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The Ministry of Foreign Trade and Economic Cooperation, the General Administration of Customs
Circular of the MOFTEC and the General Administration of Customs on Relevant Issues in Imported Equipment for Processing Trade
WaiJingMaoZhengFa  No.383
March 16, 1998
The commissions (departments and bureaus) of foreign trade and economic cooperation of various provinces, autunomous regions, municipalities under the Central Government and municipalities separately listed on the State plan, Shenzhen Municipal Bureau for Economic Development, Guangdong Sub-Administration of the General Administration of Customs, customs directly under the General Administration of Customs, various foreign trade centres and companies directly under the ministries and commissions:
In accordance with the regulations laid down in the Circular of the State Council on Adjusting Taxation Policy on Imported Equipment (GuoFa  No.37), for "those imported equipment without setting price provided by foreign businessmen for processing trade", "except for commodities enlisted in the List of Commodities Imported for Projects with Foreign Investment that Are Not to Be Exempted from Taxes, no customs duties and import value-added tax shall be levied". "The processing trade units importing non-price setting equipment provided by foreign businessmen shall go through the procedures at the customs for import tax exemption according to the approved contract for processing trade. The customs will check and ratify it, according to those procedures, against the list of commodities not to be exempted from taxes". To carry out the above mentioned taxation adjusting policy on imported equipment for processing trade, the relevant issues are hereby notified as follows:
Non-price setting imported equipment provided by foreign businessmen for processing trade, refers to equipment needed in processing production, which is provided free of charge by foreign businessmen engaged in processing trade (including processing with provided materials, processing with imported materials and pro cessing trade by foreign invested enterprises, same below) with the operating units of processing trade; the operating units need neither payment in foreign exchange for imports, nor payment in the form of processing fees of price difference.
Imports exempted from taxes and use of non-price setting equipment provided by foreign businessmen must conform to one of the following conditions:
Having independent factories or workshops exclusively for processing trade (I, e, not producing products processed for home sale) and that the non-price setting equipment shall be used only within the factories or workshops;
For those processing trade enterprises which have no such factories or workshops and engage in processing trade based on their existing production capacity and use of non-price setting equipment for processing production, in the terms of their processing trade contract (agreement), over 70% of their yearly produced processing products must be exported.
For import of non-price setting equipment by the operating units, they should list, in their processing trade contracts (agreements), provisions of importing non-price setting equipment (I.e, listing that the equipment shall be provided free of charge by foreign businessmen, without payment by the processing trade operating units for its import in foreign exchange, without payment of processing fees or price difference), and that an attached Application Form for Filing of Non- Price Setting Equipment for Processing Trade shall be provided.
The departments of foreign trade and economic cooperation should work according to their administrative power at different levels for examination and approval and relevant regulations. In examining and approving processing trade contracts (agreements), they shall check the applications for import of non-price setting equipment against the List of Commodities Imported for Projects with Foreign Investment that Are Not to Be Exempted from Taxes, and complete procedures for approving such import. In their checking and approving of imported equipment without setting price, the following contents shall be examined:
Whether or not the applicant conforms to the conditions for tax-free import and the use of non-price setting equipment;
Whether or not the provisions of import of non-price setting equipment stipulated in the processing trade contracts (agreements) conform to the regulations.
The Customs where the processing trade contracts (agreements) are put on file shall be responsible for the checking, approving and handling of the procedures for tax-free import of equipment without setting price.
The operating units shall go to the customs for handling tax-free import procedures in accordance with the Approved processing trade contracts (agreements) and the Application Form for Filing of Non-Price Setting Equipment for Processing Trade;
The customs, after checking and approving the application according to the processing trade contracts (agreements) and the Application Form for Filing of Non-Price Setting Equipment for Processing Trade approved by the departments of foreign trade and economic cooperation, and other relevant documents and checking it against the List of Commodities Imported for Projects with Foreign Investment that Are Not to Be Exempted from Taxes, puts it on file and issues out registration handbooks (with fake-proof label);
The operating units go through declaration procedures at the customs at the ports according to their Registration Handbooks, and the customs at ports checks and accepts such procedures according to the Registration Handbooks.
For temporary imports (shorter than half a year) of non-price setting equipment needed in processing trade production (confined to modeling tools and single set of equipment), the customs shall handle them as temporary import goods, and taxes shall be levied for over-term imports.
The above mentioned tax-free imported non-price setting equipment shall be regarded as goods under the customs' supervision and control from the date of import to the date of export back on the condition that the supervision and control are terminated according to the regulations by the Customs. Within the term of supervision and control which runs for five years, the goods shall not be sold, exchanged, transferred, mortgaged or used for other purposes in the mainland.
When the tax-free non-price setting equipment is under the period of supervision and control, the operating units of processing trade shall have to report in writing in January each year about its use respectively to the departments of foreign trade and economic cooperation and to the customs. The customs shall check it regularly.
In case the operating units of processing trade terminate or cancel their processing trade contracts for one reason or another, they may transport back their non-price setting equipment or pay customs duties and import value-added tax according to its value after deducting depreciation funds for the years it has been used, after its application is approved by the original departments of foreign trade and economic cooperation and checked by the customs.
In case of transporting back tax-free non-price setting equipment for processing trade, or paying overdue customs duties and import valueadded tax for the equipment, or the term of supervision and control being overdue, the operating units shall have to go through in time the procedures for terminating the supervision and control, for which they shall have to submit a written application to the customs for terminating the supervision and control and the Registration Handbooks for the equipment and other relevant documents. The supervision and control shall be terminated after being checked and ratified by the customs, and a certificate for the termination of supervision and control shall be issued out.
In case the imported non-price setting equipment belongs to the category of commodities listed in the Import Commodities for Projects with Foreign Investment not to Be Exempted from Taxes, the customs shall, according to the rules and regulations of the State, levy customs duties and import value-added tax on it.
Those operating units violating provisions of Article 2 , 3 and 7 of this circular, or getting tax-free by cheating, evading and dodging taxes in the name of non-price setting equipment for processing trade, the departments of foreign trade and economic cooperation shall stop approving their new processing trade contracts (agreements), and the customs shall levy on them full overdue customs duties and import value- added tax. And they shall be treated seriously in accordance with the Customs Law of the People's Republic of China, Detailed Rules for the Implementation of Administrative Penalties of the Customs Law of the People's Republic of China and other relevant laws and regulations. Those operating units violating the laws, shall be transferred to the judicial departments to find out, according to the laws, their criminal responsibilities.
In case the non-price setting equipment involves import quotas products, special or registered products, procedures for quotas, licenses, registrations or import certificates shall be exempted. Within the supervision and control term (five years), should the supervision and control be terminated ahead of time and the equipment not to be transported outside the land, supplimentary documents shall be required according to the laws.
The departments of foreign trade and economic cooperation at different levels and the customs should strengthen cooperation in their work, reduce the intermediate links and simplify procedures, be strict on examination and approval, and strengthen supervision. They should adopt workable measures to implement this important adjusting policy of the State Council with effective results.
For those non-price setting equipment which had been imported with customs duties and had been given customs permit with letters of gurantee prior to January 1, 1998, procedures shall be notified separately.
For questions that might arise in execution, please contact the Ministry of Foreign Trade and Economic Cooperation and the General Administration of Customs.