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To encourage technology importing, and to standardize the procedure for income tax reduction and exemption, the following regulations are stipulated on the income tax reduction and exemption examination and approval procedures for enterprises which have to pay franchise fees because of technology import: 1. The phrase "Technology Import" refers to the action of transferring technology from a foreign country to China through trade, investment, or economic and technological cooperation. For the technology import contracts that comply with relevant regulations, the foreign enterprise may enjoy the benefits of enterprise income tax reduction and exemption. 2. If a tax reduction or exemption is needed for a franchise fee paid for any specific technology that is provided by a foreign enterprise, and that complies with the stipulations of item 4, paragraph 3, Article 19 of "Law of the People's Republic of China on Income Tax of Foreign Investment Enterprises and Foreign Enterprises" and Article 66 of the "Implementation Rules" thereof, and if the specific technology is advanced or if the technology is provided with favorable terms, then such reduction or exemption shall be reported to every higher administration until it reaches the State Administration of Taxation, where a final approval must be obtained. 3. Foreign enterprise applicants for income tax reduction or exemption should entrust the Chinese company which has imported their technology to perform the application procedures. The above mentioned Chinese company should apply for a "Letter of Proposal for the Reduction and Exemption of Enterprise Income Tax" at the administration which registered the company's technology import contract. The letter of proposal is divided into two kinds: A and B (See Attachment 1 and Attachment 2 for formats). If the technology import contract is included as an attachment to the foreign investment company's enterprise contract/charter, then the company should apply for Letter B, in the case of other circumstances the company should apply for letter A. The following materials should be provided at the time of application: (1) A copy of the technology import contract; (2) Registration certificate for the technology import contract; (3) Data chart for the technology import contract; (4) Letter of application for the reduction and exemption of income tax for foreign enterprises; (5) Letter of commission from the foreign enterprise to entrust the recipient company of their technology to perform the procedures for income tax reduction and exemption; and (6) The application for income tax reduction and exemption submitted by the technology recipient company; For the companies whose technology import contract is included as an attachment to the foreign investment company's enterprise contract/charter, the approval letter for the contract/charter, and the "certificate of approval for foreign investment enterprises" or the "certificate of approval for enterprises invested by Taiwan, Hong Kong, or Macao businesses" should be used in lieu of the above mentioned "registration certificate for the technology import contract" to apply for the "Letter of Proposal for the Reduction and Exemption of Enterprise Income Tax"(Letter B) at the place where the original contract/charter was examined and approved. 4. After applying for the "Letter of Proposal for the Reduction and Exemption of Enterprise Income Tax", the recipient company may provide the other materials listed in Article 3 of this Circular to perform the tax reduction and exemption procedures at the taxation administration department. 5. Relevant departments of commerce must strictly perform the examination and approval procedure according to "Law of the People's Republic of China on Income Tax of Foreign Investment Enterprises and Foreign Enterprises" and the "Implementation Rules" thereof when providing the letter of proposal. If the terms of the technology import contract contain any of the following content, it shall not be regarded as a contract with "favorable terms" in the eyes of the tax law, and the letter of proposal shall not be provided in principle: (1) Importing restricted technology; (2) The contract containing very restricting terms that are strongly against the regulations of the "Regulations of the People's Republic of China on Technology Import and Export Management"; or (3) Requiring payment of franchise fees in the form of commission, which is higher than 5%. In cases when contracts earnestly involve advanced technology and deserve the letters of proposal, a special explanation should be attached. 6. If the State Administration of Taxation has any questions with the letter of proposal provided by the departments of commerce of any of the provinces, autonomous regions, municipalities directly under the Central Government, and municipalities directly under state planning, it can ask the Ministry of Commerce to conduct a re-examination. 7. The Ministry of Commerce is in total charge of the design of the format for the letter of proposal; the local department of commerce may download the form from the "Laws and Regulations" section at the "Department of Science and Technology" page in the Ministry of Commerce's website. 8. This Circular will be implemented as of the day of promulgation. Attachments: 1. Letter of Proposal for the Reduction and Exemption of Enterprise Income Tax (Letter A) (omitted) 2. Letter of Proposal for the Reduction and Exemption of Enterprise Income Tax (Letter B) (omitted) |
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