct current year payable income tax by 50% of actual expenditure of technology development after getting approved by the provincial tax authority.
13. For general taxpayers who sell self-developed software, the statutory value-added tax rate is 17% before 2010, any actual surplus over 3% will be returned upon tax collecting.
14. The statutory value-added tax rate for general taxpayers who sell self-developed IC products (including monocrystalline silicon piece) is 17% before 2010. any actual surplus over 6% will be returned upon tax collecting.
15. The income tax rate can be deducted by 15%, after being approved by the State Administration of Taxation, for foreign-investment enterprises which build energy infrastructure and transportation ports (cargo transportation).
16. After getting approval from finance department and tax authority at provincial level or above according to regulations of state tax revenue, Sino-foreign cooperative enterprises can decide in the contract that the foreign partner has the priority to getting back the investment during the cooperation period, if the contract has stipulated that Chinese partner will get all the fixed assets after the contractual time expires.
17.Foreign-investment manufacturing enterprises which self-support export can enjoy the benefit of ‘tax-free, tax credit, and tax refund.’ (Not including non-tax-refund products listed by the state.)
18. The tax rate of royalty income that foreign enterprises gain from transferring technology for scientific research, energy development, traffic communication development, production of agriculture, forestry, and animal husbandry, and significant technology development can be deducted by 10% with approval from the State Administration of Taxation. If the transferred technology is sophisticated or transferring conditions are favorable, foreign enterprises can be exempt from tax on royalty income.
19. Foreign enterprises are exempt from tax for interest and rent income. Those foreign enterprises which establish branches in China are exempt from sales tax for interest income and income from renting goods and chattels in China.
20. Foreign enterprises and inPiduals are exempt from tax of income from technology transfer. After getting approval from the State Administration of Taxation, foreign enterprises and inPiduals are exempt from sales tax of the income from transferring their offshore patents or ownership/right of use of non-patent technologies and providing pertinent technical consulting and services to domestic enterprises/inPiduals.
21. Charges of software are exempt from tax. Foreign enterprises which lease post and telecommunication equipments, computers and so on to domestic enterprises are exempt from sales tax on separate charges of inclusive related software, if there is any, as the charges are regarded as part of lease income.
22. Deduction of tax for foreign financing services. Foreign financial institutions which are engaged in providing financing services can deduct taxable income by offshore foreign currency loan interest expense. Domestic foreign currency/RMB loan interest expense cannot be deducted.
23. Urban real estate tax: Foreign inPiduals (including overseas Chinese and Chinese-origin residents from Hong Kong, Macau, Taiwan) are exempt from urban real estate tax for purchasing non-operating realties.
24. Foreign enterprises which are engaged in the encouraged items in the Catalogue for the Guidance of Foreign Investment Industries can calculate the income from investment in additional projects beyond original contracts separately and enjoy regular tax credits and deductions if one of the following conditions is met:
(1) New registered capital from investment in additional projects is $60 million or above;
(2) New registered capital from investment in additional projects is $15 million or above and equals or exceeds 50% of original registered capital of the enterprise.
1. The foreign-investment enterprises encouraged by the state refer to the enterprises whose main business is the encouraged items in the Catalogue for the Guidance of Foreign Investment Industries and the stated businesses in the Catalogue of Foreign-invested Competitive Industries in Central and West Regions of China and the main business income accounts for over 70% of total income.
2. The foreign-investment enterprises or foreign cooperators mentioned above include investors/cooperators that are overseas Chinese or Chinese-origin residents in Hong Kong, Macau, and Taiwan of China.