Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation on the Issues Related with the Offset Taxable Income on Technology Development Fee of Enterprises with Foreign Investment

GuoShuiFa [1999] No.173

September 17, 1999

The national taxation bureaus of all provinces, autonomous regions, municipalitie directly under the Central Government and municipalities separately listed on the State plan, the local taxation bureau of Shenzhen City:

Recently, the State Council has decided that in those enterprises with foreign investment where technology development fee has increased by over 10% (including 10%) than that for the previous year, shall be permitted, upon examination and approval by the taxation authorities, to re-offset 50% of the amount actually used for technology development fee for the taxable income for the same year.

The relevant issues with the implementation of this preferential taxation policy are notified as follows:

1.

In the enterprises where technology development fee occurred within the Chinese territory for the year has increased by over 10% (including 10%) than that for the previous year, they shall be permitted, upon examination and approval by the taxation authorities, to re-offset 50% of the technology development fee actually used for the year for the taxable income for the same year. The application period, procedures for examination and verification, and approval power shall be provided by the taxation authorities at the provincial level (autonomous regions, municipalitie directly under the Central Government and municipalities separately listed on the State plan), in accordance with the relevant laws, regulations and the present Circular, and taking into account of the actual situation at their localities. The regulations thus formulated shall be filed with the State Administration of Taxation.

The technology development fee applicable to provisions of the proceeding Article refers to: new products designing fee actually used by the enterprises in one tax payment year for research and development of new products, new skills and new technologies; technology process formulation fee; equipment test and adjustment fee; trial-production fee for raw materials and semi-products; technology books and material fee; intermediate experiment fee not enlisted into the State plan; staff members wages of the research institutions; depreciation fee for research equipment; and other fees related with trial-production of new products and technology research. Fees excluded are purchase fee or using fee paid for technology purchased from other units by the enterprises or technology using right transferred to the enterprises, and fees for operation cost and expenses paid by the enterprises engaged in technology development for business related with technology development service.

2.

In the enterprises where technology development fee has increased by over 10% than that for the previous year, and 50% of the amount actually used by the enterprises is higher than the taxable income for this year, the enterprises may be permitted to offset the portion which is not exceeding their taxable income; for the exceeding portion, they shall not be allowed to offset in this year or for the succeeding years.

For enterprises having no taxable income for this year after they have made up for the loss for the previous year, in accordance with the provisions of the Article 11 of the Income Tax Law of the People's Republic of China Concerning Enterprises with Foreign Investment and Foreign Enterprises, technology development fee they have actually used in the same year shall not be applicable to the provisions of Clause one, Article 1 of the present Circular.

3.

Technology development fee occurred owing to the establishment, by enterprises with foreign investment, of institutions and places within the Chinese territory and engaging in productive and operative activities, shall be dealt with on the analogy of the provisions as specified in this Circular.

4.

This Circular shall come into effect on sJanuary 1, 2000.