I.Taxation Regulation & Tax Incentives
The taxes governing the foreign-invested enterprises include: Enterprise
Income Tax; Local Income Tax; Value-Added Tax (VAT); Consumer Tax; Business Tax;
Individual Income Tax; Urban Real Estate Tax; Vehicle and Vessel Licence Tax,
Stamp Tax.
1.Enterprise Income Tax and Preferential Treatment.
Foreign-invested enterprises and foreign enterprises in China are governed by
"the Foreign Investment Enterprises and Wholly Owned Foreign Enterprises Income
Tax Law of the Peoples Republic of China." (See appendix table).
The reduced
enterprise income tax rate for sino-foreign joint ventures engaged in port and
wharf construction is 15%. The enterprise income tax rate for sino-foreign joint
ventures whose operating life will be 15 years and more, upon receiving approval
from tax authorities in the province, autonomous region, or municipality
directly under the control of the Central Government that they are located in,
will be exempted from enterprise income tax for five years from the first
profit-making year. These enterprises will also be granted a 50% reduction in
enterprise income tax commencing from the sixth year until the tenth year (with
tax rate not less than 10%).
2.Local Income Tax and Tax Exemptions.
Local income tax for foreign-invested enterprises and foreign enterprises is 3%
of assessed income.
During the two year period of tax exemption and the
three year period of reduced tax as granted by the Central Government
regulations, exporting enterprises and technologically advanced enterprises with
foreign investment are exempt from local enterprise income tax. Local income tax
will be exempted after the above-mentioned five year exemption period if more
than 50% of the output of an enterprise is exported the same year.
Technologically advanced enterprises will continue to receive exemption from
local tax for a period of three years after the above-mentioned five year
exemption period. Local income tax will be exempted if a foreign-invested
enterprise with production nature is established and operated in an established
Economic & Technological Development Zone under the approval of the Jiangsu
Province.
3.Tax Rebates for Enterprise Profits Reinvested in China
(1) Foreign investors who reinvest its profits in China with business period
of not less than 5 years would obtain a 40% rebate on income tax.
(2)Foreign
investors who reinvest profits to establish or expand an export-oriented or
high-technology enterprises with business period of not less than 5 years, would
obtain a full rebate on income tax paid on the amount reinvested.
In the
event of an enterprise of the above-mentioned nature withdrawing before it has
been in operation for five years, all tax rebates must be returned to the
relevant tax authorities.
4.No Tax on Repatriated Profits. For foreign
investors who have received a share of profits after tax, or profits exempted
from tax, from foreign-invested enterprises and who repatriate the profits
abroad, no tax shall be paid on the repatriated profits.
5.VAT,
Consumption Tax, and Business Tax. Foreign-invested enterprises and foreign
enterprises are governed by the interim provisions of the PRC on Value Added
Tax, Business Tax, and Consumption Tax from January lst, 1994. The former
Industrial and Commercial Consolidated Tax is no longer in effect.
6.Individual Income Tax, Reduced Tax and Tax Exemptions
(1) Income
from wages and salaries in excess of specified amounts will be subject to a
progressive income tax, the rate of which ranges from 5 to 45%.
Income
derived from provision of personal services, royalties, dividends, the leasing
of property and other kinds of income will be subject to a flat rate of tax of
20%.
(2) The amount of each category of tax shall be calculated as follows:
(a)For income from wages and salaries, tax shall be paid on the monthly
income remained. after deducting RMB 800 per month.
(b)For income derived
from the provision of personal services, royalties, or from the leasing of
property, where the amount received does not exceed RMB 4,000 each time,
expenses of RMB 800 can be deducted of income before tax is paid. Where the
amount of income received exceeds RMB 4,000 an amount equivalent to 20% can be
deducted for expenses. The remaining amount shall be taxed.
Income derived
from interest, share dividends, bonus dividends and other sources will be taxed
on the amount received for each payment.
(3)The scope of tax exemptions or
tax reduction. For foreigners working in foreign-invested enterprises and
foreign enterprises, resident representatives of other economic organisations,
or foreigners working in various Chinese institutions, the tax-free portion to
be deducted from income for the individual income tax is 4000 yuan/ month. For
those live in China for less than 5 years, income obtained from outside China
will not be subject to individual income tax.
7.Pre-taken Income Tax.
Where foreign enterprises have not set up an office or other form of
establishment in China but have income derived from within China from profits,
interest, share dividends, rental income, royalties or other sources, or where
even though they have an office or some other form of establishment in China but
the income derived from within China from the above - mentioned sources is not
related to the activities of that office or establishment, above-mentioned
income will be subject to income tax at a rate of 20%.
Where royalties have
been received for patented technology provided for the purposes of carrying out
scientific research, the development of energy resources, the development of
transport and communications, the development of agricultural, forestry or
animal husbandry products, or for the development of important technology, after
permission has been received from the relevant tax authorities, those royalties
received will be subject to income tax at a rate of 10%. In cases where the
technology concerned is advanced or preferential conditions exist, exemption
from income tax may be granted.
Where a taxation agreement exists between
China and a foreign country, tax rate on income derived from share dividends,
interest or royalties will generally be between 10% to 15%. The tax rate on
income derived from rental of property will ranging from 6% to 10%.
8.Urban Real Estate Tax. Urban real estate tax is to be paid by the
owner of the property. Where a property has been mortgaged, the tax will be paid
by the mortgagee.
The taxable value of property owned by an enterprise is to
be calculated on the amount remained after a 30% deduction from the original
book value of the property. The annual tax rate is 1.2%.
9.Vehicle and
Vessel Licence Tax. The amount of annual licence tax on passenger vehicles will
vary from RMB 180 yuan to RMB 300 yuan per vehicle. The amount of annual licence
tax for trucks is RMB 60 yuan per net tonnage. Tax on motorised boats shall be
collected by customs on the basis of tonnage. Motorised boats are exempted from
licence tax.
10.Stamp Tax. A small amount of stamp tax will be paid on
economic and technological contracts or various documentations produced in
economic activities with the rate ranging from 0.1% to 0.005%.
11.The
foreign-invested enterprises, which registered at the relevant industrial and
commercial administration department after January 1996, would enjoy the
preferential policies of tax rebates for the product exported.
II . Personnel Management
1.Recruitment. The recruitment of staffs and workers needed by a
foreign-invested enterprise can be made openly in local labour markets.
2.Labour Contract. Labour Contract should be signed between the
foreign-invested enterprise and individuals concerned to identify the rights and
obligations for both sides.
Enterprises shall not dismiss staff workers who
are under medical treatment for work related to injuries or occupational
diseases, or who are receiving treatment in hospital or non-work related
injuries, or female staffs and workers who are pregnant, on maternity leave or
who are on leave to nurse their new-born children.
A foreign - invested
enterprise may dismiss staffs and workers who, within the employment contract
period, become superfluous as a result of significant changes in production or
technological conditions, or dismiss staffs and workers in accordance with
regulations set out in the employment contract. However, workers and staffs to
be dismissed must be given one month' s notification of dismissal. Staffs and
workers who have been dismissed by a foreign-invested enterprise, as well as
those whose contracts have expired, should be given compensation calculating on
the basis of one month's average pay for every full year served in the
enterprise for the first 10 years, and 1.5 month pay for every full year
commencing from the eleventh year.
3.Salaries and Wages. The wages and
salaries of employees in foreign-invested enterprises shall be determined
according to the principle of being no lower than 120% of the average wages and
salaries paid to employees by the local state-own enterprises in the same
industry. Any decision to increase, decrease or leave salaries and wages
unchanged should be made by the enterprise on the basis of its economic
performance.
Salaries for senior staff members of a foreign-invested
enterprise should be decided by the board of directors and be specified in
detail in the employment contracts.
4.Labour Insurance and Welfare
Benefits. Foreign-invested enterprises, in accordance with the relevant State
and the provincial regulations, should make payment of or allocation of funds
for labour insurance, welfare costs and housing subsidies for Chinese employees.
5.Labour Protection. Foreign-invested enterprises must adopt the state and
local laws and regulations regarding labour protection, and adopt the system of
working hours currently run in China. However enterprises with foreign
investment are free to make decision on their own to reduce work hours.
Staffs and workers in foreign-invested enterprises are entitled to legal
holidays and other special holidays as determined by the State. Normal wages
should be paid to employees during the above-mentioned holiday and leave
periods.
Foreign-invested enterprise must carry out the state and local laws
and regulations concerning labour protection, production safety, and industrial
sanitation, and, under the supervision of local labour departments, improve
working conditions.
III . Administration of Land
According to the policy of separation of the ownership and the use of land,
foreign-invested enterprises may obtain the right to use land through offering,
transference, lease or cession. At present, foreign investors must go through
offering procedure in order to start real estate, commercial, financial, tourist
or entertainment projects. those qualified may also go through transference or
lease procedures. For projects of other trades, they should, in principle,
likewise go through offering, transference or lease procedures. Only with
permission can they conduct paid cession procedure.
1.A foreign-invested
enterprise or would-be investor from abroad can apply to obtain the right to use
land by using the original grounds of the Chinese enterprise;
2.A
foreign-invested enterprise or would-be investor from abroad can apply directly
to the land Administration Bureau of local governments for the right to use land
through offering;
3.A foreign invested enterprise or would-be investor
from abroad may also obtain the right to use land from other land users through
transference or lease;
4.The right to use land can also be obtained by
means of cession.
IV . Charge Rates
1. Water and Electricity charges: Water and electricity required in
production by foreign-invested enterprises, shall be included in supply plans
established by each city, and these enterprises will be guaranteed priority in
their supply. For export-oriented and technologically advanced enterprises with
foreign investment, cost of water and electricity will be charged at the
planning price, Other foreigninvested enterprise will have their charges
calculated on the same basis as and be charged at the same price paid by local
state-own enterprises.
Foreign-invested enterprises would be exempted from
additional complimentary charges for water and electricity construction and
capacity enlargement.
2.Communication Facility Charges. Fees will be
charged at the same rate as local state-own enterprises in accordance with the
regulations of the local people's municipal government.
V . Bank Loans
Foreign-invested enterprises shall be given priority by banks where they
opened their account for the provision of loans for working capitals as part of
the bank's loan quota.
Foreign-invested enterprises can, in accordance with
the relevant bank regulations, apply to banks for loans under terms of mortgage
of foreign currencies in their accounts as well as fixed assets.
Foreign-invested enterprises can borrow money from abroad to meet production
and operating requirements. Borrowings are to be made and repaid by the
enterprises concerned.
Appendix Table: Enterprise income Tax and Preferential Treatment
