income tax rate (25%), except for the enterprises which enjoy preferential tax treatments. According to the Notice on Transition Preferential Treatment Policy Relating to Implementation of Enterprise Income Tax which become effective on January 1, 2008, for enterprises that originally enjoyed a preferential tax treatment with fixed periods of exemptions and reductions, such as “Two years of exemption, Three years of reduction by 50%” and “Five years of exemption, Five years of reduction by 50%”, they shall continue to enjoy these preferential treatments and terms under the original tax levy law, administrative regulations and regulations even upon implementation of the Enterprise Income Tax Law until the expiration of such treatments. However, for enterprises which have yet to see profits and hence been unable to enjoy the preferential tax treatment, the preferential period for them will start to calculate from the year 2008.

On April 11, 2008, the State Administration of Taxation issued a Notice on the Payment of Income Tax of Property Development Enterprises . This Notice stipulated that for the enterprises which prepay the income tax on quarterly or monthly basis according to their yearly profit, the profit will be calculated from the pre-sale income and adjusted based on the actual profit after the completion of the property.

# Business Tax

Under the PRC Interim Regulation on Business Tax of 1993, as amended in 2008, services in mainland China are subject to business tax. Taxable services include sale of real property in mainland China. Business tax rate is between 3% to 20% depending on the type of services provided. Sale of real properties and other improvements on the land attract a business tax at the rate of 5% of the turnover of the selling enterprise payable to the relevant local tax authorities.

Pursuant to the Notice of the SAT on Business Tax of the Land Use Right Reclaimed to the Land Owner issued on March 27, 2008 , when the land user returns the land use rights to the land owner, the business tax can be exempted.

On January 27, 2011, the Ministry of Finance and the State Administration of Taxation issued the Notice on Adjusting the Policy of Business Tax on Re-sale of Personal Residential Properties , which states that, business tax is imposed on the full amount of the sale income, upon the transfer a residence by an individual within five years from the purchase date. For the transfer of non-ordinary residence which is more than five years from the purchase date, the business tax is to be levied on the difference between the sale income and the purchase price. In the case of an ordinary residence, the business tax is exempted if that transfer occurs after five years from the purchase date. It also states that from January 27, 2011 Notice on Adjusting Policy of Business Tax on Re-sale of Personal Residential Properties issued on December 22, 2009 shall cease to be effective.

# Land Appreciation Tax

Under the PRC Interim Regulation on Land Appreciation Tax of 1993 and its implementing rules of 1995, LAT applies to both domestic and foreign investors in real properties

in mainland China, irrespective of whether they are corporate entities or individuals. The tax is payable by a taxpayer on the appreciation value derived from the transfer of land use rights, buildings or other facilities on such land, after deducting the “deductible items” that include the following:

• payment made to acquire land use rights;

• costs and charges incurred in connection with land development;

• construction costs and charges in the case of newly constructed buildings and facilities;

• assessed value in the case of old buildings and facilities;

• taxes paid or payable in connection with the transfer of land use rights, buildings or other facilities on such land; and

• other items allowed by the Ministry of Finance.

The tax rate is progressive and ranges from 30% to 60% of the appreciation value as compared to the “deductible items” as follows:

<table><tr><td>Appreciation value</td><td>LAT rate</td></tr><tr><td>Portion not exceeding 50% of deductible items . . . . . . . . . . . . . . . . . . . . . . . . . . . . .</td><td>30%</td></tr><tr><td>Portion over 50% but not more than 100% of deductible items . . . . . . . . . . . . . . . . . . .</td><td>40%</td></tr><tr><td>Portion over 100% but not more than 200% of deductible items . . . . . . . . . . . . . . . . . .</td><td>50%</td></tr><tr><td>Portion over 200% of deductible items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .</td><td>60%</td></tr></table>

Exemption from LAT is available to the following cases:

• Taxpayers constructing ordinary residential properties for sale (i.e. the residences built in accordance with the local standard for general residential use, excluding deluxe apartments, villas, resorts etc.), where the appreciation amount does not exceed 20% of the sum of the deductible items;

• Real estate taken over and repossessed according to laws due to the construction requirements of the state;

• Due to redeployment of work or improvement of living standard, transfers by individuals of originally self-used residential properties, provided that the transferor has occupied the property as his or her residence for five years or longer and has obtained the relevant tax authority’s approvals.

According to the Notice on the Levy and Exemption of Land Appreciation Tax for Development and Transfer Contracts signed before January 1, 1994 issued by the Ministry of Finance and the State Administration of Taxation in January 1995, the LAT regulation does not apply to the following transfers of land use rights:

• real estate transfer contracts signed before January 1, 1994; and