Laws of the People's Republic of China

State Administration of Taxation

Reply of the State Administration of Taxation concerning the Exemption of Enterprise Income Tax from the Loan Interests Obtained by the Germany Investment and Development Co., Ltd

Guo Shui Han [2006] No.186

February 20, 2006

The State Administration of Taxation of Jiangsu province,

Your Request for Instructions on the Exemption of Foreign Enterprise Income Tax from the Loan Interests Obtained by the Germany Investment and Development Co., Ltd from Xuzhou Tianhong Times Textiles Co., Ltd. (Su Guo Shui Fa [2006] No.6) has been received; the reply is hereby made as follows:

The Germany Investment and Development Co., Ltd concluded a loan agreement with Xuzhou Tianhong Times Textiles Co., Ltd. in June, 2005, with a loan amount of US $ 9 million at the interest rate of LIBOR£«2.6%. In light of the Notice of the State Administration of Taxation on Relevant Issues concerning the Implementation of Tax Agreements on the Exemption of Interest Income Taxes (Guo Shui Fa [1996] No.29) and the prescriptions in Paragraph three of Article 11 of the Agreement Between the People¡¯s Republic of China and the Federal Republic of Germany on the Avoidance of Double Taxation on Incomes and Properties, the enterprise income taxes on the interests obtained by the Germany Investment and Development Co., Ltd from providing the aforesaid loans shall be exempted.