RESTRICTED WORLD TRADE ORGANIZATION
ORGANISATION MONDIALE DU COMMERCE
ORGANIZACIÓN MUNDIAL DEL COMERCIOWT/ACC/CHN/46
3 July 2001
(01-3318)
Working Party on the
Accession of ChinaOriginal:  English/
anglais/
inglés
COMMUNICATION FROM CHINA
In preparation for the Working Party meetings on 28 June-4 July 2001, the Chinese delegation
has submitted the following Laws and Regulations of China on Special Economic Areas.1
Groupe de travail de
l'accession de la Chine
COMMUNICATION DE LA CHINE
En vue des réunions du Groupe de travail qui auront lieu du 28 juin au 4 juillet 2001, la
délégation chinoise a communiqué les textes ci-après des lois et réglementations de la Chine sur les
zones économiques spéciales.1
Grupo de Trabajo sobre la
Adhesión de China
COMUNICACIÓN DE CHINA
Para preparar la reunión del Grupo de Trabajo que se celebrará del 28 de junio al 4 de julio
de 2001, la delegación china ha presentado las siguientes leyes y reglamentos de China sobre las
zonas económicas especiales.1
                                                     
1 In English only./En anglais seulement./En inglés solemante.WT/ACC/CHN/46
Page 2
List of Laws and Regulations of China on Special Economic Areas
28 June 2001
1. Interim Measures of the Customs of the P.R.C on Supervision and Control of Export
Processing Areas
(Approved by the State Council on 27 April 2000, and promulgated by Decree No. 81of the
General Administration of Customs on 24 May 2000)
2. Measures on Customs Supervision and Control over Bonded Zones
(Approved by the State Council on 10 June 1997, and promulgated by Decree No. 65 of the
General Administration of Customs on 1 August 1997)
3. Decision of the Standing Committee of th e National People's Congress Regarding  the
Application of Provisional Regulations on Such Taxes as Value-added Tax,
Consumption Tax and Business Tax to Enterprises with Foreign Investment and
Foreign Enterprises
(Adopted at the Fifth Meeting of the Standing Committee of the Eighth National People's
Congress on 29 December 1993, promulgated by Order No. 18 of the President of the P.R.C.
on 29 December 1993, and effective as of the same date)
4. Rules for the Implementation of the Income  Tax Law of the P.R.C. for Enterprises with
Foreign Investment and Foreign Enterprises
(Promulgated by Decree No. 85 of the Stat e Council of the P.R.C. on 30 June 1991, and
effective as of 1 July 1991)
5. Income Tax Law of the P.R.C. for Enterprises with Foreign Investment and Foreign
Enterprises
(Adopted at the Session of the Seventh National People's Congress on 9 April 1991, and
promulgated by Order No. 45 of the President of the P.R.C. on 9 April 1991 and effective as
of 1 July 1991)
6. Provisions of the State Council concerning the Encouragement of Investment in
Developing Hainan Island
(Promulgated by the State Council for Implementation on 4 May 1988)
7. Interim Provisions of the State Council Concerning the Reduction of and Exemption
from Enterprise Income Tax and Consolidated Industrial and Commercial Tax in the
Special Economic Zones and the Fourteen Coastal Port Cities
(Approved by the State Council on 21 March 1986, promulgated by the General
Administration of Customs on 25 March 1986)
8. Regulations on Special Economic Zones in Guangdong Province
(Approved for Implementation at the 15th Meeting of the Standing Committee of the Fifth
National People's Congress on 26 August 1980)
Note: Numbers 2, 3, 4, 5 and 6 can be found in the Secretariat as listed in document
WT/ACC/CHN/17 of 21 March 2000, numb ering 5, 67, 64, 63 and 42 respectively.WT/ACC/CHN/46
Page 3
Interim Measures of the Customs of the People's Republic of China
on Supervision and Control of Export Processing Areas
(Approved by the State Council on 27 April 2000, and promulgated by Decree No.81
of the General Administration of Customs on 24 May 2000)
Chapter I  General Provisions
Article 1
These Measures are formulated in accordance with the Customs Law of the People's Republic of
China and relevant laws and regulations of the State for the purpose of strengthening and improvingthe administration of the processing trade, regulating the supervision of the export processing areas by
Customs, promoting the healthy development of the export processing areas and encouraging the
expansion of foreign trade and exports.
Article 2
In order to prevent duplicated construction, export processing areas (hereinafter referred to as
processing areas) to be established within the territory of the People's Republic of China shall be
located only in the existing economic and technological development zones that have been approved
by the State Council, and shall be reported to the State Council for approval by the people'sgovernments of the provinces (autonomous regions, municipalities directly under the Central
Government).
Article 3
Processing areas are specific areas under the supervision and control of Customs. Customs shall
establish offices in the processing areas and exercise, pursuant to these Measures, 24-hour supervision
over the goods entering or leaving the processing areas and over the relevant sites therein.
Article 4
Separation facilities and close circuit television supervision and control systems that meet the
requirements of Customs supervision and control shall be installed between the processing areas and
other areas of the territory of the People's Republic of China (hereinafter referred to as the outside
areas). Only after the General Administration of Customs has tested and accepted the separation
facilities of the processing areas, may business operations related to the processing areas be engaged
in.
Article 5
An administrative committee of the processing area, export processing enterprises, warehousing
enterprises that provide services solely for the production of the export processing enterprises, andtransportation enterprises that are solely engaged in the transportation of goods into and out of the
processing area with Customs approval shall be established therein.
No other persons may live in a processing area except the security guards and the duty-employees of
enterprises. No profit-oriented consumer facilities may be established.
Article 6
No retailing business, general trade, transit trade and other business irrelevant to the processing area
may be conducted therein.WT/ACC/CHN/46
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Article 7
The enterprises established within the processing areas (hereinafter referred to as enterprises within
the areas) shall go through registration formalities with Customs.
Article 8
Enterprises within the areas shall, in accordance with the provisions of the Accounting Law of the
People's Republic of China and the relevant laws and regulations of the State, set up account books
and statements that meet the requirements of Customs supervision and control. They shall make
entries and conduct accounting on the basis of the legitimate and valid vouchers and make a record of
such items as inventory, assignment, transfer , sale, processing, use and consumption of the
enterprises' goods and articles entering or leaving the processing areas.
Article 9
The processing areas shall be subjected to computer network control and the Customs auditing
system.
Enterprises within the areas shall establish computerized databases that conform to the requirements
of Customs supervision and control, connect them to Customs through computer networks and
exchange electronic data each other.
Article 10
The bank guarantee ledger system for processing trade shall not be applied to the processing trade
business conducted by enterprises within the areas, and Customs shall not exercise administration bythe Processing Trade Register.
Article 11
Customs has the power, in accordance with the provisions of the Customs Law of the People's
Republic of China, to conduct inspections and examinations of goods, articles, means of transport and
persons entering or leaving the processing areas and relevant sites therein.
Article 12
The State does not levy value-added tax on the processed products within the areas.
Article 13
No goods or articles that are prohibited from being imported or exported by the State may enter or
leave the processing areas.
Chapter II  Supervision and Control of Goods
Moving between the Processing Areas and Places outside China
Article 14
With respect to the goods moving between a proces sing area and a place outside China, the owner of
goods or his agent shall fill in a filing list of goods entering or leaving China on the basis of the
documents of approval issued by the administrative committee of the processing area, and file it withWT/ACC/CHN/46
Page 5
the competent Customs office. The filing list shall be uniformly printed and distributed by the General
Administration of Customs.
Article 15
With respect to the goods moving between a processing area and a place outside China, Customs shall
exercise supervision and control through direct release or by transshipment to another Customs office.
Article 16
Import or export quota control and licensing control shall not apply to the goods moving between
processing areas and places outside China, except those goods to which the passive export controlapplies.
Article 17
With respect to goods entering a processing area from a place outside China, the import duties and
taxes related to importation shall be collected according to the following provisions except where
laws and regulations provide otherwise:
(1) Machines and equipment needed for infrastructure construction projects for the
production in the area, and materials for capital construction needed for theconstruction of factory buildings and storage facilities shall be exempted from duties
and taxes.
(2) Machines, equipment, modelling tools and parts and components used for the
maintenance thereof, which are needed for the production of the enterprises withinthe areas shall be exempted from duties and taxes.
(3) Raw materials, spare parts, components, packing materials and materials for
productive consumption, which are needed for the processing of products for export
by enterprises within the areas, shall be treated as bonded goods.
(4) Articles for office use in reasonable quantities needed by the enterprises and
administrative bodies within the areas shall be exempted from duties and taxes.
(5) With respect to means of transport and consumer goods which are used by the
enterprises and administrative bodies within the areas, the Customs declaration
formalities shall be fulfilled in accordance with the provisions concerning importedgoods and Customs shall collect duties and taxes in accordance with the regulations.
Article 18
The goods manufactured by the enterprises within the areas, leftovers, surplus materials, rejects and
sub-standard products, wastes, etc. arising in the course of the processing and production shall be
exempted from export duties if they are to be sold abroad except where laws and regulations provide
otherwise.WT/ACC/CHN/46
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Chapter III  Supervision and Control of Goods
Moving between Processing Areas and Outside Areas
Article 19
For goods transported from the processing areas to outside areas, Customs shall handle declaration
formalities in accordance with the provisions concerning imported goods and treat them as
manufactured goods in collecting duties and taxes. If the goods are under the licensing control, the
valid import licensing certificates shall also be presented to Customs.
Article 20
The goods manufactured by the enterprises within the areas, leftovers, rejects and sub-standard
products, wastes, etc. arising in the course of the processing and production shall be re-exported out of
China. Where there is a need to transport them to outside areas under special circumstances, they shall
be valued and taxed according to their value of utility upon application by the enterprises and
verification and approval by the competent Customs offices. If the goods are under the licensingcontrol, the valid import licensing certificates shall also be presented to Customs.
Where leftovers and wastes of no commercial value need to be transported to outside areas for
destruction, exit formalities shall be completed with  the competent Customs offices on the basis of the
documents of approval issued by the administrative committee and the environmental protectiondepartment. Customs shall exempt them from import licenses and duties and taxes.
Article 21
Enterprises within the areas shall not entrust enterp rises located outside the areas to do the processing
of products. Where, under special circumstances, it is necessary to entrust enterprises located outside
the areas to conduct any processing operation due to technical and processing difficulties to meet the
required product standards, on condition that such processing of products shall not change the basic
feature and quantity of the original products (at the time of the exit from the area), the entrusted
enterprises located outside the areas may, upon approval of the commissioner of the competent
Customs office, pay to the competent Customs office  in the processing area the amount of guarantee
equivalent to the value of the products and complete  exit formalities with reference to the provisions
pertaining to the control of temporarily imported goods.
The period for entrusted processing by an enterprise outside the area is six months, and no extension
of the period shall be permitted. Upon the completion of the processing, the processed products
(including rejects and sub-standard products and wastes) shall be transported back to the areas, andformalities for examining and releasing the products, verifying and cancelling the accounts thereof
shall be completed with the competent Customs offices in the processing areas on the basis of the
application for entrusted processing outside the areas and the relevant documents originally written
out at the time of their exit from the area.
Article 22
Machines, equipment, modelling tools, etc. which ar e sold by enterprises within the areas to places
outside the areas shall be dealt with in accordance with  relevant  existing import policies and the
relevant provisions of the State.WT/ACC/CHN/46
Page 7
Article 23
The enterprises within the areas may have their products tested, examined or exhibited outside the
areas upon approval of the competent Customs offices. For products to be tested, examined and
inspected or exhibited, formalities pertaining to exit from the areas shall be executed in accordance
with Customs regulations on control of temporarily imported goods.
Article 24
Where machines, equipment, modelling tools, articles  for office use, etc. which are used in the areas
need to be transported to outside areas for maintena nce, testing or examination, enterprises within the
areas or the administrative bodies shall fill in the Contact Sheet for Examination, Inspection andMaintenance of the Goods Transported from within the Export Processing Area to an Outside Area,
submit applications to the competent Customs offices, and may transport those machines, equipment,
modelling tools, articles for office use, etc. to outs ide areas for maintenance, testing or examination
and inspection only upon approval, registration and inspection by the competent Customs offices.
Where an enterprise within the area transports modelling tools to outside areas for maintenance,
testing or examination and inspection, the sample products manufactured by these modelling tools
shall be retained for the examination by Customs of the modelling tools transported back into the
areas.
Machines, equipment, modelling tools, articles for office use, etc. transported to outside areas for
maintenance, testing or examination and inspection shall not be used for the processing, production
and use in outside areas.
Article 25
Machines, equipment, modelling tools, articles for office use, etc. transported to outside areas for
maintenance, testing or examination and inspection shall be transported back into the processing areas
within two months from the date on which they are transported out of the areas. Where they cannot be
transported back on time under special circumstances, enterprises within the areas shall, within seven
days before the expiry of the period, explain the circumstances to the competent Customs offices and
apply for an extension of the period. The extension of the period may only be approved for one timeand the period may not be extended more than one month.
Article 26
For machines, equipment, modelling tools, articles fo r office use, etc. transported to outside areas for
maintenance, they may be transported back into the areas only on condition that it is possible for
Customs to identify that they are the original articles or new parts, components or accessories of the
same specifications, and where new parts, components or accessories have replaced the original ones,
the original ones shall be transported back into the areas together with the new ones.
Article 27
Goods entering the processing areas from outside areas shall be deemed as exports, and Customs
declaration formalities for exports shall be fulfilled. An export tax refund shall be processed in
accordance with the following provisions, unless otherwise provided for by laws and regulations:
(1) For domestically produced machines, equipment, raw materials, spare parts,
components and packing materials entering the processing areas from outside areas
for the use of enterprises within the areas, and goods and materials for capitalWT/ACC/CHN/46
Page 8
construction in a reasonable amount needed for the construction of infrastructures,
production facilities and office buildings for the processing enterprises and the
administrative bodies therein, Customs shall handle the declaration formalities in
accordance with the relevant provisions on exported goods and issue a declaration
form for export tax refunds. Enterprises located outside the areas shall apply to thetax authorities for undergoing export tax refund (exemption) formalities by presenting
the export tax rebate vouchers of the declaration forms, and the specific measures for
the administration of tax refunds (exemptions) shall be provided separately by the
State Administration of Taxation.
(2) For consumer goods, means of transport, etc. entering the processing areas from
outside areas for the use of enterprises and the administrative bodies within the areas,Customs shall not issue the declaration forms for export tax refunds.
(3) For imported machines, equipment, raw materials, spare parts, components, packing
materials, goods and materials for capital construction, etc. entering the processing
areas from outside areas, the enterprises located outside the areas shall submit a list ofthe aforesaid goods and articles to Customs and undergo export declaration
formalities, and Customs shall release them upon examination. The import duties and
taxes already paid for the aforesaid goods and articles shall not be refunded.
(4) Where it is necessary to transport commodities which are prohibited by the State from
being exported or which are under State's centralized management into the processing
areas for any processing operation due to inadequate domestic techniques to meet the
requirements of a product, the matter shall be reported to the Ministry of Foreign
Trade and Economic Cooperation for approval, and Customs shall exercise
supervision and control according to the measures for administration of exportedmaterials processing, and shall not issue export tax refund declaration forms for those
goods transported into the processing areas.
Article 28
The goods and articles transported into the processing areas from outside areas shall be transported to
the places or warehouses designated by Customs, and enterprises located outside the areas shall fill inexport declaration forms and undergo Customs declaration formalities at the competent Customs
offices in the processing areas by presenting purchase invoices and packing lists issued within the
territory of China.
Article 29
The goods transported into the processing areas from outside areas shall undergo substantive
processing by enterprises within the areas before they can be shipped overseas.
Chapter IV  Supervision and Control of Goods within Processing Areas
Article 30
Goods which move into or out of the processing areas by the enterprises within the areas shall be
truthfully declared to the competent Customs offi ces, and Customs shall examine, inspect and release
the goods which move into or out of the processing areas by the enterprises within the areas, and
cancel accounts through verification on the basis of the memorandum lists and relevant documents.WT/ACC/CHN/46
Page 9
Customs formalities for filing for the record, declaration, examination and inspection and release of
goods moving into or out of the processing areas as well as account cancellation through verification
shall be undertaken within the processing areas.
Article 31
The goods within the processing areas may be assigned or transferred between enterprises within the
areas, and both of the parties involved shall report  in advance to Customs for the record the names,
quantities, values of the goods to be assigned or transferred and other relevant detailed particulars.
Article 32
Processing enterprises within the areas may not sell outside the areas imported raw materials, spare
parts and components which have not undergone substantive processing. Enterprises engaging in
warehousing service within the areas may not prov ide the raw materials, spare parts and components
in their custody to enterprises located outside the areas.
Article 33
Enterprises within the areas shall present the account books and relevant documents of the enterprises
to the competent Customs offices and undergo account cancellation formalities every six months,
starting from the date on which they began their business of export processing or the business ofwarehousing service.
Article 34
Where the goods which have entered the processing areas are reduced in quantity or destroyed due to
force majeure  during the processing or warehousing period, the processing enterprises or the
warehousing enterprises within the areas shall report the circumstances to the competent Customs
offices within 10 days from the date of their discovery thereof and give their explanations. Customs
shall approve a deduction from their account books upon verification and confirmation.
Chapter V  Supervision and Control of Goods Moving between Processing Areas
Article 35
For goods moving between different processing areas, both the parties sending and receiving the
goods shall jointly apply to the competent Customs office in the sending areas. Upon verification and
approval by Customs, the matter shall be handled in accordance with the relevant provisions onCustoms transshipment.
Article 36
When goods are transshipped to another processing area, the competent Customs office in the
receiving area shall release them to the enterprise or the warehouse after checking and confirming that
the sealing marks are intact and the goods tally with the documents.
Article 37
Where goods moving between different processing areas can not be moved as goods in Customs
transshipment, the competent Customs office in the receiving area shall collect from the receiving
enterprise a guarantee in the amount equivalent to the value of the goods. After goods arrive at theWT/ACC/CHN/46
Page 10
receiving area, and have been verified and confirmed by Customs that no error exists, the competent
Customs office shall return the guarantee to the enterprise within 10 working days.
Chapter VI  Supervision and Control of Means of Transport
and Articles Carried by Persons Entering or Leaving Processing Areas
Article 38
Means of transport and persons shall enter or leave the processing areas through specific channels
designated by Customs.
Article 39
Processed products to be shipped overseas from th e processing areas and goods to be transported from
the processing areas to outside areas, after being examined and released by Customs, shall be
transported by the specialized transportation enterpri ses established within the areas with approval of
Customs. The following goods may be carried by persons specially designated by enterprises ortransported by the enterprises themselves after being examined by the competent Customs offices:
(1) petty goods with a value of 10,000 US dollars or less;(2) articles which are transported back to outside areas to be returned or replaced due to
sub-standard quality;
(3) articles for which the formalities for payment of import duties and taxes have been
fulfilled; and
(4) other articles examined and approved by Customs.
Article 40
The person responsible for the means of transport of the goods entering or leaving the processing
areas shall fulfill registration and filing formalities with Customs by presenting the business license of
the enterprise legal person and a list of names, the number, registered plate numbers of the means oftransport and the names of drivers.
All the operators of the transportation enterprises that undertake the carriage of goods entering or
leaving the processing areas and the goods in Customs transshipment shall abide by Customs
regulations relating to administration of means of transport and goods carried thereon, and bearcorresponding legal liabilities.
Article 41
Without approval of Customs, means of transport and persons leaving the processing areas for outside
areas may not transport or carry goods out of the processing areas.
Chapter VII  Supplementary Provisions
Article 42
Goods transported from overseas into the processing areas and goods transported overseas from the
processing areas shall be listed in the import and export statistics. Goods transported from outside
areas into the processing areas and goods transported from the processing areas to outside areas shallWT/ACC/CHN/46
Page 11
be counted in itemized statistics. The statistical measures shall be formulated by the General
Administration of Customs separately.
Article 43
Violations of the provisions of these Measures shall be dealt with by Customs in accordance with the
relevant provisions of the Customs Law of the People's Republic of China and the Rules for the
Implementation of Administrative Penalty  under th e Customs Law of the People's Republic of China.
Article 44
The General Administration of Customs shall be responsible for the interpretation of these Measures.
Article 45
These Measures shall come into force as of 1 May 2000.WT/ACC/CHN/46
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Measures on Customs Supervision and Control over Bonded Zones
(Approved by the State Council on 10 June 1997, promulgated by Decree No. 65
of the General Administration of Customs on 1 August 1997)
Chapter I  General Provisions
Article 1
These Measures are formulated in accordance with the provisions of the Customs Law and other
related laws for the purpose of strengthening and improving Customs supervision and control over
bonded zones and promoting the healthy development of bonded zones.
Article 2
The establishment of bonded zones within the territory of the People’s Republic of China must be
approved by the State Council.
Article 3
Bonded zones are specific areas under Customs supervision and control. The Customs shall carry out
supervision and control over goods, means of transpor t and articles carried by individuals entering or
leaving the bonded zones.
Segregation facilities that meet the requirements of Customs supervision and control shall be installed
between a bonded zone and other areas (hereinafter referred to as non-bonded areas) in the territory of
the People’s Republic of China.
Article 4
Only administrative bodies and enterprises are permitted to be set up in bonded zones. Nobody else
shall be allowed to live in bonded zones except security guards.
Article 5
Enterprises established in bonded zones (hereinafter referred to as enterprises in bonded zones) shall
fulfill registration formalities with the Customs.
Enterprises in bonded zones shall, in accordance with the provisions of the relevant laws and
regulations of the State, set up account books, compile statements, do accounts on the basis of lawful
and valid vouchers and the computation thereof, record the storage, transfer, movement, sale,
processing, use and loss of goods and articles carried into or out of the bonded zones.
Article 6
The system of Customs external auditing shall be practised in bonded zones.
Enterprises in bonded zones shall have their computer networks connected with the Customs to
exchange electronic dada.WT/ACC/CHN/46
Page 13
Article 7
The Customs shall have the right to carry out inspection and examination of goods, articles, means of
transport, persons entering and exiting the bonded zones, and related places in the bonded zones in
accordance with the provisions of the Customs Law.
Article 8
Goods and articles prohibited from importation and exportation by the State shall not be allowed to
enter or leave bonded zones.
Chapter II  Supervision and Control over Goods Moving Between
Bonded Zones and Places Outside the Territory
Article 9
The Customs shall carry out simple and effective supervision and control over goods moving between
bonded zones and places outside the territory.
Article 10
Goods moving between bonded zones and places outside the territory shall be recorded with the
Customs by the consignee, consignor or its agent.
Article 11
Except for those subject to passive export quota control, goods moving between bonded zones and
places outside the territory shall not be subject to import and export quota and licensing control.
Article 12
Import Customs duties and taxes at the importation on goods entering the bonded zones from places
outside the territory, except for those otherwise provided for by laws and regulations, shall be dealt
with in accordance with the following provisions:
(1) Machines, equipment and other goods and materials needed for productive
infrastructure construction projects in bonded zones shall be exempt from duties and
taxes;
(2) Equipment for production and management, articles for office use in reasonable
quantity and spare parts for maintenance, fuels for production, materials and
equipment needed for the construction of production and storage facilities to be used
by enterprises in the bonded zones, shall be exempt from duties and taxes;
(3) Equipment for management and articles for office use in reasonable quantity and
spare parts for maintenance to be used by administrative bodies in the bonded zones
shall be exempt from duties and taxes;
(4) Raw materials, spare parts, components and packaging materials needed by
enterprises in the bonded zones for the processing of export goods shall be treated as
bonded goods.WT/ACC/CHN/46
Page 14
Goods or articles entering the bonded zones from places outside the territory other than those
stipulated in Items (1) to (4) of the preceding paragraph shall be subject to duties and taxes according
to law.
Transit goods and goods stored in bonded zones shall be treated as bonded goods.
Chapter III  Supervision and Control over Goods Moving Between
a Bonded Zone and Non-bonded Areas
Article 13
Goods entering non-bonded areas from a bonded zone shall have Customs formalities fulfilled as
import goods; goods entering a bonded zone from non-bonded areas shall have Customs formalities
fulfilled as export goods and export tax refunds shall be dealt with in accordance with the relevant
provisions of the State.
The Customs shall carry out supervision and control over goods moving between a bonded zone and
non-bonded areas in accordance with the relevant provisions of the State concerning administration of
import and export.
Article 14
For machines, equipment, materials and articles for capital construction entering a bonded zone from
non-bonded areas for use in the bonded zone, the unit that uses them shall submit to the Customs a list
of these goods and articles which will be released upon Customs inspection.
Where import Customs duties and taxes at the importation on the goods and articles in the preceding
paragraph have already been paid, such duties and taxes shall not be refunded.
Article 15
For goods in bonded zones that need to be imported or exported at ports not in bonded zones or goods
in one bonded zone that are to be transported to another bonded zone, a written application shall be
filed to the Customs in advance and after being approved by the Customs, those goods shall be dealtwith in accordance with the provisions concerning Customs transit transportation and relevant
provisions.
Chapter IV  Supervision and Control over Goods in Bonded Zones
Article 16
Goods in bonded zones may be transferred or move d between enterprises in bonded zones; the two
sides shall have the transfer and movement thereof recorded at the Customs.
Article 17
Transit goods in bonded zones may be simply processed by grading, selecting, marking and
repackaging in warehouses or other places in bonded zones.WT/ACC/CHN/46
Page 15
Article 18
Where enterprises in bonded zones hold activities exhibiting goods from places outside the territory or
goods from non-bonded areas in the bonded zones, such goods on exhibition shall be subject to
Customs supervision and control.
Chapter V  Administration of Goods fo r Inward Processing in Bonded Zones
Article 19
Enterprises in bonded zones engaged in inward processing shall record with the Customs necessary
materials and parts entering or leaving the bonded zones.
Article 20
Processing enterprises in bonded zones producing export products subject to passive quota control
shall obtain approval from the competent de partment of the State Council in advance.
Article 21
Where the finished products manufactured by processing enterprises in bonded zones and the leftover
bits and pieces resulting from the manufacturing process are to be transported out of the territory,Customs formalities shall be undertaken according to the relevant provisions of the State; except for
those otherwise provided for by laws and regulations, export Customs duties shall be exempt from.
Where the finished products manufactured in bonded zones and by-products and the leftover bits and
pieces resulting from the manufacturing process are to be transported by processing enterprises inbonded zones into non-bonded areas, import declaration formalities shall be undertaken with the
Customs according to the relevant provisions of the State and the duties and taxes shall be paid
according to law.
Article 22
Where the finished products manufactured by processing enterprises in bonded zones wholly from
materials and parts from places outside the territory are sold to non-bonded areas, the Customs shall
levy duties and taxes thereon as import finished goods.
Where the finished products manufactured by containing materials and parts from places outside the
territory are sold to non-bonded areas, the Customs shall levy duties and taxes on the finishedproducts based on such materials and parts contained therein; if the description, quantity or value of
such materials and parts has not been correctly declared, the Customs shall levy duties and taxes
thereon as imported finished goods.
Article 23
Any processing enterprise in a bonded zone that entrusts processing business to an enterprise in a non-
bonded area or accepts processing business entrusted by an enterprise in a non-bonded area shall
obtain approval from the Customs in advance and meet the following conditions:
(1) It possesses promises for production in the bonded zone and has formally begun
processing businesses.WT/ACC/CHN/46
Page 16
(2) The main part of the processing business entrusted to an enterprise in a non-bonded
area must be done in the bonded zone.
(3) The period for the processing business entrusted to an enterprise in a non-bonded area
shall be six months; where a prolonged period is needed in special cases, anapplication for extension shall be submitted to the Customs and the extension shall be
six months. Fully processed products in a non-bonded area shall be transported back
to the bonded zone; those that need to be exported directly from a non-bonded area
shall have verification and cancellation formalities fulfilled at the Customs.
(4) When accepting processing business entrusted by an enterprise in a non-bonded area,
a processing enterprise in a bonded zone shall record with the Customs the materialsand parts for entrusted processing. Accounts and records for materials, parts and
products in entrusted processing and those of the enterprise in the bonded zone shall
be kept separately and the two categories of materials and products shall be used
separately. Fully processed products shall be transported back to the enterprise in a
non-bonded area and the enterprise in the bonded zone shall close the case with theCustoms.
Article 24
The Customs shall not implement the system of bank guarantee ledger for inward processing such as
processing with imported materials or processing w ith customers’ materials carried out by enterprises
in bonded zones.
For inward processing entrusted to an enterprise in a non-bonded area, the enterprise in the non-
bonded area shall register and record contracts with the local Customs offices and the system of bankguarantee ledger for inward processing shall be effectuated.
Chapter VI  Supervision and Control over Means of Transport and Articles Carried by
Individuals Entering or Leaving Bonded Zones
Article 25
Means of transport and persons entering or leaving the bonded zones shall pass through the special
channels appointed by the Customs and accept Customs inspection.
Article 26
The person in charge of the means of transport entering or leaving a bonded zone shall fulfill
formalities for registration and recordation with the Customs on the strength of the credentials
approved by the competent authority of the bonded z one along with the list of the names, number and
plate-numbers of the means of transport and the names of the drivers.
Article 27
Without the approval of the Customs, means of transport and persons from bonded zones to non-
bonded areas shall not carry or take duty-free or tax-free goods and articles, bonded goods and
products made of bonded materials and parts in bonded zones.WT/ACC/CHN/46
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Chapter VII  Supplementary Provisions
Article 28
Violation of the provisions of these Measures shall be dealt with by the Customs in accordance with
the provisions of the Customs Law of the People’s Republic of China and the Rules for the
Implementation of Administrative Punishments Under the Customs Law of the People’s Republic of
China; if the circumstances are serious, the Customs may withdraw the registration with the Customs
by enterprises in bonded zones.
Article 29
The specific procedures for recordation mentioned in these Measures shall be formulated by the
General Administration of Customs.
Article 30
These Measures shall come into effect as of the date of promulgation. Measures of the Customs of the
People’s Republic of China Concerning the Administration of the Goods, Means of Transport, and
Articles Carried by Individuals to be Brought into  or out of the Bonded Area Of Outer Gaoqiao in
Shanghai shall be simultaneously null and void.WT/ACC/CHN/46
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Decision of the Standing Committee of th e National People's Congress Regarding the
Application of Provisional Regulations on Suc h Taxes as Value-added Tax, Consumption Tax
and Business Tax to Enterprises with Foreign Investment and Foreign Enterprises
(Adopted at the Fifth Meeting of the Standing Committee of the Eighth National People's Congress
on 29 December 1993, promulgated by Order No. 18 of the President of the People's
Republic of China on 29 December 1993, and effective as of the same date)
The Fifth Meeting of the Standing Committee of the Eighth National People's Congress,
having considered the Proposal submitted by the State Council on the Application of the Provisional
Regulations on Such Taxes as Value-added Tax, Consumption Tax and Business Tax to Enterprises
with Foreign Investment and Foreign Enterprises, wi th a view to unifying the tax system, balancing
the tax burden, improving the investment environment of our country, and catering for the need of
establishing and developing the socialist market economy, specifically  makes the following
decisions:
1. Prior to the formulation of the relevant tax laws, the Provisional Regulations on Value-added
Tax, the Provisional Regulations on Consumption Tax and the Provisional Regulations on Business
Tax promulgated by the State Council shall be applicable to enterprises with foreign investment and
foreign enterprises as of the date of January 1, 1994. The Regulations of the People's Republic of
China on Industrial and Commercial Consolidated Tax (Draft) adopted in principle at the 101st
Meeting of the Standing Committee of the National People's Congress on September 11, 1958 andpromulgated by the State Council for trial implementation on September 13, 1958 shall be annulled
on the same date.
Value-added Tax for the Chinese-foreign co-operative exploitation of offshore oil and natural
gas shall be collected in kind. The tax rates and measures of collection shall be separately formulatedby the State Council.
2. Where the tax burden of the enterprises with foreign investment established with due approval
before the date of December 31, 1993 increases due to the change to the levy of Value-added Tax,
Consumption Tax and Business Tax pursuant to Arti cle 1 of this Decision, such enterprises may, upon
application to and with the approval of the tax authorities, have a refund of the excess tax paid due to
such increased tax burden for a maximum period of five years within the approved term of operation.Where there is no fixed term of operation, the enterprises may, upon application to and with the
approval of the tax authorities, have a refund of the excess tax paid due to such increased tax burden
for a maximum period of five years. The specific measures shall be formulated by the State Council.
3. Apart from Value-added Tax, Consumption Tax and Business Tax, the application of other
types of tax to enterprises with foreign investment  and foreign enterprises shall be governed by the
laws wherein there are such provisions, and shall be governed by the provisions of the State Council
in the absence of such legal provisions.
Enterprises with foreign investment referred to  in this Decision mean Chinese-foreign equity
joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises
established within the territory of China.
Foreign enterprises referred to in this Decision mean foreign companies, enterprises and other
economic organizations which have establishments or places within the territory of China to engage inproduction or business operations, or which, though have no establishments or places, have income
sourced within the territory of China.
This Decision shall come into force as of the date of promulgation.WT/ACC/CHN/46
Page 19
Rules for the Implementation of the Income Tax Law of the People's Republic of China
for Enterprises with Foreign Investment and Foreign Enterprises
(Promulgated by Decree No. 85 of the State Council of the People's Republic of China
on 30 June 1991, and effective as of 1 July 1991)
Chapter I  General Provisions
Article 1
These Rules are formulated in accordance with the provisions of Article 29 of the Income Tax Law of
the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises(hereinafter referred to as the "Tax Law").
Article 2
"Income from production and business operations" mentioned in Article 1, paragraph 1 and
paragraph 2 of the Tax Law means income from production and business operations in manufacturing,
mining, communications and transportation, construction and installation, agriculture, forestry, animal
husbandry, fishery, water conservation, commerce, finance, service industries, exploration and
exploitation, and in other trades.
"Income from other sources" mentioned in Article 1, paragraph 1 and paragraph 2 of the Tax Law
means profits (dividends), interest, rents, income  from the transfer of property, income from the
provision or transfer of patents, proprietary technology, income from trademark rights and copyrights
as well as other non-business income.
Article 3
"Enterprises with foreign investment" mentioned in Article 2, paragraph 1 of the Tax Law and
"foreign companies, enterprises and other economic organizations which have establishments or
places in China and engage in production or business operations" mentioned in Article 2, paragraph 2
of the Tax Law are, unless otherwise especially specified, generally all referred to as "enterprises" in
these Rules.
"Establishments or places" mentioned in Article 2, paragraph 2 of the Tax Law refers to management
organizations, business organizations, administrative organizations and places for factories and the
exploitation of natural resources, places for contracting of construction, installation, assembly, and
exploration work, places for the provision of labor services, and business agents.
Article 4
"Business agents" mentioned in Article 3, paragraph 2 of these Rules means companies, enterprises
and other economic organizations or individuals entrusted by foreign enterprises to engage as agentsin any of the following:
(1) representing principals on a regular basis in the arranging of purchases and signing of
purchase contracts and the purchasing of commodities on commission;
(2) entering into agency agreements or contracts with principals, storing on a regular
basis products or commodities owned by principals, and delivering on behalf of
principals such products or commodities to other parties; andWT/ACC/CHN/46
Page 20
(3) having authority to represent principals on a regular basis in signing of sales contracts
or in accepting of purchase orders.
Article 5
"Head office" mentioned in Article 3 of the Tax Law refers to the central organization which is
established in China by an enterprise with foreign investment as a legal person pursuant to the laws of
China and which is responsible for the management, operations and control over such enterprise.
Income from production and business operations and other income derived by the branches within or
outside China of an enterprise with foreign investment shall be consolidated by the head office for
purposes of the payment of income tax.
Article 6
"Income derived from sources inside China" mentioned in Article 3 of the Tax Law refers to:
(1) income from production and business operations derived by enterprises with foreign
investment and foreign enterprises which have establishments or places in China, as
well as profits (dividends), interest, rents, royalties and other income arising within or
outside China actually connected with establishments or sites established in China by
enterprises with foreign investment or foreign enterprises;
(2) the following income received by foreign enterprises which have no establishments or
sites in China:
(a) profits (dividends) earned by enterprises in China;(b) interest derived within China such as on deposits or loans, interest on bonds,
interest on payments made provisionally for others, and deferred payments;
(c) rentals on property leased to and used by lessees in China;(d) royalties such as those received from the provision of patents, proprietary
technology, trademarks and copyrights for use in China;
(e) gains from the transfer of property, such as houses, buildings, structures and
attached facilities located in China and from the assignment of landuse rights
within China;
(f) other income derived from China and stipulated by the Ministry of Finance to
be subject to tax.
Article 7
In respect of Chinese foreign contractual joint ventures that do not constitute legal persons, each
partner thereto may separately compute and pay income tax in accordance with the relevant tax laws
and regulations of the State; income tax may, upon approval by the local tax authorities of an
application submitted by such enterprises, be computed and paid on a consolidated basis in
accordance with the provisions of the Tax Law.WT/ACC/CHN/46
Page 21
Article 8
"Tax year" mentioned in Article 4 of the Tax Law begins on 1 January and ends on 31 December
under the Gregorian Calendar.
Foreign enterprises that have difficulty computing taxable income in accordance with the tax year
stipulated in the Tax Law may, upon approval by the local tax authorities of an application submitted
by such enterprises, use their own 12 month fiscal year as the tax year.
Enterprises commencing business operations in the middle of a tax year or actually operating for a
period of less than 12 months in any tax year due to  such factors as merger or shutdown shall use the
actual period of operations as the tax year.
Enterprises that undergo liquidation shall use the period of liquidation as the tax year.
Article 9
"The competent authority for tax affairs under the State Council" mentioned in Article 8, paragraph 3
and Article 19, paragraph 3, Item (4) of the Tax Law and Article 72 of these Rules refers to the
Ministry of Finance and the State Tax Bureau.
Chapter II  Computation of Taxable Income
Article 10
"The formula for the computation of taxable income" mentioned in Article 4 of the Tax Law is as
follows:
(1) Manufacturing:
(a) taxable income = (profit on sales) + (profit from other operations) + (non-
business income) - (non-business expenses);
(b) profit on sales = (net sales) - (cost of products sold) - (taxes on sales) -
[ (selling expenses) + (administrative expenses) + (finance expenses) ];
(c) net sales = (gross sales) - [ (sales returns) + (sales discounts and
allowances) ];
(d) cost of products sold = (cost of products manufactured for the period) +
(inventory of finished products at the beginning of the period) - (inventory of
finished products at the end of the period);
(e) cost of products manufactured for the period = (manufacturing costs for the
period) + (inventory of semifinished products and products in process at thebeginning of the period) - (inventory of semi-finished products and products
in process at the end of the period);
(f) manufacturing costs for the period = (direct materials consumed in
production for the period) + (direct labour) + (manufacturing expenses).WT/ACC/CHN/46
Page 22
(2) Commerce:
(a) taxable income = (profit on sales) + (profit from other operations) + (non-
business income) - (non-business expenses);
(b) profit on sales = (net sales) - (cost of sales) - (taxes on sales) - [ (selling
expenses) + (administrative expenses) + (finance expenses) ];
(c) net sales = (gross sales) - [ (sales returns) + (sales discounts and
allowances) ];
(d) cost of sales = (inventory of merchandise at the beginning of the period) + {
(purchase of merchandise during the period) - [ (purchase returns) +
(purchase discounts and allowances) ] + (purchasing expenses) } - (inventory
of merchandise at the end of the period).
(3) Service trades:
(a) taxable income = (net business income) + (non-operating income) - (non-
operating expenses);
(b) net business income = (gross business income) - [ (taxes on business income)
+ (operating expenses) + (administrative expenses) + (finance expenses) ].
(4) Other lines of business:Computations shall be made with reference to the above formulas.
Article 11
The computation of taxable income of an enterpri se shall, in principle, be on an accrual basis.
The following income from business operations of an enterprise may be determined by stages and
used as the basis for the computation of taxable income:
(1) Where products or commodities are sold by instalment payment methods, income
from sales may be recognized according to the invoice date of the products or
commodities to be delivered; income from sa les may also be recognized according to
the date of payment to be made by the buyer as agreed upon in the contract;
(2) Where construction, installation and assembly projects, and provision of labour
services extend beyond one year, income may be recognized according to the
progress of the project or the amount of work completed;
(3) Where the processing or manufacturing of heavy machinery, equipment and ships for
other enterprises extends beyond one year, income may be recognized according to
the progress of the project or amount of work completed.
Article 12
Where Chinese-foreign contractual joint ventures operate on the basis of product-sharing, the partners
thereto shall be deemed to receive income at the time of the division of the products; the amount of
income shall be computed according to the price sold  to third party or with reference to prevailing
market prices.WT/ACC/CHN/46
Page 23
Where foreign enterprises are engaged in the coop erative exploration of petroleum resources, the
partners thereto shall be deemed to receive income at the time of the division of the crude oil; the
amount of income shall be computed according to a price which is adjusted periodically with
reference to the international market prices of crude oil of similar quality.
Article 13
In respect of income obtained by enterprises in the form of non-monetary assets or rights and
interests, such income shall be computed or appraised with reference to prevailing market prices.
Article 14
"Exchange rate quoted by the State exchange control authorities" mentioned in Article 21 of the Tax
Law refers to the buying rate quoted by the State Administration of Exchange Control.
Article 15
In respect of income obtained by enterprises in foreign currency, upon payment of income tax in
quarterly instalments in accordance with the provisions of Article 15 of the Tax Law, taxable income
shall be computed by converting the income into Re nminbi according to the exchange rate quotation
on the last day of the quarter. At the time of final settlement following the end of the year, no
recomputation and reconversion need be made in respect of income in a foreign currency for whichtax has already been paid on a quarterly basis; only that portion of the foreign currency income of the
entire year for which tax has not been paid shall, in respect of the computation of taxable income, be
converted into Renminbi according to the exchange rate quotation on the last day of the tax year.
Article 16
Where an enterprise is unable to provide complete and accurate certificates of costs and expenses and
is unable to correctly compute taxable income, th e local tax authorities shall determine the rate of
profit and compute taxable income with reference to th e profit level of other enterprises in the same or
similar trade. Where an enterprise is unable to prov ide complete and accurate certificates of revenues
and is unable to report income correctly, the local tax authorities shall appraise and determine taxable
income by the use of such methods as cost (expense) plus reasonable profits.
When the tax authorities appraise and determine profit rates or revenues in accordance with the
provisions of the preceding paragraph, and where other treatment is provided by the laws, regulations
and rules, such other treatment shall be applicable.
Article 17
Foreign air transportation and ocean shipping enterp rises engaged in international transport business
shall use 5% of the gross revenues from passenger an d cargo transport and shipping services arising
within China as taxable income.
Article 18
Where an enterprise with foreign investment invest s in another enterprise within China, the profits
(dividends) so obtained from the enterprise receiv ing such investment may be excluded from taxable
income of the enterprise; however, expenses and losses incurred in such above-mentioned investments
shall not be deducted from taxable income of the enterprise.WT/ACC/CHN/46
Page 24
Article 19
Unless otherwise stipulated by the State, the following items shall not be itemized as costs, expenses
or losses in the computation of taxable income:
(1) expenses in connection with the acquisition or construction of fixed assets;
(2) expenses in connection with the transfer or development of intangible assets;(3) interest on capital;(4) various income tax payments;(5) fines for illegal business operations and losses due to the confiscation of property;(6) surcharges and fines for overdue payment of taxes;
(7) the portion of losses due to natural disasters or accidents for which there has been
compensation;
(8) donations and contributions other than those used in China for public welfare or relief
purposes;
(9) royalties paid to the head office;(10) other expenses not related to production or business operations.
Article 20
Reasonable administrative expenses paid by a foreign enterprise with an establishment or site in
China to the head office in connection with production or business operations of the establishment or
site shall be permitted to be itemized as expens es following agreement by the local tax authorities
after an examination and verification of documents of proof issued by the head office in respect of the
scope of the administrative expenses, total amounts, the basis and methods of allocation, which shallbe provided together with an accompanying verification report of a certified public accountant.
Administrative expenses in connection with production and business operations shall be allocated
reasonably between enterprises with foreign investment and their branches.
Article 21
Reasonable interest payments incurred on loans in connection with production and business
operations shall be permitted to be itemized as expenses following agreement by the local tax
authorities after an examination and verification of documents of proof, which shall be provided bythe enterprises in respect of the loans and interest payments.
Interest paid on loans used by enterprises for the purchase or construction of fixed assets or the
transfer or development of intangible assets prior to   the assets being put into use shall be included in
the original value of the assets.
"Reasonable interest" mentioned in the first paragraph of  this Article refers to interest computed at a
rate not higher than normal commercial lending rates.WT/ACC/CHN/46
Page 25
Article 22
Entertainment expenses incurred by enterprises in connection with production and business operations
shall, when supported by authentic records or invoices and vouchers, be permitted to be itemized as
expenses subject to the following limits:
(1) Where annual net sales are 15 million yuan (RMB) or less, not to exceed 0.5% of net
sales; for that portion of annual net sales that exceeds 15 million yuan (RMB), not to
exceed 0.3% of that portion of net sales.
(2) Where annual gross business income is 5 million yuan (RMB) or less, not to exceed
1% of annual gross business income; for that portion of annual gross business incomethat exceeds 5 million yuan (RMB), not to exceed 0.5% of that portion of annual
gross business income.
Article 23
Exchange gains or losses incurred by enterprises during pre-construction or during production and
business operations shall, except as otherwise provided by the State, be appropriately itemized as
gains or losses for that respective period.
Article 24
Salaries and wages, and benefits and allowances paid by enterprises to employees shall be permitted
to be itemized as expenses following agreement by the local tax authorities after an examination and
verification of the submission of wage scales and supporting documents and relevant materials.
Foreign social security premiums paid by enterp rises to employees working in China shall not be
itemized as expenses.
Article 25
Enterprises engaged in such businesses as credit and leasing operations may, on the basis of actual
requirements and following approval by the local tax authorities of a report thereon, provide year-by-year bad debt provisions, the amount of which sha ll not exceed 3% of the amount of the year-end loan
balances (not including inter-bank loans) or the amount of accounts receivable, bills receivable and
other such receivables, to be deducted from taxable income of that year.
The portion of the actual bad debt losses incurred by an enterprise which exceeds the bad debt
provisions of the preceding year may be itemized as a loss in the current year; the portion less than the
bad debt provisions of the previous year shall be included in taxable income of the current year.
Bad debt losses mentioned in the preceding paragraph shall be subject to approval after examination
and verification by the local tax authorities.
Article 26
"Bad debt losses" mentioned in Article 25, paragraph 2 of these Rules refers to the following accounts
receivable:
(1) due to the bankruptcy of the debtor, collection is still not possible after the use of the
bankruptcy assets for settlement;WT/ACC/CHN/46
Page 26
(2) due to the death of the debtor, collection is still not possible after the use of the estate
for repayment;
(3) due to the failure of the debtor to fulf il repayment obligations for over two years,
collection is still not possible.
Article 27
Accounts receivable already itemized as bad debt losses which are recovered in full or in part by an
enterprise in a subsequent year shall be included in taxable income of the year of recovery.
Article 28
Foreign enterprises with establishments or places in China may, except as otherwise provided by the
State, deduct as expenses foreign income tax, which has been paid on profits (dividends), interest,
rents, royalties and other income received from outside China and actually connected with such
establishments or places.
Article 29
"Net assets or remaining property" mentioned in Article 18 of the Tax Law means the amount of all
assets or property following deduction of various liabilities and losses upon the liquidation of anenterprise.
Chapter III  Tax Treatment for Assets
Article 30
"Fixed assets of enterprises" means houses, buildings and structures, machinery, mechanical
apparatus, means of transport and other such equipment, appliances and tools related to production
and business operations with a useful life of one year or more. Items not in the nature of major
equipment which are used for production or business operations and which have a unit value of 2000
yuan (RMB) or less, or with a useful life of tw o years or less may be itemized as expenses on the
basis of actual consumption.
Article 31
The valuation of fixed assets shall be based on original cost.
The original cost of purchased fixed assets shall be the purchase price plus transportation expenses,
installation expenses and other related expenses incurred prior to the use of the assets.
The original cost of fixed assets manufactured or constructed by an enterprise itself shall be the actual
expenses incurred in their manufacture or construction.
The original cost of fixed assets treated as investments shall, giving consideration to the degree of
wear and tear of the fixed assets, be such reasonable price as is specified in the contract, or a price
appraised with reference to the relevant market price plus the relevant expenses incurred prior to the
use thereof.WT/ACC/CHN/46
Page 27
Article 32
Depreciation of fixed assets of an enterprise sha ll be computed commencing with the month following
the month in which they are first put into use. The computation of depreciation shall cease in the
month following the month in which the fixed assets cease to be used.
All investments made during the development stage by  enterprises engaged in the exploitation of oil
resources shall, taking the oil (gas) field as a unit, be aggregated and treated as capital expenditures;
the computation of depreciation shall begin in the month following the month in which the oil (gas)
field commences commercial production.
Article 33
In respect of the computation of depreciation of fixed assets, the salvage value shall first be estimated
and deducted from the original cost of the assets. The salvage value shall not be less than 10% of the
original value; any request for retaining a lower salvage value or not salvage value must be approved
by the local tax authorities.
Article 34
Depreciation of fixed assets shall be computed using the straight-line method. Where it is necessary to
use any other method of depreciation, an application may be filed by an enterprise which, followingexamination and verification by the local tax authorities, shall be reported level-by-level to the State
Tax Bureau for approval.
Article 35
The computation of the minimum useful life in respect of the depreciation of fixed assets is as
follows:
(1) for houses and buildings: 20 years;(2) for railway rolling stock, ships, mach inery, mechanical apparatus, and other
production equipment: 10 years;
(3) for electronic equipment and means of tr ansport other than railway rolling stock and
ships, as well as such fixtures, tools and furnishings related to production and
business operations: 5 years.
Article 36
Depreciation of fixed assets in the nature of investments during the development stage and subsequent
stages of an enterprise engaged in the exploitation of oil resources may be computed on a
consolidated basis without retaining salvage value; the period of depreciation shall not be less than sixyears.
Article 37
"Houses and buildings" mentioned in Article 35, Item (1) of these Rules means houses, buildings and
attached structures used for production and business operations, and living quarters and welfare
facilities for employees, the scope of which is as follows:
-- houses, including factory buildings, business premises, office buildings, warehouses,
residential buildings, canteens, and other such buildings;WT/ACC/CHN/46
Page 28
-- buildings, including towers, ponds, troughs, wells, racks, sheds (not including
temporary, simply constructed structures such as work sheds and vehicle sheds),
fields, roads, bridges, platforms, piers, docks, culverts, gas stations as well as pipes,
smokestacks, and enclosing walls that are detached from buildings, machinery andequipment;
Facilities attached to buildings and structures mean auxiliary facilities that are inseparable from
buildings and structures and for which no separate value is computed, including, for example,
building and structure ventilation and drainage systems, oil pipelines, communication and power
lines, elevators and sanitation equipment.
Article 38
The scope of railway rolling stock, ships, machinery, mechanical apparatus and other production
equipment mentioned in Article 35, Item (2) of these Rules is as follows:
-- "railway rolling stock" includes various types of locomotives, passenger coaches,
freight cars, as well as auxiliary facilities on rolling stock for which no separate value
is computed;
-- "ships" includes various types of motor ships as well as auxiliary facilities on ships
for which no separate value is computed;
-- "machinery, mechanical apparatus and other production equipment" includes various
types of machinery, mechanical apparatus, machinery units, production lines, as well
as auxiliary equipment such as various types of power, transport and conductionequipment.
Article 39
The scope of electronic equipment, means of tran sport other than railway rolling stock and ships
mentioned in Article 35, Item (3) of these Rules is as follows:
-- "electronic equipment" means equipment comprising mainly integrated circuits,
transistors, electron tubes and other elec tronic components whose primary functions
are to bring into use the application of electronic technology (including software),
including computers as well as computer-controlled robots, and digital-control or
program-control systems.
-- "means of transport other than railway ro lling stock and ships" includes airplanes,
automobiles, trams, tractors, motor bikes (boats), motorized sailboats, sailboats, and
other means of transport.
Article 40
Where, for special reasons, it is necessary to shorten the useful life of fixed assets, an application may
be submitted by an enterprise to the local tax authorities which following examination and verification
shall be reported level-by-level to the State Tax Bureau for approval.
Fixed assets which for special reasons as mentioned in the preceding paragraph require the useful life
to be shortened include:WT/ACC/CHN/46
Page 29
(1) machinery and equipment subject to strong corrosion by acid or alkali and factory
buildings and structures subject to constant shaking and vibration;
(2) machinery and equipment operated continually year-round for the purpose of raising
the utilization rate or increasing the intensity of use;
(3) fixed assets of a Chinese-foreign contractual joint venture having a period of
cooperation shorter than the useful life specified in Article 35 of these Rules and
which will be left with the Chinese party upon termination of the cooperation.
Article 41
Enterprises which acquire used fixed assets having a remaining useful life shorter than the useful life
specified in Article 35 of these Rules may, followi ng agreement by the local tax authorities after
examination and verification of certifying documents so submitted, compute depreciation according to
the remaining useful life.
Article 42
Where expenditures incur during the course of the use of fixed assets due to increased value caused by
expansion, replacement, reconstruction and technical innovation of fixed assets, the original value of
fixed assets shall be increased; where the period of use of fixed assets can be extended, the useful lifeshall be appropriately extended and the computation of depreciation adjusted accordingly.
Article 43
No further depreciation shall be allowed in respect of fixed assets which can be continued to be used
after having been fully depreciated.
Article 44
The balance of proceeds from the transfer or disposal of fixed assets by an enterprise shall, after
deduction of the undepreciated amount or the salvage value and handling fees, be entered into the
profit and loss account for the current year.
Article 45
Depreciation of fixed assets received as gifts by enterprises may be computed on the basis of
reasonable valuation.
Article 46
Patents, proprietary technology, trademarks, copyrights, land-use rights and other intangible assets of
enterprises shall be appraised on the basis of the original value.
For alienated intangible assets, the original value shall be the actual amount paid based on a
reasonable price.
For self-developed intangible assets, the original value shall be the actual amount of expenditure
incurred in the course of development.
For intangible assets used as investment, the original value shall be such reasonable price as is
stipulated in the agreement or contract.WT/ACC/CHN/46
Page 30
Article 47
The amortization of intangible assets shall be co mputed using the straight-line method.  Intangible
assets transferred or assigned or used as investments, where the useful life is stipulated in theagreement or contract, may be amortized over the period of that useful life; the amortization period in
respect of intangible assets for which no useful life has been stipulated or which have been developed
internally shall not be less than ten years.
Article 48
Reasonable exploration expenses incurred by enterprises engaged in the exploitation of petroleum
resources may be amortized against income from oil (gas) fields that have already commenced
commercial production. The amortization peri od shall not be less than one year.
Where operation of a contract field owned by a fore ign oil company is terminated due to failure to
find commercially viable oil (gas), and where ownership of the contract for the exploitation ofpetroleum (gas) resources is not continued and management organizations or offices for carrying on
operations for the exploitation of petroleum (gas) resources are no longer maintained in China,
reasonable exploration expenses already incurred in respect of the terminated contract field shall,
upon examination and confirmation and the issuance of certification by the tax authorities, be
permitted to be amortized against production income of a newly owned contract field when the newcontract for cooperative exploitation of oil (gas) resources is signed within ten years from the date of
the termination of the old contract.
Article 49
Expenses incurred by enterprises during the period of organization shall be amortized beginning with
the month following the month in which producti on and business operations commence; the period of
amortization shall not be less than five years.
The period of organization mentioned in the preceding paragraph means the period from the date of
approval of the organization of the enterprise to the date of commencement of production and
business operations (including trial production and trial business operations).
Article 50
Inventories of merchandise, finished products, goods in process, semi-finished products, raw
materials, and other such materials of enterprises shall be valued at cost.
Article 51
Enterprises may choose one of the following such methods: first-in, first-out; moving average;
weighted average or last-in, first-out as the method of computing actual costs in respect of thedelivery or receipt and use of goods in stock.
Once a method of valuation has been adopted for use, no change shall be made thereto. Where a
change in the method of valuation is indeed necessary, the matter shall be reported to the local tax
authorities for approval prior to the commencement of the next tax year.WT/ACC/CHN/46
Page 31
Chapter IV  Business Dealings Between Associated Enterprises
Article 52
"Associated enterprises" mentioned in Article 13 of the Tax Law refers to companies, enterprises and
other economic units that have any of the following relationships with other enterprises:
(1) relationships in respect of existing direct or indirect ownership of or control over such
matters as finances, business operations or purchases and sales;
(2) direct or indirect ownership of or control over it and another by a third party;(3) any other relationship in respect of an association of reciprocal interests.
Article 53
"Business transactions between independent enterprises" mentioned in Article 13 of the Tax Law
means business dealings carried out between unassociated and unrelated enterprises on the basis ofarm's length prices and common business practices.
Enterprises have a duty to provide to the local tax authorities relevant materials such as standard
prices and charges in respect of business dealings with their associated enterprises.
Article 54
Where prices in respect of purchase and sales transactions between an enterprise and its associated
enterprises are not based on independent business dealings, adjustments may be made thereto by the
local tax authorities according to the following arrangements and methods of determination:
(1) based on prices of the same or similar business activities between independent
enterprises;
(2) based on the level of profits obtained from resales in respect of unassociated and
unrelated third party prices;
(3) based on costs plus reasonable expenses and profit margin;
(4) based on any other reasonable method.
Article 55
Where interest paid or received in respect of accommodating financing between an enterprise and an
associated enterprise exceeds or is lower than the amount that would be agreed upon by unassociated
and unrelated parties, or where the rate of interest exceeds or is lower than the normal rate of interest
in respect of similar business, adjustments may be  made thereto by the local tax authorities with
reference to normal rates of interest.
Article 56
Where labour service fees paid or received in respect of the provision of labour services by an
enterprise to an associated enterprise are no t based on business dealings between independent
enterprises, adjustments may be made thereto by the local tax authorities with reference to the normal
fee standards of similar labour activities.WT/ACC/CHN/46
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Article 57
Where the valuation or the receipt or payment of usage fees in respect of such business dealings as the
transfer of property or the granting of rights to the use of property between an enterprise and an
associated enterprise is not based on business deal ings between independent enterprises, adjustments
may be made thereto by the local tax authorities with reference to amounts that would be agreed to by
unassociated and unrelated parties.
Article 58
Management fees paid by an enterprise to an associated enterprise shall not be expensed.
Chapter V  Withholding at Source
Article 59
"Taxable income on profits, interest, rents, ro yalties and other income" mentioned in Article 19,
paragraph 1 of the Tax Law shall, except as otherwise stipulated by the State, be computed on the
basis of gross income. Gross royalties obtained from the provision of patents and proprietary
technology include fees for blueprint materials, technical services and personnel training, as well as
other related fees.
Article 60
"Profits" mentioned in Article 19 of the Tax Law means income derived from the right to profits
according to the proportion of investment, equity ri ghts, stockholding, or other non-debt profitsharing
rights.
Article 61
"Other income" mentioned in Article 19 of the Tax Law includes gains from the transfer of property
such as houses, buildings and structures and attached facilities within China and land-use rights.
"Gains" mentioned in the preceding paragraph means the amount remaining from the receipt on
transfer minus the original value of the property. Where foreign enterprises are unable to provide
correct certification of the original value of the property, the original value of the property shall be
determined by the local tax authorities accord ing to the specific circumstances thereof.
Article 62
"The amount of payment" mentioned in Article 19, paragraph 2 of the Tax Law means cash payments,
payment by remittances, and amounts paid by account transfers, as well as amounts in equivalent cash
value paid in noncash assets or rights and interests.
Article 63
"Profits obtained from an enterprise with foreign investment" mentioned in Article 19, paragraph 3,
Item (1) of the Tax Law means income obtained from profits of an enterprise with foreign investment
following the payment or the reduction of or ex emption from income tax in accordance with the
provisions of the Tax Law.WT/ACC/CHN/46
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Article 64
"International finance organizations" mentioned in Article 19, paragraph 3, Item (2) of the Tax Law
means financial institutions such as the Intern ational Monetary Fund, the World Bank, the Asian
Development Bank, the International Development Association, and the International Fund forAgricultural Development.
Article 65
"Chinese State banks" mentioned in Article 19, paragraph 3, Item (2) and Item (3) of the Tax Law
means the People's Bank of China, the Industrial and Commercial Bank of China, the Agricultural
Bank of China, the Bank of China, the Peopl e's Construction Bank of China, the Bank of
Communications of China, the Investment Bank of China, and other financial institutions authorizedby the State Council to engage in credit businesses such as foreign exchange deposits and loans.
Article 66
The scope of the reduction of or exemption from income tax on royalties provided for in Article 19,
paragraph 3, Item (4) of the Tax Law is as follows:
(1) royalties received in providing proprietary technology for the development of
farming, forestry, animal husbandry and fisheries:
(a) technology provided to improve soil and grasslands, develop barren
mountainous regions and make full use of natural conditions;
(b) technology provided for the supplying of new varieties of animals and plants
and for the production of pesticides of high effectiveness and low toxicity;
(c) technology provided such as to advance scientific production management in
respect of farming, forestry, fisheries and animal husbandry, to preserve the
ecological balance, and to strengthen resistance to natural calamities;
(2) royalties received in providing proprietary technology for scientific institutions,
institutions of higher learning and other scientific research units to conduct orcooperate in carrying out scientific research or scientific experimentation;
(3) royalties received in providing proprietary technology for the development of energy
resources and expansion of communications and transportation;
(4) royalties received in providing proprietary technology in respect of energy
conservation and the prevention and control of environmental pollution;
(5) royalties received in providing the followi ng proprietary technology in respect of the
development of important fields of science and technology:
(a) production technology for major and advanced mechanical and electrical
equipment;
(b) nuclear power technology;(c) production technology for large-scale integrated circuits;WT/ACC/CHN/46
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(d) production technology for photoelectric integrated circuits, microwave semi-
conductors and microwave integrated circuits, and manufacturing technology
for microwave electron tubes;
(e) manufacturing technology for ultra-high speed computers and
microprocessors;
(f) optical telecommunications technology;(g) technology for longdistance, ultra-high voltage direct current power
transmission; and
(h) technology for the liquefaction, gasification and comprehensive utilization of
coal.
Article 67
In respect of income of foreign enterprises engaged in China in construction, installation, assembly,
and exploration contracting work, and provision of labour activities such as consulting, management
and training, the tax authorities may designate the parties paying the contracted amounts and labour
service fees as tax withholding agents.
Chapter VI  Tax Preferences
Article 68
Pursuant to the provisions of Article 6 of the Tax Law, the granting of any necessary preferential
treatment in respect of enterprise income tax to enterprises with foreign investment that are
encouraged by the State shall be implemented in accordance with the provisions of the relevant laws
and administrative rules and regulations of the State.
Article 69
"Special economic zones" mentioned in Article 7, paragraph 1 of the Tax Law means the special
economic zones of Shenzhen, Zhuhai, Shantou and Xiamen and the Hainan Special Economic Zone
established by law or established upon approval of the State Council; economic and technological
development zones mentioned therein means the economic and technological development zones in
the coastal port cities established upon approval of the State Council.
Article 70
"Coastal economic open zones" mentioned in Article 7, paragraph 2 of the Tax Law means those
cities, counties and districts established as coastal economic open zones upon approval of the State
Council.
Article 71
"Imposition of enterprise income tax at the reduced rate of 15%" mentioned in Article 7, paragraph 1
of the Tax Law shall be limited to income obtained by enterprises from production and businessoperations in the respective areas so specified in Article 7, paragraph 1 of the Tax Law.WT/ACC/CHN/46
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"Imposition of enterprise income tax at the reduced rate of 24%" mentioned in Article 7, paragraph 2
of the Tax Law shall be limited to income obtained by enterprises from production and business
operations in the respective areas so specified in Article 7, paragraph 2 of the Tax Law.
Article 72
"Enterprises with foreign investment of a production nature" mentioned in Article 7, paragraph 1 and
paragraph 2 and Article 8, paragraph 1 of the Tax Law means enterprises with foreign investment
engaged in the following industries:
(1) machine manufacturing and electronics industries;
(2) energy resource industries (not including exploitation of oil and natural gas);
(3) metallurgical, chemical and building material industries;(4) light industries, and textiles and packaging industries;(5) medical equipment and pharmaceutical industries;(6) agriculture, forestry, animal husbandry, fisheries and water conservation;
(7) construction industries;
(8) communications and transportation industries (not including passenger transport);(9) development of science and technology, geological survey and industrial information
consultancy directly for services in respect of production and services in respect of
repair and maintenance of production equipment and precision instruments;
(10) other industries as specified by the tax authorities under the State Council.
Article 73
"Imposition of enterprise income tax at the reduced rate of 15%" mentioned in Article 7, paragraph 3
of the Tax Law applies to the following:
(1) production-oriented enterprises with foreign investment established in the coastal
economic open zones, special economic zones and in the old urban districts ofmunicipalities where economic and technological development zones are located and
which are engaged in the following projects:
(a) technology-intensive or knowledge-intensive projects;
(b) projects with foreign investments of  over US $30 million and having long
periods for return on investment;
(c) energy resource, transportation and port construction projects;(Editor's note:
The Document of the State Council, <Circular of the State CouncilConcerning the Scope of Application of the Stipulation for the Enlargement
of Preferential tax to enterprises with foreign investment engaged in
infrastructure of energy resources and transportation>, promulgated by
No.[1999]36 of the State Council on July 2, 1999 stipulates: "To enlarge theWT/ACC/CHN/46
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First Item of the First Paragraph of Article 73 in <Rules for the
Implementation of the Income Tax Law of the People's Republic of China for
Enterprises With Foreign Investment and Foreign Enterprises>, about
"production-oriented enterprises with foreign investment engaged in
infrastructure projects, such as energy resources, transportation shall,following approval by the State Tax Bureau of an application submitted by
such enterprises, be subject to enterp rises income tax at the reduced tax rate
of 15%" to enforce all over the country.
(2) Chinese-foreign equity joint ventures engaged in port and dock construction;(3) financial institutions such as foreign capital banks and Chinese-foreign banks
established in the special economic zones and other areas approved by the State
Council, where the capital contribution of the foreign investor or the funds for
business activities allocated by the head office bank to the branch bank exceeds US
$10 million, and where the period of operations is ten years or more;
(4) production-oriented enterprises with foreign investment established in the Pudong
New Area of Shanghai, as well as enterprises with foreign investment engaged in
energy resource and transport construction projects such as airports, ports, railways,
highways and power stations;
(5) enterprises with foreign investment recognized as high or new technology enterprises
established in the State high or new technology industrial development zones
designated by the State Council, as well as enterprises with foreign investment
recognized as new technology enterprises established in the new technology
industrial development experimental zone of the municipality of Beijing;
(6) enterprises with foreign investment engaged in projects encouraged by the State and
established in other areas stipulated by the State Council. Enterprises with foreign
investment in projects listed in Item(1) of the preceding paragraph shall, following
approval by the State Tax Bureau of an application submitted by such enterprises, be
subject to enterprises income tax at the reduced tax rate of 15%.
Article 74
"The period of business operations" mentioned in Article 8, paragraph 1 of the Tax Law means the
period commencing on the date an enterprise with foreign investment actually begins production or
business operations (including trial production and trial business operations) and ending on the datethe enterprise ceases production or business operations.
Enterprises with foreign investment that pursuant to the provisions of Article 8, paragraph 1 of the
Tax Law may enjoy treatment in respect of reductions of or exemptions from enterprise income tax
shall submit to the local tax authorities for examin ation and verification such circumstances as the
lines of business in which engaged, names of major products, and the period of operations decided
upon. No treatment in respect of reductions of or exemptions from enterprise income tax shall be
enjoyed without examination and verification and agreement thereof.
Article 75
"The relevant provisions promulgated by the State Council before the entry into force of this Law"
mentioned in Article 8, paragraph 2 of the Tax Law means the following provisions in respect ofWT/ACC/CHN/46
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exemptions from or reductions of enterprise income tax promulgated or approved for promulgation by
the State Council:
(1) Chinese-foreign equity joint ventures engaged in port and dock construction where
the period of operations is 15 years or more shall, following application by theenterprise and approval thereof by the tax authorities of provinces, autonomous
regions, or municipalities directly under the Central Government of the location and
commencing with the first profit-making year, be exempt from enterprise income tax
from the first year to the fifth year and subject to enterprise income tax at a rate
reduced by one half for the sixth year through the tenth year.
(2) Enterprises with foreign investment established in the Hainan Special Economic Zone
and engaged in infrastructure facility projects such as airports, harbours, docks,
highways, railways, power stations, coal mines and water conservation, and
enterprises with foreign investment engaged in the development of and operations in
agriculture where the period of operations is 15 years or more shall, following
application by the enterprise and approval thereof by the tax authorities of HainanProvince and commencing with the first profit-making year, be exempt from
enterprise income tax from the first year to the fifth year and subject to enterprise
income tax at a rate reduced by one half for the sixth year through the tenth year.
(3) Enterprises with foreign investment established in the Pudong New Area of Shanghai
and engaged in construction projects such as airports, ports, railways, highways and
power stations where the period of operations is 15 years or more shall, following
application by the enterprise and approval thereof by the tax authorities of the
municipality of Shanghai and commencing with the first profitmaking year, be
exempt from enterprise income tax from the first year to the fifth year and subject toenterprise income tax at a rate reduced by one half for the sixth year through the tenth
year.
(4) Enterprises with foreign investment established in the special economic zones and
engaged in service-oriented industries where the amount of the foreign investment
exceeds US $5 million and the period of operations is ten years or more shall,
following application by the enterprise and approval thereof by the tax authorities ofthe special economic zone and commencing with the first profit-making year, be
exempt from enterprise income tax in the first year and subject to enterprise income
tax at a rate reduced by one half for the second and third years.
(5) Financial institutions such as foreign capital banks and Chinese foreign banks
established in the special economic zones and other areas approved by the State
Council where the capital contribution of the foreign investor or the funds for
business activities allocated by the head office bank to the branch bank exceeds US
$10 million and the period of operations is ten years or more shall, following
application by the enterprise and approval thereof by the local tax authorities andcommencing with the first profit-making year, be exempt from enterprise income tax
in the first year and subject to enterprise income tax at a rate reduced by one half for
the second and third years.
(6) Chinese-foreign equity joint ventures recognized as high or new technology
enterprises and established in the State high or new technology industrial
development zones designated by the State Council where the period of operations is
ten years or more shall, following application by the enterprise and approval thereof
by the local tax authorities and commencing with the first profit-making year, beWT/ACC/CHN/46
Page 38
exempt from enterprise income tax in the first year and second year. Enterprises with
foreign investment established in the special economic zones and the economic and
technological development zones shall be governed by the preferential tax provisions
of the special economic zones and the economic and technological development
zones. Enterprises with foreign investment established in the new technologyindustrial development experimental zone of the municipality of Beijing shall be
governed by the preferential tax provisions of the new technology industrial
development experimental zone of the municipality of Beijing.
(7) Export-oriented enterprises invested in and operated by foreign businesses for which
in any year the output value of all export products amounts to 70% or more of the
output value of the products of the enterprise for that year may pay enterprise incometax at the tax rate specified in the Tax Law reduced by one half after the period of
enterprise income tax exemptions or reductions has expired in accordance with the
provisions of the Tax Law. However, export-oriented enterprises in the special
economic zones and economic and technological development zones and other such
enterprises subject to enterprise income tax at the tax rate of 15% that qualify underthe above-mentioned conditions shall pay enterprise income tax at the tax rate of
10%.
(8) Advanced technology enterprises invested in and operated by foreign businesses
which remain advanced technology enterprises after the period of enterprise incometax exemptions or reductions has expired in accordance with the provisions of the Tax
Law may continue to pay for an additional three years enterprise income tax at the tax
rate specified in the Tax Law reduced by one half.
(9) Implementation of other provisions in respect of exemptions from or reductions of
enterprise income tax promulgated or approved for promulgation by the State
Council.
Enterprises with foreign investment shall, in applying for exemptions from or reductions of enterprise
income tax in accordance with the provisions of It em (6), Item (7), or Item (8) of the preceding
paragraph, submit relevant documents of proof issued by departments in respect of the examination,
verification and confirmation, the application shall be subjected to approval by the local taxauthorities after examination and verification.
Article 76
"The first profit-making year" mentioned in Article 8, paragraph 1 of the Tax Law and in Article 75 of
these Rules means the first tax year in which profits are obtained by an enterprise following
commencement of production or business operations. Where an enterprise suffers losses during the
early stages after establishment, such losses may be made up by the income of the following tax year
in accordance with the provisions of Article 11 of  the Tax Law. The first profit-making year shall be
the year in which profits are obtained after such losses are made up.
The period for exemptions from or reductions of enterprise income tax specified in the first paragraph
of Article 8 of the Tax Law and Article 75 of these Rules shall be computed continuously
commencing with the year in which the enterprise begins to make profits. The computation shall not
be deferred because of losses incurred in any of the subsequent years.WT/ACC/CHN/46
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Article 77
Enterprises with foreign investment which commence operations in the middle of a year and earn
profits may, where the actual period of operations is less than six months, choose to use the following
year as the period in which to begin the computation of tax exemptions or tax reductions; however,income tax shall be paid in accordance with the Tax Law on profits earned during the year.
Article 78
Unless otherwise provided by the State Council, the preferential tax provisions of Article 8, paragraph
1 of the Tax Law shall not apply to enterprises enga ged in the exploitation of such natural resources
as petroleum, natural gas, rare metals and precious metals.
Article 79
Enterprises with foreign investment that have received exemptions from or reductions of enterprise
income tax pursuant to the provisions of Article 8, paragraph 1 of the Tax Law and Article 75 of theseRules shall, where the actual period of operations is  less than the period stipulated therein, except in
the case of major losses sustained due to natural disasters or unforeseen accidents, make up the
amount of the exemptions from or reductions of enterprise income tax.
Article 80
"Direct reinvestment" mentioned in Article 10 of the Tax Law refers to profits received from an
enterprise with foreign investment by foreign invest or of that enterprise which prior to receipt are
directly used to increase registered capital, or which following receipt are directly used to organize
another enterprise with foreign investment.
Foreign investors shall, in computing the amount of tax refundable in accordance with the provisions
of Article 10 of the Tax Law, provide certificates confirming the use of the reinvested profits for the
year; the local tax authorities shall adopt any reasonable method for the reckoning and determination
thereof where certificates cannot be provided.
Foreign investors shall, in respect of the application for a refund of tax, submit within one year of the
date of the actual investment of the reinvested amount a record of the reinvested amount and a
certificate for the investment period of the increased capital or contributed capital to the tax
authorities in the place where the taxes were originally paid.
Article 81
"Other preferential provisions of the State Council" mentioned in Article 10 of the Tax Law refers to
direct reinvestment in China by foreign investors for the organization and expansion of exportoriented
enterprises or advanced technology enterprises, as well as profits of foreign investors earned from
enterprises established in the Hainan Special Economic Zone that are directly reinvested in the HainanSpecial Economic Zone in infrastructure projects and agriculture development enterprises and for
which the entire portion of enterprise income tax that has already been paid on the reinvested amount
may, in accordance with the provisions of the State Council, be refunded.
Foreign investors that apply for a refund of tax on reinvestments in accordance with the provisions of
the preceding paragraph shall, in addition to completing the requirements pursuant to Article 80,
paragraph 2 and paragraph 3 of these Rules, submit certificates issued by the examining, verifying and
confirming departments confirming the organization and expansion of export-oriented enterprises or
advanced technology enterprises.WT/ACC/CHN/46
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Enterprises in which foreign investors have reinvested in respect of the organization or expansion
thereof which within three years of commencing production or operations have not achieved the
standards in respect of export-oriented enterprises or have not continued to be confirmed as advanced
technology enterprises shall repay 60% of the amount of tax refunded.
Article 82
"Tax refunds on reinvestments" mentioned in Article 10 of the Tax Law and Article 81, paragraph 1
of these Rules shall be computed according to the following formula:
Amount of tax refund = Reinvestment amount / [ 1-(originally applicable enterprise income
tax rate + local income tax rate) ] * originally  applicable enterprise income tax rate * tax
refund rate
Chapter VII  Tax Credits
Article 83
"Income tax already paid abroad" mentioned in Article 12 of the Tax Law means income tax actually
paid abroad by an enterprise with foreign investment on income from sources outside China and does
not include taxes paid for which compensation is later received or assumed by other parties.
Article 84
"The amount of tax payable computed on income from sources outside China in accordance with the
provisions of this Law" mentioned in Article 12 of the Tax Law means the amount of tax payable
computed on taxable income arising from income from abroad of enterprises with foreign investment,
following the deduction of costs, expenses and losses allowable in accordance with the relevant
provisions of the Tax Law and these Rules attributable to that income. The limit of the amount of tax
payable that can be deducted shall be computed on a country-by-country basis; the method of
computation is as follows:
Limit on deduction Total amount of tax Amount of income
tax payable on = payable on domestic X form foreign sources
income from abroad income and Total domestic income
income from and income from abroad
abroad computed
in accordance with
the Tax  Law
Article 85
Where the amount of income tax actually paid abroad on income from sources from abroad by
enterprises with foreign investment is less than the deductible limit resulting from computation based
on the provisions of Article 84 of these Rules, the actual amount of income tax paid abroad may be
deducted from the amount of tax payable; where the deductible limit is exceeded, the portion in
excess shall not be deducted from tax and shall not be itemized as an expense, however, the portion
not exceeding the limit thereof may be used as a deduction against following year's taxes; the time
limit for such supplemental deductions shall not exceed five years.WT/ACC/CHN/46
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Article 86
The provisions of Article 83 to Article 85 of these Rules shall apply only to enterprises with foreign
investment with head offices established within China. Enterprises with foreign investment that
deduct taxes in accordance with the provisions of Article 12 of the Tax Law shall provide the originaltax payment certificates signed and issued by the foreign tax authorities in respect of the same year;
copies or tax payment certificates of different years shall not be used as tax deduction certificates.
Chapter VIII  Tax Administration
Article 87
Enterprises shall, within 30 days of completing business registration, complete tax registration with
the local tax authorities. Enterprises with foreign in vestment that establish or terminate branch offices
outside China shall, within 30 days of the date of  establishment or termination thereof, complete with
the local tax authorities procedures in respect of tax registration, amendments to the registration, or
cancellation of the registration.
Enterprises that complete registrations in the preceding paragraph shall, in accordance with the
provisions, present relevant documents, licenses and materials.
Article 88
Enterprises that undergo important registration changes such as changes of address, restructuring,
mergers, spin-offs, terminations, as well as changes in the amount of capital and scope of business
shall, within 30 days of the completion of the change in business registration or prior to the
cancellation of registration, complete the change in registration or cancellation of registration with thelocal tax authorities with the relevant documents.
Article 89
Foreign enterprises which establish two or more business organizations in China may use one of the
selected business organizations in respect of the consolidated filing and payment of income tax.
However, the business organization so selected shall meet the following conditions:
(1) assumption of supervisory and management responsibility over the business
operations of the other respective business organizations;
(2) maintenance of complete account records and certificates which accurately reflect the
income, cost, expense and profit and loss situations of the respective business
organizations.
Article 90
In respect of foreign enterprises which in accordance with the provisions of Article 89 of these Rules
consolidate the filing and payment of income tax, the business organization so selected thereunder
shall submit an application for approval according to  the following provisions after examination and
verification thereof by the local tax authorities:
(1) consolidated filing and payment of income tax in respect of business organizations
located in the same province, autonomous region, or municipality directly under the
Central Government shall be subject to approval by the tax authorities of the
province, autonomous region or municipality directly under the Central Government;WT/ACC/CHN/46
Page 42
(2) consolidated filing and payment of income tax in respect of business organizations
located in two or more provinces, autonomous regions, or municipalities directly
under the Central Government shall be subject to approval by the State Tax Bureau.
Following approval for the filing and payment of tax on a consolidated basis by foreign enterprises,
such circumstances as the establishment of additional business organizations, mergers, change of
address, termination of operations, or shutdowns shall,  prior to such event, be reported to the local tax
authorities by the business organization responsible for the filing and payment of tax on a
consolidated basis. Any change in respect of the business organization filing and paying tax on a
consolidated basis shall be dealt with in accordance with the provisions of the preceding paragraph.
Article 91
Where business organizations related to foreign enterprises that file and pay income tax on a
consolidated basis apply different tax rates in respect of the payment of tax, the amount of taxable
income of the respective business organizations shall be separately computed on a reasonable basis
and income tax shall be paid on the basis of the different tax rates.
Where the respective business organizations mentioned in the preceding paragraph have losses and
profits, tax shall be paid on the profit remaining after the offsetting of losses against profits according
to the tax rate applicable to the profit-making business organization. A business organization which
incurs losses shall offset losses using profits of the subsequent year of the business organization; taxshall be paid on the profit remaining after the offsetting of such losses according to the tax rate
applicable to the business organization; tax paid on the offsetting amounts shall be based on the tax
rate applicable to the business organization that offsets the losses incurred by the other business
organization.
Article 92
Notwithstanding the provisions of Article 91 of these Rules, where a business organization
responsible for filings and payment of tax on a consolidated basis is unable to compute separately and
reasonably the taxable income of the respective business organizations, the local tax authorities may
make a reasonable apportionment among the respective business organizations of the gross taxable
income based on the proportion of business revenues, the proportion of cost and expenses, theproportion of capital assets, and the proportion of the number of staff or salaries and wages.
Article 93
Enterprises with foreign investment which establish branch offices in China shall complete
consolidated filings and payment of income tax with reference to the provisions of Article 91 and
Article 92 of these Rules.
Article 94
Enterprises that pay taxes in advance on a quarterly basis in accordance with the provisions of Article
15 of the Tax Law shall pay in advance on the basis of actual quarterly profits; where difficulty exists
in paying in advance on the basis of actual quarte rly profits, the advanced quarterly payment of tax
may be made according to one fourth of the taxable income of the previous year or any other method
approved by the local tax authorities.WT/ACC/CHN/46
Page 43
Article 95
Enterprises, whether realizing profits or losses in a tax years, shall file income tax returns and final
statements of account with the local tax authorities within the time limit prescribed in Article 16 of the
Tax Law, and unless otherwise provided by the State, shall include when filing the final accountingstatement an audit statement of a certified public accountant registered in China.
Where, for special reasons, an enterprise cannot file an income tax return and final accounting
statement within the period prescribed in the Tax Law, an application shall be submitted within the
filing period and, upon approval of the local tax authorities, the filing period may be extended
appropriately.
Article 96
Final accounting statements submitted by branches or business organizations to head offices or
business organizations that file and pay income tax on a consolidated basis, shall be submitted at the
same time to the local tax authorities.
Article 97
Enterprises that are merged, spun off, or terminated during the year shall, within 60 days of the
termination of production or business operations, complete with the local tax authorities proceduresfor the settlement of any liability for and payment of income tax, with refunds for overpayments or
supplementary payments for deficiencies.
Article 98
Enterprises which must complete procedures for tax refunds in the case of overpayments of tax may,
where income in foreign currency has already been converted into Renminbi according to the foreign
exchange rate, convert the amount of the tax in Renminbi to be refunded into foreign currency
according to the exchange rate in effect when th e tax was originally paid, and then reconvert this
amount of foreign currency into Renminbi accordin g to the foreign exchange rate at the date of
issuance of the tax refund certificate. Where it is necessary to complete procedures for supplementary
tax payments in the case of underpayments of tax, the amount of supplementary tax payments shall beconverted into Renminbi according to the foreign exchange rate at the date of issuance of the
certificate for supplementary tax payments.
Article 99
Enterprises with foreign investment that undergo liquidation shall, prior to the completion of the
cancellation of business registration, complete the filing of income tax returns with he local tax
authorities.
Article 100
Except as otherwise provided by the State, enterprises shall maintain in China accounting vouchers,
books and statements that support the correct computation of taxable income.
Accounting vouchers, books and statements, and reports of enterprises shall be completed in the
Chinese language or completed in both the Chinese language and a foreign language.WT/ACC/CHN/46
Page 44
Enterprises that use electronic computers for purposes of book-keeping shall treat the accounting
records in computer storage or in printed form as account books. All records on magnetic tape and
diskette that have not been printed out shall be completely retained.
Accounting vouchers, books and statements, and reports of enterprises shall be retained for at least 15
years.
Article 101
Invoices and certificates of receipts of enterprises shall be subjected to approval by the local tax
authorities prior to printing and use.
Administrative measures in respect of the printing and use of invoices and certificates of receipts of
enterprises shall be formulated by the State Tax Bureau.
Article 102
All enterprise income tax returns and certificates of tax payments shall be printed by the State Tax
Bureau.
Article 103
If the final day of the period for payment of tax and the period for filing of a tax return falls on a
Sunday or a legal holiday, the day following the holid ay shall be used as the last day of the period.
Article 104
Tax authorities may pay withholding agents as specified in Article 19, paragraph 2 of the Tax Law
and Article 67 of these Rules a handling fee based on a certain proportion of the amount of tax
withheld; the specific methods shall be formulated by the State Tax Bureau.
Article 105
Local tax authorities may, according to the seriousness of the case, impose a fine of 5,000 yuan
(RMB) or less on taxpayers or withholding agents  that refuse to accept examination by the tax
authorities in accordance with the relevant provisio ns or that refuse to pay late payment penalties
within the time limit prescribed by the tax authorities.
Article 106
The tax authorities may, according to the seriousness of the case, impose a fine of 5,000 yuan (RMB)
or less on an enterprise which violates the provisions of Article 87; Article 90, paragraph 2;
Article 95; Article 96; Article 97; Article 99; Article 100 and Article 101 of these Rules.
Article 107
"Tax evasion" mentioned in Article 25 of the Tax Law means the illegal actions of a taxpayer who has
intentionally violated the provisions of the Tax Law such as by: falsifying, altering or destroying
account books, receipts or accounting vouchers; falsely itemizing or overstating costs and expenses;concealing or understating taxable income or receipts; or avoiding taxes or fraudulently recovering
taxes already paid.WT/ACC/CHN/46
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Article 108
The tax authorities shall, in punishing taxpayers or withholding agents in accordance with the
provisions of the Tax Law and these Rules, serve notice of contravention.
Article 109
Any entity or individual shall have the right to repo rt a failure to comply with the Tax Law and the
violators thereof. The tax authorities shall maintain  confidentiality for informants and award them in
accordance with the relevant provisions herein.
Chapter IX  Supplementary Provisions
Article 110
Enterprises with foreign investment which completed business registration prior to the promulgation
of the Tax Law may, in respect of the payment of income tax in accordance with the provisions of the
Tax Law and where the liability for tax is higher than  that prior to the entry into force of the Tax Law,
use the original applicable tax rate during the approved period of operations. Where there is no
established period of operations, income tax may be paid using the original applicable tax rate for five
years commencing on the date of the entry into force of the Tax Law. However, in respect of the
above-mentioned period, if during a tax year the tax liability is higher than that stipulated in the TaxLaw, income tax shall be paid commencing with that  tax year according to the tax rate stipulated in
the Tax Law.
Article 111
Preferential treatment in terms of exemptions from  and reductions of enterprise income tax enjoyed
pursuant to the laws and administrative rules and regulations prior to the entry  into force of the Tax
Law by enterprises with foreign investment which completed business registration prior to the
promulgation of the Tax Law may continue to remain in effect until the termination of the period of
exemptions and reductions.
Enterprises with foreign investment which completed business registration prior to the promulgation
of the Tax Law but which have not earned profits or have earned profits for less than five years may,
in accordance with the provisions of Article 8, paragraph 1 of the Tax Law, be granted a
corresponding period of treatment in respect of ex emptions from or reductions of enterprise income
tax.
Article 112
Enterprises with foreign investment which completed business registration after the promulgation of
the Tax Law but prior to the entry into force of the Tax Law may refer to the provisions of Article 110
and Article 111 of these Rules for implementation herein.
Article 113
The Ministry of Finance and the State Tax Bureau shall be responsible for the interpretation of these
Rules.WT/ACC/CHN/46
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Article 114
These Rules shall come into force on the effective date of the Income Tax Law of the People's
Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. The Detailed
Rules for the Implementation of the Income Tax Law of the People's Republic of China ConcerningChinese-Foreign Equity Joint Ventures and the De tailed Rules for the Implementation of the Income
Tax Law of the People's Republic of China for Foreign Enterprises shall be abrogated at the same
time.WT/ACC/CHN/46
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Income Tax Law of the People's Republic of China for Enterprises
with Foreign Investment and Foreign Enterprises
(Adopted at the Fourth Session of the Seventh National People's Congress
on 9 April 1991, promulgated by Order No. 45 of the President
of the People's Republic of China on 9 April 1991 and effective as of 1 July 1991)
Article 1
Income tax shall be paid in accordance with the pr ovisions of this Law by enterprises with foreign
investment within the territory of the People's Republic of China on their income derived from
production, business operations and other sources.
Income tax shall be paid in accordance with the prov isions of this Law by foreign enterprises on their
income derived from production, business operations and other sources within the territory of the
People's Republic of China.
Article 2
"Enterprises with foreign investment" referred to  in this Law mean Chinese-foreign equity joint
ventures, Chinese-foreign contractual joint ventures and foreign-capital enterprises that are
established in China.
"Foreign enterprises" referred to in this Law mean foreign companies, enterprises and other economic
organizations which have establishments or places in China and engage in production or business
operations, and which, though without establishments or places in China, have income from sources
within China.
Article 3
Any enterprise with foreign investment which establishes its head office in China shall pay its income
tax on its income derived from sources inside and outside China. Any foreign enterprise shall pay its
income tax on its income derived from sources within China.
Article 4
The taxable income of an enterprise with foreign investment and an establishment or a place set up in
China to engage in production or business operations by a foreign enterprise, shall be the amount
remaining from its gross income in a tax year after the costs, expenses and losses have been deducted.
Article 5
The income tax on enterprises with foreign investment and the income tax which shall be paid by
foreign enterprises on the income of their establis hments or places set up in China to engage in
production or business operations shall be computed on the taxable income at the rate of thirty
percent, and local income tax shall be computed on the taxable income at the rate of three percent.
Article 6
The State shall, in accordance with the industrial policies, guide the orientation of foreign investment
and encourage the establishment of enterprises with foreign investment which adopt advanced
technology and equipment and export all or greater part of their products.WT/ACC/CHN/46
Page 48
Article 7
The income tax on enterprises with foreign investment established in Special Economic Zones,
foreign enterprises which have establishments or places in Special Economic Zones engaged in
production or business operations, and on enterprises with foreign investment of a production naturein Economic and Technological Development Zones, shall be levied at the reduced rate of fifteen
percent.
The income tax on enterprises with foreign investment of a production nature established in coastal
economic open zones or in the old urban districts of cities where the Special Economic Zones or the
Economic and Technological Development Zones are located, shall be levied at the reduced rate of
twenty-four percent.
The income tax on enterprises with foreign investment in coastal economic open zones, in the old
urban districts of cities where the Special Economic Zones or the Economic and Technological
Development Zones are located or in other regions defined by the State Council, within the scope of
energy, communications, harbour, wharf or other projects encouraged by the State, may be levied atthe reduced rate of fifteen percent. The specific  measures shall be drawn up by the State Council.
Article 8
Any enterprise with foreign investment of a production nature scheduled to operate for a period of not
less than ten years shall, from the year beginning to make profit, be exempted from income tax in the
first and second years and allowed a fifty percent reduction in the third to fifth years. However, the
exemption from or reduction of income tax on enterp rises with foreign investment engaged in the
exploitation of resources such as petroleum, natural gas, rare metals, and precious metals shall be
regulated separately by the State Council. Enterprises with foreign investment which have actuallyoperated for a period of less than ten years shall repay the amount of income tax exempted or reduced
already.
The relevant regulations, promulgated by the State Council before the entry into force of this Law,
which provide preferential treatment of exemption from or reduction of income tax on enterprises
engaged in energy, communications, harbour, wharf and other major projects of a production nature
for a period longer than that specified in the preceding paragraph, or which provide preferentialtreatment of exemption from or reduction of income tax on enterprises engaged in major projects of a
non-production nature, shall remain applicable after this Law enters into force.
Any enterprise with foreign investment which is engaged in agriculture, forestry or animal husbandry
and any other enterprise with foreign investment which is established in remote underdeveloped areasmay, upon approval by the competent department for tax affairs under the State Council of an
application filed by the enterprise, be allowed a fifteen to thirty percent reduction of the amount of
income tax payable for a period of another ten years following the expiration of the period for tax
exemption or reduction as provided for in the preceding two paragraphs.
After this Law enters into force, any modification to the provisions of the preceding three paragraphs
of this Article on the exemption from or reduction of income tax on enterprises shall be submitted by
the State Council to the Standing Committee of the National People's Congress for decision.
Article 9
The exemption from or reduction of local income tax on any enterprise with foreign investment which
operates in an industry or undertakes a project encour aged by the State shall, in accordance with theWT/ACC/CHN/46
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actual situation, be at the discretion of the people's government of the relevant province, autonomous
region or municipality directly under the Central Government.
Article 10
Any foreign investor of an enterprise with foreign investment which reinvests its share of profit
obtained from the enterprise directly into that enterprise by increasing its registered capital, or uses
the profit as capital investment to establish other enterprises with foreign investment to operate for a
period of not less than five years shall, upon approval by the tax authorities of an application filed by
the investor, be refunded forty percent of the income tax already paid on the reinvested amount.
Where regulations of the State Council provide otherwise in respect of preferential treatment, such
provisions shall apply. If the investor withdraws its reinvestment before the expiration of a period offive years, it shall repay the refunded tax.
Article 11
Losses incurred in a tax year by any enterprise with  foreign investment and by an establishment or a
place set up in China by a foreign enterprise to engage in production or business operations may be
made up by the income of the following tax year. Should the income of the following tax year be
insufficient to make up for the said losses, the balance may be made up by its income of the further
subsequent year, and so on, over a period not exceeding five years.
Article 12
Any enterprise with foreign investment shall be allowed, when filing a consolidated income tax
return, to deduct from the amount of tax payable the foreign income tax already paid abroad in respect
of the income derived from sources outside China. The deductible amount shall, however, not exceedthe amount of income tax otherwise payable under this Law in respect of the income derived from
sources outside China.
Article 13
The payment or receipt of charges or fees in busine ss transactions between an enterprise with foreign
investment or an establishment or a place set up in China by a foreign enterprise to engage inproduction or business operations, and its associated enterprises, shall be made in the same manner as
the payment or receipt of charges or fees in business transactions between independent enterprises.
Where the payment or receipt of charges or fees is not made in the same manner as in business
transactions between independent enterprises and results in a reduction of the taxable income, the tax
authorities shall have the right to make reasonable adjustment.
Article 14
Where an enterprise with foreign investment or an establishment or a place set up in China by a
foreign enterprise to engage in production or business operations is established, moves to a new site,merges with another enterprise, breaks up, winds up or makes a change in any of the main entries of
registration, it shall present the relevant documents to and go through tax registration or a change or
cancellation in registration with the local tax authorities after the relevant event is registered, or a
change or cancellation in registration is made with the administrative agency for industry and
commerce.WT/ACC/CHN/46
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Article 15
Income tax on enterprises and local income tax shall be computed on an annual basis and paid in
advance in quarterly instalments. Such payments shall be made within fifteen days from the end of
each quarter and the final settlement shall be made within five months from the end of each tax year.Any excess payment shall be refunded and any deficiency shall be repaid.
Article 16
Any enterprise with foreign investment and any establishment or place set up in China by a foreign
enterprise to engage in production or business operations shall file its quarterly provisional income tax
return in respect of advance payments with the local tax authorities within the period for each advancepayment of tax, and it shall file an annual income tax return together with the final accounting
statements within four months from the end of the tax year.
Article 17
Any enterprise with foreign investment and any establishment or place set up in China by a foreign
enterprise to engage in production or business operations shall report its financial and accounting
systems to the local tax authorities for reference. All accounting records must be complete and
accurate, with legitimate vouchers as the basis for entries.
If the financial and accounting bases adopted by an enterprise with foreign investment and an
establishment or a place set up in China by a foreign enterprise to engage in production or business
operations contradict the relevant regulations on tax of the State Council, tax payment shall be
computed in accordance with the relevant regulations on tax of the State Council.
Article 18
When any enterprise with foreign investment goes into liquidation, and if the balance of its net assets
or the balance of its remaining property after deduction of the enterprise's undistributed profit, various
funds and liquidation expenses exceeds the enterprise's paid in capital, the excess portion shall be
liquidation income on which income tax shall be paid in accordance with the provisions of this Law.
Article 19
Any foreign enterprise which has no establishment or place in China but derives profit, interest,
rental, royalty and other income from sources in China, or though it has an establishment or a place in
China, the said income is not effectively connected  with such establishment or place, shall pay an
income tax of twenty percent on such income.
For the payment of income tax in accordance with the provisions of the preceding paragraph, the
income beneficiary shall be the taxpayer and the payer shall be the withholding agent. The tax shall be
withheld from the amount of each payment by the payer. The withholding agent shall, within five
days, turn the amount of taxes withheld on each payment over to the State Treasury and submit a
withholding income tax return to the local tax authorities.
Income tax shall be exempted or reduced on the following income:
(1) the profit derived by a foreign investor from an enterprise with foreign investment
shall be exempted from income tax;WT/ACC/CHN/46
Page 51
(2) income from interest on loans made to the Chinese government or Chinese State
banks by international financial organizations shall be exempted from income tax;
(3) income from interest on loans made at a preferential interest rate to Chinese State
banks by foreign banks shall be exempted from income tax; and
(4) income tax of the royalty received for the supply of technical know-how in scientific
research, exploitation of energy resources, development of the communications
industries, agricultural, forestry and animal husbandry production, and the
development of important technologies may, upon approval by the competent
department for tax affairs under the State Council, be levied at the reduced rate of ten
percent. Where the technology supplied is advanced or the terms are preferential,exemption from income tax may be allowed.
Apart from the aforesaid provisions of this Article, if preferential treatment in respect of reduction of
or exemption from income tax on profit, interest, rental, royalty and other income is required, it shall
be regulated by the State Council.
Article 20
The tax authorities shall have the right to inspect the financial, accounting and tax affairs of
enterprises with foreign investment and establis hments or places set up in China by foreign
enterprises to engage in production or business operations, and have the right to inspect tax
withholding of the withholding agent and its payment of the withheld tax into the State Treasury. The
entities and the withholding agents being so inspected must report the facts and provide relevant
information. They may not refuse to report or conceal any facts.
When making an inspection, the tax officials shall produce their identity documents and be
responsible for confidentiality.
Article 21
Income tax payable according to this Law shall be computed in terms of Renminbi (RMB). Income in
foreign currency shall be converted into Renminbi according to the exchange rate quoted by the Stateexchange control authorities for purposes of tax payment.
Article 22
If any taxpayer fails to pay tax within the prescrib ed time limit, or if the withholding agent fails to
turn over the tax withheld within the prescribed time limit, the tax authorities shall, in addition to
setting a new time limit for tax payment, impose a surcharge for overdue payment, equal to 0.2
percent of the overdue tax for each day in arrears,  starting from the first day the payment becomes
overdue.
Article 23
The tax authorities shall set a new time limit for registration or submission of documents and may
impose a fine of five thousand yuan or less on any taxpayer or withholding agent which fails to go
through tax registration or make a change or cancellation in registration with the tax authorities withinthe prescribed time limit, or fails to submit income tax return, final accounting statements or
withholding income tax return to the tax authorities within the prescribed time limit, or fails to report
its financial and accounting systems to the tax authorities for reference.WT/ACC/CHN/46
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Where the tax authorities have set a new time limit for registration or submission of documents, they
shall impose a fine of ten thousand yuan or less on the taxpayer or withholding agent which again
fails to meet the time limit for going through registration or making a change in registration with the
tax authorities, or for submitting income tax return, final accounting statements or withholding
income tax return to the tax authorities. Where th e circumstances are serious, the legal representative
and the person directly responsible shall be investigated for criminal responsibility by applying
mutatis mutandis the provisions of Article 121 of the Criminal Law.
Article 24
Where the withholding agent fails to fulfil its obligati on to withhold tax as provided in this Law, and
does not withhold or withholds an amount less than th at should have been withheld, the tax authorities
shall set a time limit for the payment of the amount of tax that should have been withheld, and may
impose a fine up to but not exceeding one hundred percent of the amount of tax that should have been
withheld.
Where the withholding agent fails to turn the tax withheld over to the State Treasury within the
prescribed time limit, the tax authorities shall set a time limit for turning over the taxes and may
impose a fine of five thousand yuan or less on th e withholding agent; if the withholding agent fails to
meet the time limit again, the tax authorities shall pursue the taxes according to law and may impose a
fine of ten thousand yuan or less on the withholding agent. If the circumstances are serious, the legal
representative and the person directly responsible shall be investigated for criminal responsibility byapplying mutatis mutandis the provisions of Article 121 of the Criminal Law.
Article 25
Where any person evades tax by deception or con cealment or fails to pay tax within the time limit
prescribed by this Law and, after the tax authorities pursued the payment of tax, fails again to pay it
within the prescribed time limit, the tax authoritie s shall, in addition to recovering the tax which
should have been paid, impose a fine up to but not exceeding five hundred percent of the amount of
tax which should have been paid. Where the circumstances are serious, the legal representative and
the person directly responsible shall be investigated for criminal responsibility in accordance with the
provisions of Article 121 of the Criminal Law.
Article 26
Any enterprise with foreign investment, foreign enterp rise or withholding agent, in case of a dispute
with the tax authorities on payment of tax, must pa y tax according to the relevant regulations first.
Thereafter, the taxpayer or withholding agent may, w ithin sixty days from the date of receipt of the
tax payment certificate issued by the tax authoritie s, apply to the tax authorities at the next higher
level for reconsideration. The higher tax authorities shall make a decision within sixty days after
receipt of the application for reconsideration. If the taxpayer or withholding agent is not satisfied with
the decision, it may institute legal proceedings in the people's court within fifteen days from the date
of receipt of the notification on decision made after reconsideration.
If the party concerned is not satisfied with the decision on punishment by the tax authorities, it may,
within fifteen days from the date of receipt of the notification on punishment, apply for
reconsideration to the tax authorities at the next higher level than that which made the decision on
punishment. Where the party is not satisfied with the decision made after reconsideration, it mayinstitute legal proceedings in the people's court within fifteen days from the date of receipt of the
decision made after reconsideration. The party concerned may, however, directly institute legal
proceedings in the people's court within fifteen days from the date of receipt of the notification on
punishment. If the party concerned neither applies for reconsideration to the higher tax authorities, norWT/ACC/CHN/46
Page 53
institutes legal proceedings in the people's court within the time limit, nor complies with the decision
on punishment, the tax authorities which made the decision on punishment may apply to the people's
court for compulsory execution.
Article 27
Where any enterprise with foreign investment which was established before the promulgation of this
Law would, in accordance with the provisions of this Law, otherwise be subject to higher tax rates or
enjoy less preferential treatment of tax exemption or reduction than before the entry into force of this
Law, in respect to such enterprise, within its approved period of operation, the law and relevant
regulations of the State Council in effect before the entry into force of this Law shall apply. If any
such enterprise has no approved period of operation, the law and relevant regulations of the StateCouncil in effect before the entry into force of this Law shall apply within the period prescribed by
the State Council. Specific measures shall be drawn up by the State Council.
Article 28
Where the provisions of a tax agreement concluded between the government of the People's Republic
of China and a foreign government are different from the provisions of this Law, the provisions of the
agreement shall prevail.
Article 29
Rules for implementation shall be formulated by the State Council in accordance with this Law.
Article 30
This Law shall enter into force on 1 July 1991. The Income Tax Law of the People's Republic of
China for Chinese Foreign Equity Joint Ventures and the Income Tax Law of the People's Republic of
China for Foreign Enterprises shall be annulled as of the same date.WT/ACC/CHN/46
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Provisions of the State Council Concerning the Encouragement of
Investment in Developing Hainan Island
(Promulgated on 4 May 1988)
Article 1
These Provisions are formulated with a view to abso rbing investment from within and without so as to
accelerate the development and construction of Hainan Island.
Article 2
The State implements more flexible open economic policies for the Hainan Special Economic Zone
and endows the People's Government of Hainan  Province with greater decision-making power.
Article 3
The State encourages enterprises, other economic organizations or individuals within China and from
abroad (hereinafter referred to as investors) to  invest in the development of Hainan Island and
establish various economic and social undertakings.
Article 4
The State shall protect investors' legitimate rights and interests according to law, and shall not
nationalize or requisition the assets of the investors. Under special circumstances, where public
interests call for action, the State may resort to requ isitioning in accordance with legal procedures and
due compensation shall be given. Investors shall abide by China's laws and regulations.
Article 5
Investors may make investments and conduct operations on Hainan Island in the following forms:
(1) making an investment in establishing equity joint ventures, Chinese-foreign
contractual joint ventures, foreign-capital enterprises (hereinafter referred to asenterprises with foreign investment) as well as other kinds of enterprises permitted by
law. The period of operation for any kind of enterprise shall be specified in the
contract by the parties to the investment through consultation or approved by the
relevant competent authorities;
(2) purchasing shares, bonds and other negotiable securities;
(3) operating enterprises through purchasing, holding shares, contracting or leasing;(4) investing and operating in the investment modes obtaining throughout the world,
conducting economic and technological cooperation and exchanges.
Article 6
The use of State-owned land on Hainan Island shall be non-gratuitous.
The People's Government of Hainan Province may, according to law, grant non gratuitously the right
to the use of State-owned land to investors. The du ration of the right granted to land-use shall be fixed
in the contract in accordance with the specific conditions of different industries and projects, with aWT/ACC/CHN/46
Page 55
maximum duration of 70 years; where there is the need to continue using the land after the expiration
of the contract, the duration may be extended upon approval.
Investors may, in keeping with the relevant provisions of the State, transfer non-gratuitously the right
granted to land-use.
Article 7
Mineral resources on Hainan Island shall be exploited with compensation according to law. The
exploitation of some mineral resources specifically designated by the State shall be subject to
approval by the relevant competent authorities of the State; the exploitation of other mineral resources
shall be subject to approval by the People's Government of Hainan Province. Investors are allowed toexplore and develop the mineral resources by setting up equity joint ventures, contractual joint
ventures, or foreign-capital enterprises.
Article 8
Investors may, in the form of an equity or contractual joint ventures, invest in the construction of
infrastructure on Hainan Island such as ports, wharves, airports, highways, railways, power stations,
coal mines and water conservancy projects or may also solely invest in and operate in specialized
facilities, and may also invest in and operate various enterprises and service business related to the
above-mentioned facilities in accordance with the relevant regulations of the State and effectcomprehensive operations.
Article 9
Foreign-capital banks, banks with joint Chinese and foreign investment or other financial institutions
may be set up on Hainan Island with the approval of the People's Bank of China in light of the needs
of economic development.
Article 10
The investment in the establishment of various economic and social undertakings on Hainan Island
shall be subject to examination and approval by the People's Government of Hainan Province. Wherethe investment scope and total amount exceed the authorization by the State, the investment shall be
submitted for examination and approval according to the procedures laid down by the State.
Article 11
The importation of building management, production and managerial equipment as an investment of
an enterprise whose establishment has already been approved, the importation of raw materials,
accessories and parts, packaging materials and other materials and items required for production and
operation, and the importation of means of transport and office equipment for enterprise's own use,
are to be examined and approved by the People's Government of Hainan Province itself.
Article 12
The enterprise income tax shall be levied at a rate of 15 percent on the income derived from
production, operation and other sources by enterprises established on Hainan Island (State banks andinsurance companies excepted). In addition, a local surtax of 10 percent of the assessed income tax
shall be levied. Among the above-said enterprises:WT/ACC/CHN/46
Page 56
(1) those engaged in the construction and operation of infrastructure such as ports,
wharves, airports, highways, railways, power stations, coal mines and water
conservancy projects etc., and those involved in agricultural development, with a
period of operation of 15 years or longer, shall enjoy a five-year income tax
exemption beginning from the first profit-making year, and shall be granted a50 percent reduction in income tax from the sixth to the tenth year;
(2) those engaged in industrial, communications and transportation and other productive
enterprises with a period of operation of 10 years or longer, shall enjoy a two-year
income tax exemption starting from the first profit-making year and shall then be
granted a tax reduction by one half from the third to the fifth year; those
acknowledged by the People's Government of Hainan Province as technologicallyadvanced shall further enjoy a tax reduction by one half from the sixth to the eighth
year;
(3) after the expiration of the stipulated period for the reduction of or exemption from
enterprise income tax according to the State, enterprises engaged in industry,
agriculture, and other productive businesses, shall have their enterprise income tax
reduced to 10 percent in the year when the value of their export products amounts to
70 percent or more of their output value of that year;
(4) those involved in service trades, with a total investment of or over US$ 5 million or
RMB 20 million yuan and a period of operation of 10 years or longer, shall be exempt
from enterprise income tax in the first profit-making year and enjoy a 50 percent
reduction in income tax in the next two years.
Reduction of or exemption from local income tax for enterprises within Hainan Island shall be
determined by the People's Government of Hainan Province.
Article 13
For investors from outside China who have no offices on Hainan Island, a 10 percent income tax shall
be levied on their dividends, interest, rents, franchise royalties and other income derived from the
island except those exempt from income tax according to law. The People's Government of HainanProvince shall decide who are to enjoy income tax reduction or exemption.
Article 14
Enterprises with foreign investment and enterprises with 25 percent of their shares held by foreign
businessmen shall enjoy the right to conduct import and export operations, and other enterprises may
enjoy the same right, if so approved by the People 's Government of Hainan Province - i.e. to import
the goods necessary for the production and operations of their enterprises, and export their own
products.
Article 15
Customs duty, product tax and value-added tax sh all be exempted on the machinery and equipment,
raw materials and parts, means of transport and other materials and items as well as office equipment
that the enterprises within Hainan Island need to import for their own production and operations.
Customs duty, product tax or value-added tax shall be reduced by one half on the goods imported for
sale on the market in Hainan by enterprises on the island.WT/ACC/CHN/46
Page 57
Article 16
The State encourages enterprises on Hainan Island to export their manufactured products. Products
manufactured by enterprises to be exported shall be exempt from export duties, and product tax or
value-added tax already collected thereon shall be reimbursed, except for crude and refined oil, aswell as a few other products specifically designated by the State.
Article 17
The products manufactured by enterprises on Hainan Island and marketed in Hainan are exempt from
product tax or value-added tax, whereas mineral oil, tobacco, liquor and a few other products
specially designated by the People's Government of Hainan Province are subject to a 50 percentproduct tax or value-added tax. Where the manufactured products contain certain imported parts and
materials, customs duty, product tax or value-added tax shall be exempted or levied retroactively in
accordance with the stipulations of Article 15.
Products manufactured by the aforesaid enterprises and to be marketed to other parts of China, may be
sold by the enterprises themselves, except for products whose importation is restricted by the State
and which are subject to approval in accordance with the relevant regulations of the State. But product
tax or value-added tax shall be levied on these products according to relevant provisions. Customs
duties, product tax or value-added tax on the manufactured products containing imported parts and
materials shall be levied retroactively in accordance with relevant stipulations.
Where the enterprises with foreign investment within Hainan Island are to sell on the domestic market
their products which conform to the standards specified in the methods governing import substitution
by the State, they may apply to sell their products as import substitutes.
Article l8
Foreign exchange earnings derived by enterprises within Hainan Island from their product export and
from other business activities, may be retained in foreign currency as earned and shall be handled in
keeping with the regulations of the local People's Bank of China.
The enterprises may adjust the surplus and deficits of their foreign exchange and effect a balance of
foreign exchange receipts and disbursements at the markets for the regulation of foreign exchange
located on Hainan Island or in other parts of China.
Article 19
Investors from abroad may freely remit from the enterprise's foreign exchange deposit account the
profits they earn from the enterprises invested in and run on Hainan Island. The amount remitted shall
be exempt from income tax.
Investors from abroad who reinvest the profit they earn from their enterprises within the Island, for a
period of not less than five years shall enjoy a reimbursement of 40 percent of the income tax paid on
the amount reinvested, and 100 percent of the income tax already paid on the amount reinvested shall
be reimbursed if the investors elect to reinvest their profit earnings in the construction of
infrastructure and agricultural development enterprises, export-oriented and technologically -
advanced enterprises within Hainan island.
Investors from other parts of China shall be free to remit their profits from enterprises on Hainan
Island. Income taxes on profits remitted to other places in the interior of China within ten years from
the first profit-making year are not to be paid further.WT/ACC/CHN/46
Page 58
Article 20
When coming to Hainan island to negotiate an investment or to trade, promote economic and
technological exchange, visit relatives or to tour, foreigners from countries or regions havingdiplomatic relations or official trade links with China, may apply for entry visas at the port of Haikou
or Sanya if their stay in Hainan does not exceed 15 days; those who need to stay in Hainan longer or
who want to go on to other parts of China for appropriate reasons, may apply for an extension of the
visa or obtain an additional visa endorsement according to relevant provisions.
Foreigners who permanently live on Hainan Island, or who invest in the establishment of local
enterprises or participate in the development of the island, and their accompanying family members
may upon application be granted multiple entry visas by the authorities concerned under the People's
Government of Hainan Province.
Article 21
Compatriots from Hong Kong, Macao and Taiwan as well as overseas Chinese holding valid
passports or documents issued by the competent authorities under the State Council or by their
authorized agencies may come to Hainan Island or proceed to other places within China without visas.
Compatriots from Taiwan may, at the ports in Hainan Island, directly apply for a Travel Certificate
for Compatriots from Taiwan. The People's Governme nt of Hainan Province is authorized to examine
and approve the dispatch abroad of personnel by domestic organizations in Hainan Province that are
to set up economic, trade or tourism offices or to establish enterprises abroad, except otherwise
provided by the State.
Article 22
Matters not covered in these Provisions may be handled by the People's Government of Hainan
Province according to the provisions concerning special economic zones.
The rules for the implementation of these Provisions shall be formulated by competent departments
under the State Council in conjunction with the People's Government of Hainan Province.
Article 23
These Provisions shall enter into force as of the date of Promulgation.WT/ACC/CHN/46
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Interim Provisions of the State Council Concerning the Reduction of
and Exemption From Enterprise Income Tax and Consolidated Industrial
and Commercial Tax in the Special Economic Zones and
the Fourteen Coastal Port Cities
(Promulgated by the State Council on 15 November 1984)
In order to enable the four special economic zones, namely Shenzhen, Zhuhai, Xiamen, and
Shantou and the fourteen coastal port cities, namely Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao,
Lianyungang, Nantong, Shanghai, Ningbo, Wenz hou, Fuzhou, Guangzhou, Zhanjiang, and Beihai to
expand economic cooperation and technical exchange with foreign countries, attract foreign capital,
introduce advanced technology and accelerate the construction of socialist modernization, companies,enterprises, and individuals from foreign countries, Hong Kong, Macao, and other regions (hereinafter
referred to collectively as "external investors") th at invest in the above mentioned special zones and
cities by setting up Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures
and foreign-capital enterprises shall be accorded pr eferential treatment in the form of reduction of or
exemption from enterprise income tax and consolidated industrial and commercial tax.
Chapter I  Special Economic Zones
1. Chinese-foreign equity joint ventures, Chinese- foreign contractual joint ventures and foreign-
capital enterprises (hereinafter referred to as "special zone enterprises") established in the specialeconomic zones (hereinafter referred to as "special zones") shall be subject to enterprise income tax at
the reduced rate of 15% on income from product ion and business operations and other income. Of
such enterprises:
(1) enterprises engaged in industry, communications and transport, agriculture, forestry,
animal husbandry and other production-oriented industries that are scheduled to
operate for a period of ten years or more, shall, upon approval by the special zone tax
authorities of applications filed by them, be exempt from income tax for the first and
second years commencing from the first profit-making year, and shall be allowed a
50% reduction of income tax from the third through the fifth years.
(2) enterprises engaged in service trades that are scheduled to operate for 10 years of
more, if the investments of foreign investors exceed 5 million US$, shall, upon
approval by the special zone tax authorities of applications filed by them be exempt
from income tax in the first profit-making year and shall be allowed a 50% reduction
of income tax in the second and third years.
2. With respect to the local income tax imposed  on the special zone enterprises, the people's
governments of the special zones shall determine whether preferential treatment in the form of tax
reduction or exemption needs to be granted.
3. The share of profit distributed to external investors by Chinese-foreign equity joint ventures
in special zones and remitted abroad shall be exempt from income tax.
4. With the exception of income which is exempt from income tax in accordance with the law,
dividends, interest, rentals, royalties and other income derived from sources within the special zones
by foreign investors having no establishments in China shall be subject to tax at a reduced tax rate of10%. Additional preferential treatment with regard to tax reductions or tax exemptions which need to
be given to foreign investors that provide capital or equipment on preferential terms or transfer
advanced technology shall be decided by the people's governments of the respective special zones.WT/ACC/CHN/46
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5. With respect to goods subject to consolidated industrial and commercial tax which are
imported by the special zone enterprises prior to the establishment of the administrative borders of the
special zones, machinery, equipment, raw materials,  spare parts and fittings; means of transport and
other production materials essential for production shall be exempt from consolidated industrial and
commercial tax. Means of transport and durable consumer goods the importation of which is restrictedby the State shall be subject to consolidated indus trial and commercial tax according to the tax law.
Consolidated industrial and commercial tax shall be imposed at one half of the stipulated tax rates on
various kinds of imported mineral oils, tobacco, alcoholic beverages, and various other kinds of
articles for daily use. Following the establishment of the administrative borders of the special zones,
various kinds of imported mineral oils, tobacco and alcoholic beverages, shall continue to be subject
to consolidated industrial and commercial tax at one  half of the stipulated tax rates; the remaining
imported goods shall all be exempt from consolidated industrial and commercial tax. Reasonablequantities of tobacco, alcoholic beverages, luggage, articles for daily use and settling-in articles
personally carried in by individual external investors or personal use shall be exempt from
consolidated industrial and commercial tax.
6. All products for export produced by special z one enterprises, except for those whose export is
restricted by the State and the small number of products otherwise prescribed by the State, shall be
exempt from  consolidated industrial and commercial tax.
7. Mineral oils, tobacco, alcoholic beverages and other such products manufactured by special
zone enterprises and sold within the same special z one shall be subject to consolidated industrial and
commercial tax at one half of the tax rates stipulated in the tax laws. The people's government of the
special zone may also determine on its own to fully collect or to collect a reduced consolidated
industrial and commercial tax with respect to a minority of products. Other products shall no longer
be subject to the consolidated industrial and commercial tax.
8. Special zone enterprises that transport inland imported goods in respect of which reductions
of or exemptions from consolidated industrial and commercial tax have been granted or products
produced in the special zones shall, at the time such goods are transported inland, make good such
reductions of or exemptions from consolidated industrial and commercial tax in accordance with the
provisions of the tax laws. Reasonable quantities of luggage and articles for daily use that individuals
or external investors personally carry inland from the special zones for personal use shall be exempt
from consolidated industrial and commercial tax.
9. The income of special zone enterprises engaged in commerce, communication and transport
and service trades shall be subject to consolidated industrial and commercial tax according to the tax
rates stipulated in the tax laws. Consolidated industrial and commercial tax shall be imposed at the
rate of 3% on income derived from banking and insurance operations. The special zone people'sgovernments shall determine whether special treatment in respect of reductions of or exemptions from
consolidated industrial and commercial tax needs to be granted to the above-mentioned enterprises for
a specified period of time during the initial period of operations.
10. Reductions of and exemptions from enterprise income tax and consolidated industrial and
commercial tax on Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures
and foreign-capital enterprises established in the Hainan Administrative Region of Guangdong
Province shall be implemented with reference to the relevant provisions applying to the special zones.
Chapter II  The Economic and Technological Development Zones
of the Fourteen Coastal Port Cities
1. Production-oriented enterprises organized as Chinese-foreign equity joint ventures, Chinese-
foreign contractual joint ventures and foreign-capital enterprises (hereinafter referred to asWT/ACC/CHN/46
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"development zone enterprises") established in the economic and technological development zones
(hereinafter referred to as "development zones") sh all be subject to enterprise income tax at the
reduced tax rate of 15% on income from product ion and business operations and on other income.
Among these enterprises, those scheduled to operate for a period of 10 years or more, upon approval
by the municipal tax authorities of an application filed by the enterprise, shall be exempt from incometax in the first and second years, commencing from the first profit-making year, and be allowed a 5%
reduction in the third through the fifth years.
2. With respect to the local income tax impos ed on the development zone enterprises, the
municipal people's governments in the locations of the development zones shall determine whether
preferential treatment in the form of tax reduction or exemption needs to be granted.
3. The share of profits distributed to external investors by Chinese-foreign equity joint ventures
in the development zones and remitted abroad shall be exempt from income tax.
4. With the exception of income which is exempt from income tax in accordance with the law,
dividends, interest, rentals, royalties and other income derived from sources within the developmentzones by external investors having no establishments in China shall be subject to tax at the reduced
tax rate of 10%. Of such external investors, with respect to those that provide capital or equipment on
preferential terms or transfer technology which is advanced, their preferential treatment with regard to
further tax reductions or tax exemptions shall be decided by the municipal people's government
located in the respective development zone.
5. Building materials, production equipment, raw materials, spare parts and fittings,
components, means of transport and office supplies imported by development zone enterprises for
their own use shall be exempt from consolidated industrial and commercial tax. Development zone
enterprises that divert for sale on the domestic market products processed from imported rawmaterials, spare parts and fittings and components that  were exempt from tax shall, in accordance with
the tax laws, make up consolidated industrial and commercial tax on imported material and parts used
for such products.
6. Products for export produced by development zone enterprises, other than those whose export
is restricted by the State, shall be exempt from consolidated industrial and commercial tax; products
for domestic sale shall be taxed according to the tax laws.
7. Reasonable quantities of settling-in articles and means of transport that are personally brought
in by external business personnel who work in development zone enterprises or reside in development
zones for their own use shall, on the basis of certificate issued by the municipal development zone
administrative committee, be exempt from consolidated industrial and commercial tax.
Chapter III  The Old Urban Districts of the Fourteen Coastal Port Cities
and the Urban Districts of Shantou, Zhuhai and Xiamen Municipalities
1. Production-oriented enterprises organized as Chinese foreign equity joint ventures, Chinese-
foreign contractual joint ventures and foreign-capital enterprises (hereinafter referred to collectively
as "old urban district enterprises") established in the old urban districts of the fourteen coastal port
cities and the urban district of Shantou, Zhuhai a nd Xiamen municipalities (hereinafter referred to
collectively as "old urban districts") shall, upon approval of the Ministry of Finance, be subject
enterprise income tax at the reduced rate of 15% in respect of projects which are technology-intensiveor knowledge-intensive, or in which the amount invested by foreign investors is 30 million US$ or
more and the investment recovery period is long or which involve energy development or the
construction of communications or port facilities.WT/ACC/CHN/46
Page 62
Old urban district enterprises that do not qualify for the tax reductions prescribed in the preceding
paragraph, but which involve one of the industries listed below, may, upon approval by the Ministry
of Finance, be subject to enterprise income tax calc ulated at 80% of the tax rate stipulated in the tax
laws:
(1) machine manufacturing and electronics industries;(2) metallurgical, chemical and building materials industries;
(3) light industries, textiles and packaging industries;
(4) medical apparatus and instruments and pharmaceutical industries;
(5) agriculture, forestry, animal husbandry and aquaculture industries and the related
processing industries;
(6) construction industries.
Reductions of and exemptions from enterprise income tax for old urban district enterprises
shall be dealt with according to the above-mentioned preferential tax rates and in conformity with the
time limits and scope stipulated in the Income Tax Law of the People's Republic of China for
Chinese-Foreign Equity Joint Ventures and the Income Tax Law of the People's Republic of China for
Foreign Enterprises.
2. With respect to the local income tax imposed on old urban district enterprises, the municipal
people's government shall determine whether preferential treatment in the form of tax reduction or
exemption needs to be granted.
3. With the exception of income which is exempt from income tax in accordance with the law,
dividends, interest, rentals, royalties and other income derived from sources within the old urban
districts by external investors not having establishments in China shall be subject to income tax at the
reduced tax rate of 10%. Of such external investors, with respect to those that provide capital or
equipment on preferential terms or transfer technology which is advanced, their preferential treatmentin regard to further tax reductions or tax exemptions shall be decided by the municipal people's
government.
4. Production equipment, equipment for business operations and building materials imported as
investment contributions or additional investment, as well as means of transport and office supplies
imported by old urban district enterprises for their own use shall be exempt from consolidated
industrial and commercial tax.
5. Products for export produced by old urban district enterprises, excluding those whose export
is restricted by the State, shall be exempt from consolidated industrial and commercial tax; products
that are sold domestically shall be taxed according to the tax laws.
6. The portion of raw materials, spare parts and fittings, components, packaging materials and
other such materials imported by old urban district enterprises which is used in the production of
export products shall be exempt from consolidated industrial and commercial tax; the portion of
imported materials used in the production of products for domestic sale shall be taxed in accordance
with the tax laws.
7. Reasonable quantities of settling-in articles and means of transport personally brought in by
external business personnel for their own use shall, on  the basis of a certificate issued by the relevant
departments of the municipal people's governments, be exempt from consolidated industrial and
commercial tax.WT/ACC/CHN/46
Page 63
Chapter IV  Effective Date
The stipulations of these Provisions concerning the reduction of and exemption from income
tax shall become effective as of the year of 1984; the stipulations of these Provisions concerning the
reduction of and exemptions from consolidated industrial and commercial tax shall become effectiveas of 1 December 1984.WT/ACC/CHN/46
Page 64
Regulations on Special Economic Zones in Guangdong Province
(Approved for implementation at the 15th Meeting of the Standing Committee
of the Fifth National People's Congress on 26 August 1980)
Contents
Chapter I  General Provisions
Chapter II Registration and Operation
Chapter III Preferential Treatment
Chapter IV Labour Management
Chapter V Administrative Organization
Chapter VI Supplementary Provisions
Chapter I  General Provisions
Article 1
In order to develop economic cooperation and technical exchanges with foreign countries and to
promote the socialist modernization programme, certain areas shall be delineated respectively in the
three cities of Shenzhen, Zhuhai and Shantou in Guangdong Province for the establishment of special
economic zones (hereinafter referred to as "special zones"), The special zones shall encourage foreigncitizens, overseas Chinese, compatriots from Hongkong and Macao and their companies and
enterprises (hereinafter referred to as" investors") to open factories and set up enterprises and other
establishments with their own investment or in joint ventures with our side, and shall protect their
assets, the profits due them and their other lawful rights and interests in accordance with the law.
Article 2
Enterprises and individuals in the special zones must abide by the laws, decrees and pertinent
provisions of the People's Republic of China. Where there are specific provisions in these
Regulations, they shall be observed accordingly.
Article 3
A Guangdong Provincial Committee for the Administration of Special Economic Zones shall be set
up to exercise unified administration of the special zones on behalf of the Guangdong Provincial
People's Government.
Article 4
The special zones shall provide investors with a wide scope of operation, create favourable operating
conditions and guarantee them stable business sites. Investors may establish, with their own
investment or in joint ventures with our side, all projects that have positive significance forinternational economic cooperation and technical exchanges, including industry, agriculture, animal
husbandry, aquaculture, tourism, housing and construction, and research and manufacture involving
high technology, as well as other businesses of  common interest to investors and to our side.
Article 5
Land-levelling projects and various public works in the special zones such as water supply, drainage,
power supply, roads, wharves, communications and warehouses shall be undertaken by theWT/ACC/CHN/46
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Guangdong Provincial Committee for the Administration of Special Economic Zones. When
necessary, foreign investment may be used in building these projects.
Article 6
Each of the special zones shall invite Chinese and foreign specialists and relevant personages who are
enthusiastic about China's modernization programme to form an advisory committee that will serve as
a consultative body for that special zone.
Chapter II  Registration and Operation
Article 7
Investors wishing to open factories or set up various economic undertakings in the special zones with
their own investment shall apply to the Guangdong Provincial Committee for the Administration of
Special Economic Zones, which shall issue them registration certificates and land use certificates after
examination and approval.
Article 8
Investors may open accounts and conduct their foreign exchange transactions with the Bank of China
established in the special zones or with other banks established there with the approval of the Chineseside.
Investors may take out various kinds of insurance policies at the People's insurance Company of
China in the special zones or at other insurance companies established there with the approval of the
Chinese side.
Article 9
Products of the enterprises in the special zones shall be sold on the international market. If their
products are to be sold in the interior of China, they must have the approval of the Guangdong
Provincial Committee for the Administration of Special Economic Zones and go through the
procedures for paying customs duties.
Article 10
Investors may operate their enterprises independently in the special zones and employ foreign
personnel for technical and managerial work.
Article 11
If an enterprise established by an investor in the special zones wishes to terminate operations before
its scheduled expiration, it shall report the reasons to the Guangdong Provincial Committee for theAdministration of Special Economic Zones, go through termination procedures and settle claims and
debts. After termination of operations, its assets may be assigned and its funds may be remitted out of
China.WT/ACC/CHN/46
Page 66
Chapter III  Preferential Treatment
Article 12
Land in the special zones is owned by the People's Republic of China. The land to be used by
investors shall be provided according to actual needs, and preferential treatment shall be given with
respect to the duration of its use, the amount of the use fee and the method of payment according to
the different types of business and uses. Provisions for specific measures shall be made separately.
Article 13
The machinery and equipment, spare parts, raw and semi-processed materials, means of transportation
and other capital goods necessary for production that are imported by enterprises in the special zones
shall be exempted from import duties. The necessary consumer goods may either be subjected to
import duties or allowed a reduction or exemption therefrom, depending on the specific situation of
each case. When the above-mentioned goods are imported or products of the special zones are
exported, a customs declaration shall be filed.
Article 14
The enterprise income tax rate in the special zones is 15 percent. Special preferential treatment shall
be given to enterprises established within two years of the promulgation of these Regulations, toenterprises with an investment US$ 5 million or mo re, and to enterprises involving higher technology
or having a longer period of capital turnover.
Article 15
The lawfuI profit that an investor receives after payment of the enterprise income tax, and the wages
and salaries and other legitimate earnings that foreign, overseas Chinese and Hongkong and Macao
workers and staff members of an enterprise in the special zones receive after payment of the
individual income tax, may be remitted abroad through the Bank of China or other banks in the
special zones, in accordance with the provisions of the foreign exchange control measures of the
special zones.
Article 16
An investor that reinvests its share of the profit in the special zones for a period of five years or longer
may apply for a reduction of or an exemption from income tax on the reinvested portion.
Article 17
Enterprises in the special zones shall be encourag ed to use machinery and equipment, raw and semi-
processed materials and other materials produced in China, and preferential prices shall be offered on
the basis of China's current export prices for the same kinds of commodities, using foreign exchangeto settle accounts. These products and materials may be shipped directly to the special zones with the
sales vouchers of the selling units.
Article 18
Entry and exit procedures shall be simplified and conveniences given to the foreign personnel,
overseas Chinese and compatriots from Hongkong and Macao entering and leaving the special zones.WT/ACC/CHN/46
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Chapter IV  Labour Management
Article 19
A labour service company shall be set up in each of  the special zones. Chinese staff members and
workers to be employed by enterprises in the special zones, whether they are recommended by the
local labour service companies or recruited by the investors themselves with the consent of the
Guangdong Provincial Committee for the Administration of Special Economic Zones, shall all be
tested by the enterprises before employment and labour contracts shall be signed with the staff
members and workers.
Article 20
The staff members and workers employed by enterprises in the special zones shall be managed by the
enterprises according to their business requirements and, when necessary, may be dismissed, after
going through the procedures provided in the labour contracts.
Staff members and workers of the enterprises in the special zones may submit their resignations to the
enterprises in accordance with the provisions of the labour contracts.
Article 21
The wage levels, types of wages, award measures and the labour insurance and various state subsidies
for the Chinese staff members and workers of the en terprises in the special zones shall be included in
the contracts signed by the enterprises with the staff members and workers as stipulated by the
Guangdong Provincial Committee for the Administration of Special Economic Zones.
Article 22
Enterprises in the special zones shall adopt the necessary measures for labour protection to ensure that
staff members and workers work in safe and hygienic conditions.
Chapter V  Administrative Organization
Article 23
The Guangdong Provincial Committee for the Administration of Special Economic Zones shall
exercise the following functions and powers:
(1) to draw up development plans for the special zones and organize their
implementation;
(2) to examine and approve the investment projects of investors in the special zones;
(3) to handle registration of industrial and commercial enterprises and land allotment in
the special zones;
(4) to coordinate working relations among the banking, insurance, taxation, Customs,
frontier inspection, postal and telecommunications and other organizations in thespecial zones;
(5) to provide the staff members and workers needed by enterprises in the special zones
and protect the legitimate rights and interests of the staff members and workers;WT/ACC/CHN/46
Page 68
(6) to establish educational, cultural, health and various public welfare institutions in the
special zones; and
(7) to maintain law and order in the special zones and protect, in accordance with the
law, the persons and property in the special zones against encroachment.
Article 24
The Shenzhen Special Zone shall be under the direct management and administration of the
Guangdong Provincial Committee for the Administration of Special Economic Zones. Necessary
offices shall be set up in the Zhuhai and Shantou Special Zones.
Article 25
A Guangdong Provincial Special Economic Zones Development Company shall be set up to suit the
expanding economic activities in the special zones. Its scope of business shall include: undertaking toraise funds and handle trust investment business; operating, or jointing with investors in operating,
relevant enterprises in the special zones; acting as agent for investors in the special zones in
transactions relating to sales and purchases in trade with the interior; and providing services for
business talks.
Chapter VI  Supplementary Provisions
Article 26
These Regulations shall go into effect after they have been adopted by the People's Congress of
Guangdong Province and submitted to and approved by the Standing Committee of the National
People's Congress of the People's Republic of China.
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