Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation on Some Tax Issues Concerning Export Goods of Enterprises with Foreign Investment

GuoShuiFa [1999] No.189

October 8, 1999

All the State taxation bureaus of provinces, autonomous regions, municipalitie directly under the Central Government and cities separately listed on the State plan:

In order to further strengthen administration of tax refund (exemption) for export goods of the enterprises with foreign investment and support the expansion of export of the enterprises with foreign investment and in accordance with the spirit of relevant decisions of the State Council, some tax issues concerning export goods of the enterprises with foreign investment which were established upon approval before December 31, 1993 (hereinafter referred to as the old enterprises with foreign investment) are hereby notified as follows:

I.

On the issue concerning the measures for tax refund (exemption) for export goods

Starting from November 1, 1999, the original tax exemption measures for export goods of the old enterprises with foreign investment by themselves or through their authorized agents shall be replaced by the export tax refund measures. The specific calculation method of tax refund (exemption) shall be governed by the current method of "collection first and refund later" or tax "exemption, credit and refund" for the self-operating production enterprises.

If an old enterprise with foreign investment requires to continue the tax exemption for its export goods, it may, before the end of November 1999, submit its application to the competent tax authority, and after approval, it may, before the end of the year 2000, continue to implement the provisions of the Circular on Relevant Issues Concerning the Tax Policy for Enterprises with Foreign Investment Established upon Approval before December 31, 1993 (CaiShuiZi [1998] No.184) promulgated by the Ministry of Finance, the Ministry of Foreign Trade and Economic Cooperation and the State Administration of Taxation for its export goods. Starting from January 1,2001, its export goods shall be governed by the tax refund measures.

II.

On some issues concerning the specific policy after the implementation of tax refund (exemption) for export goods

(1)

The issue concerning tax refund (exemption) for the processing withsupplied materials or with imported materials.

The re-export of the old enterprises with foreign investment may, if their processing with supplied materials is completed directly by themselves, be exempt from the value-added tax and consumption tax at the link of processing; and if their processing with supplied materials is completed by other enterprises with foreign investment or domestic enterprises they authorized, be exempt from the consumption tax and value-added tax for authorized processing fees according to the Tax Exempt Certificate for Processing with Supplied Materials issued by the tax authorities in charge of tax refund.

If export goods are produced with imported materials and parts by the old enterprises with foreign investment in the form of processing with imported materials, the amount of tax refund may be adjusted and calculated according to the following formulas respectively:

l.

The calculation formula for the method of "collection first and refund later "shall be:

Tax payable in the period=Tax on domestic sales of goods in the period + FOB price of export goods in the period * Quoted exchange rate of Renminbi * Tax rate-(Tax on all purchases in the period +Price for tax calculation in the period approved by the Customs as duty free for import materials and parts * Tax rate).

Amount of tax refund in the period=FOB price of export goods in the period * Quoted exchange rate of Renminbi * Tax refund rate-Price for tax calculation in the period approved by the Customs as duty free for import materials and parts * Tax refund rate.

2.

The calculation formula for the method of tax "exemption, credit and refund" shall be:

Tax not be credited or refunded in the period=FOB price of export goods in the period * Quoted exchange rate of Renminbi * (Tax rate-Tax refund rate)-Price for tax calculation in the period approved by the Customs as duty free for import materials and parts * (Tax rate-Tax refund rate).

The specific calculation procedures and formulas thereof shall continue to be governed by the relevant provisions of the Supplementary Circular of the Ministry of Finance and the State Administration of Taxation on Some Tax Issues Concerning Export Goods (CaiShuiZi [1997] No.014).

The above-mentioned tax rate and tax refund rate mean the tax rate and tax refund rate applicable to re-export goods.

(2)

The issue concerning tax refund (exemption) for bid-winning mechanical and electronic products.

The bid-winning mechanical and electronic products of the old enterprises with foreign investment through international bidding for projects using the loans of foreign governments or international financial organizations shall be governed by the method of collection first and refund later". Specific measures for administration of documents needed for applying for tax refund and examination and approval procedures shall be governed by the relevant provisions of the Circular of the State Administration of Taxation on the Promulgation ofthe Measures for Administration of Tax Refund (Exemption) for Export Goods (GuoShuiFa [1994] No.031 and the Circular of the State Administration of Taxation on the Promulgation of the Specific Provisions on Some Issues Concerning Tax Refund (Exemption)for Export Goods (GuoShuiFa [1999] No. 101).

(3)

The issue concerning tax refund (exemption) for export goods within bonded areas.

Tax may not be refunded (exempted) for the goods of the old enterprises with foreign investment moved to the bonded areas. When the enterprises within the bonded areas purchase goods from the old enterprises with foreign investment outside the areas, they must report relevant contents of special invoices for value-added tax to the competent tax authorities for the record, and after the said goods are exported or re-exported after processing, they may apply for tax refund (exemption) according to the provisions.

(4)

The issue concerning tax refund (exemption) for steel "produced to substitute import".

Tax collection and refund for export goods processed and produced by the old enterprise with foreign investment using duty-free steel "produced to substitute import" shall be administered by applying mutatis mutandis the current measures for administration of tax collection for processing trade, and shall be governed specifically by the relevant provisions of paragraph 1 of Article 18 of the Circular on the Promulgation of the Rules for the Implementation of the Measures for Improvement of Steel "Produced to Substitute Import" (GuoShuiFa [1999] No.68), promulgated by five ministries and commissions such as the State Administration of Taxation.

(5)

The issue concerning tax refund for repair and replacement operations.

When the old enterprises with foreign investment carry out foreign repair and replacement operations, their labor service incomes from repair and replacement shall be exempt from the value-added tax, but the tax shall not be refunded. The tax shall be refunded for the spare parts and raw materials used for their repair and replacement operations according to the special invoices for value-added tax for their purchases and the applicable tax refund rate.

(6)

The issue concerning treasury adjustment for tax "exemption or credit".

After the old enterprises with foreign investment implement the tax "exemption, credit and refund" measures, the treasury adjustment for their "exempted or credited" taxes shall be governed by the Circular on the Issue Concerning Budget Management in the Implementation of the Tax "Exemption, Credit and Refund" Measures of the Ministry of Finance, the State Administration of Taxation and the People's Bank of China (CaiYuZi [1998] No.242).

III.

On the issue concerning administration of tax refund (exemption) for export goods

(1)

The old enterprises with foreign investment shall, in accordance with the provisions of the GuoShuiFa [1994] Document No.031 of the State Administration of Taxation and by presenting their industrial and commercial business license and other relevant materials, go through the tax refund registration procedures with the tax authorities in charge of tax refund before the end of the year 1999. If an enterprise fails to go through the tax refund registration procedures, the tax may not be refunded (exempted) for its export goods.

If an old enterprise with foreign investment enters into dissolution, merger or change, it shall, within 30 days from the date of approving its dissolution, merger or change, go through the tax refund registration procedures for cancellation or change with the tax authority in charge of tax refund.

(2)

The old enterprises with foreign investment shall have full-time or part-time persons for managing their export tax refund (hereinafter referred to as the tax operator), to whom the tax authorities in charge of tax refund shall issue the Tax Operator Certificate after they pass training and qualification examination. Any person without the Tax Operator Certificate may not engage in export tax refund operations. When an enterprise changes its tax operator, it shall timely make report to the competent tax authority to cancel the Tax Operator Certificate. If the enterprise fails to make such report timely, the enterprise shall be liable for all tax refund activities and responsibilities occurred between the former tax operator and the tax authority after the change.

(3)

The foreign-related tax authorities of State tax bureaus in all places shall be specifically responsible for routine administration of export tax refund (exemption) for the old enterprises with foreign investment such as certificate issuance, inspection, settlement and materials examination and safekeeping. The foreign-related tax authorities shall be responsible for accepting, on a monthly basis, the advance applications of the enterprises under tax "exemption, credit and refund" for tax refund (exemption) and the applications of the enterprises under "collection first and refund later" for tax payment or refund and for examining and approving tax exemption, credit and refund and the tax amount payable and for handling the procedures of carrying the tax amount on income payable not yet credited onto the following period to be credited. The import and export tax authorities shall be responsible for accepting, on a quarterly basis, the consolidated applications of the enterprises under tax "exemption, credit and refund" for tax refund (exemption), for accepting, on a monthly basis, the applications of the enterprises under the "collection first and refund later" for tax refund, for examining and approving the amount of tax exemption, credit and refund, for informing the tax collection authorities to adjust the amount of tax exemption and credit and for handling the tax refund procedures.

(4)

Export tax refund (exemption) for the old enterprises with foreign investment shall be managed by computer, and the specific procedures thereof shall be governed by the Circular of the State Administration of Taxation on the Promulgation of the Measures for Electronic Administration of Export Tax Refund (GuoShuiFa [1996] No.79).

IV.

On the issue concerning the checking up of export goods

(1)

All localities are required to check up the goods exported before November 1, 1999 by the old enterprises with foreign investment which implement the tax refund (exemption) measures. The enterprises' export goods which are declared to the Customs and leave the territory before November 1, 1999 but are treated as sales in the accounting books after November 1,1999 shall continue to be governed by the export tax exemption measures.

(2)

If imported materials and parts are purchased before November 1,1999 but are not yet written off at the moment, the old enterprises with foreign investment shall, by presenting the Registration Manual of Processing with Imported Materials issued by the Customs and other relevant certificates, apply to the tax authorities in charge of tax refund for supplemental issuance of the Application Form for Processing Trade with Imported Materials.