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In order to promote and regulate foreign investors' investments in China, introduce advanced technologies and management experiences from abroad, improve China's utilization of foreign investments, and realize reasonable allocation of resources, the previous Ministry of Foreign Trade and Economic Cooperation, the State Administration for Industry and Commerce, the State Administration of Foreign Exchange and the State Administration of Taxation jointly promulgated the "Interim Provisions for Foreign Investors to Merge Domestic Enterprises" (hereinafter referred to the "Interim Provisions") in March 2003, permitting foreign investors to merge the share rights of the non-foreign-funded enterprises inside the territory of China (hereinafter referred to domestic enterprises). With regard to the relevant taxation issues for foreign investors to merge the share rights of domestic enterprises, we hereby give our notice as follows: I. A foreign investor shall comply with the relevant provisions in the "Interim Provisions" to merge the share rights of a shareholder of a domestic enterprise or to subscribe a domestic enterprise to increase capital (hereinafter referred to share right merger), so as to modify the domestic enterprise and establish it as a foreign-funded enterprise. If the proportion of the share rights of any foreign investor of an enterprise established upon modification is over 25%, it may pay various taxes in accordance with the laws and regulations applicable to foreign-funded enterprises. II. If a foreign-funded enterprise established upon modification through the share right merger by a foreign investor meets the relevant conditions prescribed in the Income Tax Law of the People's Republic of China for Foreign-Funded Enterprises and Foreign Enterprises (hereinafter referred to the Tax Law) and the detailed rules for the implementation thereof, etc., it may enjoy all the preferential policies in the Tax Law and the relevant provisions concerning enterprise income tax. When calculating the enterprise income tax payable under the preferential policies, the relevant linking issues shall be dealt with as follows: (1) Beginning and duration of business operation. The duration of business operation of a foreign-funded enterprise established upon modification begins on the day when the State Administration for Industry and Commerce approves the issuance of the modified business license, and terminates at the end of the business years determined in the industrial and commercial registration of modification; (2) Treatment of pre-stage loss. The accumulative operative losses of an enterprise which occurred prior to the establishment upon modification but have not been made up may be continued to be made up by the foreign-funded enterprise established upon modification within the remaining years of the duration for making up losses prescribed in Article 11 of the Tax Law; and (3) Determination of the profit year. If a foreign-funded enterprise established upon modification modifies the operative profits obtained in the current year, and have profits remained after deducting the losses of the previous years permitted to be made up, the said year shall be a profit year. If the actual production and operation period of a profit year is less than 6 months, the enterprise may, in accordance with Article 77 of the Detailed Rules for the Implementation of the Tax Law, choose and determine the beginning year of the period for tax reduction or exemption. III. The present Notice shall come into force on January 1, 2003. If any foreign-funded enterprise established upon modification prior to the promulgation of the present Notice meets the conditions prescribed in the "Interim Provisions" and the present Notice, the present Notice shall also be abided by. |
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