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Since a period of time ago, it has been reported from many regions whether foreign-funded enterprises may, if increasing investments by a large scale other than the original contract to enlarge the operational scale, with regard to the proceeds from such increased investment items, separately calculate and enjoy the regularly reduced or exempted enterprise income tax preferences provided for in Article 8 of the "Income Tax Law of the People's Republic of China on Foreign-Funded Enterprises and Foreign Enterprises" (hereinafter referred to the Tax Law) in contrast with the "Notice of the Ministry of Finance and the State Administration of Taxation on Several Provisions concerning the Issue of Levy of the Income Tax from Chinese-Foreign Joint Venture Enterprises, Chinese-Foreign Cooperative Production Enterprises and Wholly Foreign-Owned Enterprises" [ No. 102 (86) by the Ministry of Finance and the State Administration of Taxation concerning Foreign-Funded Enterprises]. Upon study, we hereby, in accordance with the relevant provisions in the Tax Law and the detailed rules for its implementation, give our notice as follows concerning the issue of foreign-funded enterprises' enjoying tax preferences due to their increase of investment items with a view to encouraging large transnational companies to invest in China, improving the efficiency of China's utilization of foreign investments and further improving the tax preferential polices: I. For any foreign-funded enterprise which engages in the encouraged category of projects in the "Catalogue for the Guidance of Foreign Investment Industries" approved by the State Council and meets any of the following conditions, the investor may, with regard to the proceeds from investment items increased other than the original contract, separately calculate and enjoy the regularly reduced or exempted enterprise income tax preferences provided for in Paragraphs 1 and 2 of Article 8 of the Tax Law: (1) the newly increased amount of registered capital due to the increase of investment is no less than US$60 million; or (2) the newly increased amount of registered capital due to the increase of investment is no less than US$150 million, and also no less than 50% of the enterprise' original registered capital. The execution of the above tax preferences must be based upon the application by the enterprise involved and the approval by the taxation organ at the provincial level. Each taxation organ at the provincial level shall submit the information on its approval to the Ministry of Finance and the State Administration of Taxation for record. II. A foreign-funded enterprise shall distinguish its production and operation of the increased investment items from the production and operation of the original investments, and shall separately set up account books and documents, and accurately calculate the respective taxable income. Where a foreign-funded enterprise fails to reasonably calculate the respective taxable income, the taxation organ may reasonably divide the respective taxable income on the basis of proportion such as income, assets, etc. of the enterprise. III. This Notice shall come into force as of January 1, 2002. Where the investments increased by a foreign-funded enterprise before January 1, 2002 meet the conditions in this Notice, the enterprise may, among the years for tax reduction and exemption determined in the Tax Law, enjoy the preferences for the years after January 1, 2002, and the tax amount levied before January 1, 2002 shall not be refunded. |
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