Laws of the People's Republic of China

Ministry of Finance, State Administration of Taxation

Notice of the Ministry of Finance and the State Administration of Taxation about Adjusting the Scope of Tax Refund Policy on Domestically-made Facilities Purchased by Foreign Funded Projects

Cai Shui [2006] No.61

The public finance departments or bureaus, the bureaus of state taxes of all provinces, autonomous regions, municipalities directly under the Central Government, and cities specifically designated in the state plan, and the finance bureau of the Xinjiang Production and Construction Corps:

The Changes have been taken place on correlative policies since the tax refund policy has been implemented on the domestic-made facilities purchased by foreign funded projects. In order to carry out the tax refund policy on the domestic-made facilities purchased by foreign funded projects better, specific adjusting scope of tax refund policy on domestically-made facilities purchased by foreign funded projects shall be as follows:

1.

The scope of enterprise to enjoy the tax refund of domestically-made facility shall refer to the foreign funded enterprise that is recognized as a general taxpayer of value added tax, the foreign funded enterprise that is recognized as a general taxpayer of non value added tax engaged in the traffic transportation and the development of common dwelling house, and the Chinese-foreign contractual joint venture engaged in prospecting, developing and producing of sea oil. The foreign funded enterprise shall include the Chinese-foreign equity joint venture, Chinese-foreign contractual joint venture and solely foreign funded enterprise. When the foreign funded enterprise purchase the domestically-made facility for self use as the name of its sub-company (factory), the tax refund shall be applied by this sub-company (factory) to the competent organ that is responsible for handling the tax refund where the branch is located. For the Chinese-foreign cooperative project of oil-gas field to co-explore the resource of sea oil, the tax refund shall be applied by operator of oil-gas field of cooperation, operation institute or sub-company of operation. With regard to the foreign funded enterprise that shall expand the deduct scope of value added tax according to the provision, the tax refund policy of value added tax shall not be implemented when it purchases the domestically-made facilities within the total amount of investment.

2.

The encouraged class which falls within the Guidance Catalogue for Foreign Investment Industry and the foreign investment project (hereinafter referred to as encouraged foreign investment project) which falls within the Catalogue of Priority Industries for Foreign Investment in the Central-Western Region (above mentioned two Catalogues are hereinafter referred to as Encouraged Foreign Investment Catalogue) shall enjoy the tax refund policy of value added tax for the purchased facility domestically made. When adjusting the encouraged foreign investment catalogue, the project to enjoy the tax refund policy for purchasing the domestically-made facility shall conform to the projects in the encouraged foreign investment catalogue implemented when approving the projects.

The tax refund policy shall not be applied, where the enterprises engaged in the Encouraged Foreign Investment Project purchase domestically-made facilities within China that falls within the Catalogue of Imported Commodities Not Exempted from Taxes for Foreign-funded Projects (hereinafter referred to the Catalogue of Commodities not Exempted from Taxes). When adjusting the Catalogue of Commodities not Exempted from Taxes by state, the facility, whether or not it falls within the scope of Catalogue of Commodities not Exempted from Taxes, shall be judged by the Catalogue of Commodities not Exempted from Taxes that was implementing when issuing the special invoice of value added tax for purchasing domestically-made facility.

For the engineering project in the Encouraged Foreign Investment project, if it is constructed by other enterprise entrusted by the foreign funded enterprise through the way of contract for construction and materials, the foreign funded enterprise may conclude an entrusting agreement with the entrusted enterprise to purchase the domestically-made facility, the special invoice of value added tax gotten by the entrusted enterprise for purchasing the domestically-made facility shall be given to the foreign funded enterprise for applying the tax refund according to the provisions.

3.

The domestically-made facility mentioned in present Notice shall refer to the facility produced inside the territory of People's Republic of China, purchased by the encouraged foreign investment project and managed as the fixed assets, including the auxiliary parts, spare parts and etc. purchased together with the facility according to the purchase contract.

4.

If any previous provision conflicts with the present Notice, the present Notice shall prevail

Ministry of Finance

State Administration of Taxation

May 10, 2006