Laws of the People's Republic of China

The Ministry of Finance, the State Administration of Taxation

Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Issue of Tax Credit for Business Income Tax for Homemade Equipment Purchased by Enterprises with Foreign Investment and Foreign Enterprises

CaiShuiZi [2000] No.49

January 14,2000

The finance departments (bureaus), the state taxation bureaus and local taxation bureaus of all the provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan:

The Circular of the Ministry of Finance and the State Administration of Taxation concerning the Issue of Tax Credit for Enterprise Income Tax for Homemade Equipment Purchased by Enterprises with Foreign Investment, is issued as follows to carry out the spirit of the relevant regulations stipulated by the Central Committee of the Communist Party of China and the State Council, enlarge the introduction of foreign investment, and encourage enterprises with foreign investment and foreign enterprises to use homemade equipments:

1.

With regard to the homemade equipment purchased within investment amount by the enterprises with foreign investment established within the territory boundaries of the PRC, if they fall under the Encouraged Category and Restricted B Category listed in the Directive Category of the Industries of Enterprises with Foreign Investment stipulated in the Circular of the State Council concerning the Adjustment of Taxation Policies for Imported Equipments (GuoFa [1997] No.37), 40 percent of the investment for the homemade equipment purchases shall be refundable from the increased part of their enterprise income taxes of the purchasing year over those of the year before.

The methods shall be applicable to the foreign enterprises that have set up organizations or offices for manufacture or business operation within the territory boundaries of China.

If the above enterprises' purchases of homemade equipments outside their investment total are for the purpose of improving existing equipments, manufacturing techniques and conditions with advanced and suitable new technologies, craftwork, equipments and materials to increase economic benefit, improve product quality, increase product varieties, designs and colors, promote product upgrading, enlarge export, decrease cost, save energies, enhance comprehensive resource utilizations and waste control and ensure labor protection and safety, 40 percent of their investment for homemade equipment purchases may also be creditable from their increased enterprise income taxes of the purchasing year over those of the year before.

2.

The homemade equipments for tax credit refer to those manufactured by homemade enterprises for production (including necessary test and inspection for production), excluding those imported directly from abroad and those manufactured for processing and compensation trades.

3.

The allowable tax credit of an enterprise with foreign investment or foreign enterprise shall not exceed its newly increased enterprise income tax of the purchasing year over that of the year before. If the amount of newly increased enterprise income tax is not sufficient for tax credit, the remaining part of investment outside tax credit shall be refundable from the newly increased tax of the next year over that of the year before the purchasing year. However, the period for continuous tax credit shall not exceed five years.

Enterprises with foreign investment and foreign enterprises eligible for unified enterprise income tax reduction and exemption policies stipulated in tax laws adopted by the Standing Committee of the National People's Congress and laws and regulations promulgated by the National People's Congress and the State Council can moderately extend the duration of continuous deduction. The maximum duration of continuous deduction, however, should not exceed 7 years.

4.

When enterprises with foreign investment and foreign enterprises apply for tax credit for their homemade equipment purchases, they shall provide the taxation administration in charge of tax credit with valid certificates and materials including invoices for homemade equipment purchases.

5.

The amount of value added tax refunded in accordance with regulations to enterprises with foreign investment and foreign enterprises for their homemade equipment purchases shall not be calculated into the prices of the equipments.

6.

The depreciation amount of homemade equipments with tax credit shall be calculated on the basis of the original prices of the equipments, and deducted in accordance with regulations concerned at the calculation of taxable income amount.

7.

If enterprises with foreign investment and foreign enterprises rent or transfer their homemade equipments that have enjoyed tax credit within 5 years from the purchase date, they shall repay the enterprise income tax that have enjoyed tax credit at the time of the equipments' rent or transfer.

8.

The Methods shall enter into force as of July 1, 1999. The State Administration of Taxation shall formulate detailed operational measures separately.