. /.   WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/36 
8 April 2008 
 (08-1553) 
Committee on Subsidies and 
Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to Questions Posed by the SEPARATE CUSTOMS TERRITORY OF  
TAIWAN, PENGHU, KINMEN AND MATSU1 Regarding  
the New and Full Notification of CHINA2 
   The following communication, dated 4 April 2008, is being circulated at the request of the Delegation of China.   
 
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  Question 1  
 According to the Preferential Tax Policies for En terprises Making Little Profits , please 
indicate the eligibility of enterprises making littl e profits and whether this treatment is applied 
to foreign-invested companies as well.   
 
Reply
 
 
 Enterprises Making Little Profits refer to tho se enterprises with an annual taxable income 
of 30 thousand RMB or less, or those with an annual taxable income between 30 thousand RMB 
and 100 thousand RMB (inclusive).  Preferential ta x rates of 18 per cent and 27 per cent shall be 
applied to these two kinds of enterprises respectiv ely.  These preferential tax rates apply only to 
domestic enterprises.   
 
Question 2 
 
 With reference to the Preferential Tax Policies for Research and Development of 
Enterprises  and Preferential Tax Policies for Research and Development of Foreign-Invested 
Enterprises , we would like to get more information by raising the following questions:   
 
1) Are foreign-invested enterprises indicate d in the latter programme ineligible for the 
former programme?   
 
2) If not, please indicate the reasons.   
                                                      
1 G/SCM/Q2/CHN/35.   
2 G/SCM/N/123/CHN.   G/SCM/Q2/CHN/36 
Page 2  
 
  Reply
 
  The policy specified in the Item 26 of the subsidy notification applied only to domestic enterprises.  In fact, Foreign-Invested and domest ic enterprises were governed by two different 
systems of enterprise income tax before January 1, 2008, namely, the Provisional Regulations of the 
People's Republic of China on Enterprises Income Tax  and its Implementation Measures applied to 
domestic enterprises, while Income Tax Law of the People's Rep ublic of China for Enterprises with 
Foreign Investment and Foreign Enterprises  and its Implementation Rules applied to foreign invested 
enterprises.   
  After the implementation of the new Enterprise Income Tax Law , an identical income tax rate 
applies equally to domestic and foreign-invested enterprises.  Therefore, a policy of deducting part 
of R&D expenditure from the taxable income appli es equally to the two kinds of enterprises.   
 
Question 3 
 
Concerning the Preferential Tax Policies for the Key Leading Enterprises Engaged in 
Agricultural Industrialization , please specify "key leading enterprise" and "agricultural 
industrialisation", and the eligibility criteria.   
 
Reply
 
 
(1) "Agricultural industrialization" is a new mode  of production and operation, which brings the 
enterprises, cooperatives and farming households into a unified organizational structure by means of 
contracts, cooperation or shareholding.  The combin ation of production of farming households and the 
processing and marketing of enterprises, led by "Leading Enterprises" of various types and the 
cooperatives, will make the production of farming house holds the "first workshop" of the enterprises.  
Therefore, the farmers will be engaged in their produ ction on the basis of the contracts to avoid risks, 
while at the same time, the enterprises will purch ase the agricultural products based on the agreed 
prices to safeguard the interests of farmers.    
(2) The Leading Enterprises in Agriculture Industr ialization refers to those enterprises which are 
engaged in the production, processing or marketing of  agricultural products and which incorporate the 
farming households into a industrial system by various mechanisms linking the interests of the 
enterprises themselves with those of farming hou seholds.  For these enterprises, the production, 
processing and marketing of agricultural products are integrated processes.   
 
(3) The eligibility criteria for "key l eading enterprises" are as follows:   
  1. The enterprise shall be a legal person;   
 2. The value added during the processing and marketing of agricultural products shall be 
more than 70 per cent of the total added value;    
 3. The total assets for the enterprise sha ll reach 100 million RMB, 70 million RMB and 
40 million RMB for Eastern, Western and Central areas respectively;   
 4. The trading volumes for agricultura l products for the enterprise shall reach 
1 billion RMB, 800 million RMB and 600 million RMB for Eastern, Western and 
Central areas respectively;   
 5. The debt to asset ratio for the en terprise shall be less than 60 per cent;   
 6. The number of farming households led by  the enterprise shall reach 3000 for Eastern 
and Central areas and 1000 for Western areas;   
 7. The products of the enterprise shall be competitive in the market.    
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