Guangdong Readjusts Preferential Policies for FIEs

In accordance with recent policy readjustments by the central and provincial governments, Guangdong made the following changes to its preferential policies for foreign investment in the province at the end of March:

Tax Concessions

1. Corporate Income Tax

Foreign-invested enterprises (FIEs) are subject to corporate income tax at a rate of 30%. However, the following categories of FIEs are taxed at a reduced rate of 15%:

(1) FIEs in special economic zones (SEZs) and foreign-invested production enterprises located in economic and technological development zones.

(2) Technology-intensive projects, projects with foreign investment exceeding US$30 million and a long cycle of investment return, or energy, transportation and port construction projects undertaken by foreign-invested production enterprises located in coastal economic development zones and the old sections of cities within special economic zones and economic and technological development zones with the approval of the State Administration of Taxation.

(3) Sino-foreign equity joint ventures engaged in the construction of ports and wharves.

(4) Financial institutions such as foreign banks and Sino-foreign joint equity banks established in special economic zones and other areas approved by the State Council, with the capital contributed by the foreign investor or the operating funds injected by the head office into the branch exceeding US$10 million and the operation period exceeding 10 years.

(5) FIEs deemed to be high-tech enterprises established in areas designated by the State Council as national new- and high-tech industry development zones. Foreign-invested production enterprises located in coastal economic development zones and the old sections of cities within special economic zones and economic and technological development zones will be levied corporate income tax at a reduced rate of 24%. Foreign-invested production enterprises with an operation period exceeding 10 years will have their corporate income tax exempted in the first two profit-making years and reduced by half in the third to fifth years.

FIEs engaged in agriculture, forestry and animal husbandry and those located in economically underdeveloped remote and border areas may, upon expiry of the tax exemption and reduction mentioned above, apply for approval from the State Council department in charge of taxation to pay corporate income tax at a reduced rate of 15-30% in the following 10 years.

Sino-foreign equity joint ventures engaged in port and wharf construction with an operation period of over 15 years may apply for approval from the provincial tax authorities for exemption of corporate income tax in the first to fifth years and a 50% reduction in the sixth to 10th years starting from the first profit-making year. FIEs engaged in the provision of services in special economic zones with foreign investment exceeding US$5 million and an operation period of over 10 years may apply for approval from the SEZ's tax authorities for exemption of corporate income tax in the first profit-making year and a 50% reduction in the second and third years.

Financial institutions such as foreign banks and Sino-foreign joint equity banks established in SEZs and other areas approved by the State Council with the capital contributed by the foreign investor or the operating funds injected by the head office into the branch exceeding US$10 million and an operation period exceeding 10 years, may apply for approval from the local tax authorities for exemption of corporate income tax in the first profit-making year and a 50% reduction in the second and third years.

Export-oriented FIEs with annual export value accounting for over 70% of their output in the current year may, upon expiry of their corporate income tax exemption and reduction in accordance with law, be allowed a 50% reduction of the corporate income tax rate prescribed by the tax law. However, export-oriented enterprises in SEZs and economic and technological development zones as well as other enterprises already paying income tax at the rate of 15% will pay corporate income tax at the reduced rate of 10%.

Foreign-invested advanced technology enterprises that continue to be technologically advanced upon expiry of their income tax exemption and reduction period may enjoy 50% corporate income tax reduction for another three years in accordance with tax laws.

Foreign investors who directly plough back their profits made from FIEs into the same enterprises to increase their registered capital, or use the profits as capital to set up other FIEs with an operation period of no less than five years will be refunded 40% of the income tax already paid on the re-investment upon approval granted by the tax authorities. Foreign investors who directly plough back their profits made from FIEs in setting up or expanding export-oriented or advanced technology enterprises with an operation period of no less than five years will be refunded the full amount of income tax paid on the reinvestment upon approval of the tax authorities. Local income tax payable by FIEs will be calculated at a rate of 3% with the following exemptions and reductions: foreign-invested production enterprises will be exempt from local income tax during the period when they are entitled to the "two-year exemption and three-year reduction by half" concession for corporate income tax. Export-oriented and technologically advanced FIEs will be exempt from local income tax during the period when they enjoy the 50% corporate income tax reduction. FIEs in mountainous counties will be exempt from local income tax for the time being. Profits derived by foreign investors from FIEs will be exempt from income tax.

2. Value-Added Tax, Consumption Tax, Business Tax and Customs Duty

Raw materials, parts and components, accessories and packaging materials imported by export-oriented FIEs will be exempt from import tariffs and import-related VAT.

Reasonable quantities of medium, catalyst, abrasive materials and fuel (excluding petrol) for consumption in production imported by FIEs in performing their export contracts will be exempt from import tariffs and import-related VAT.

Unless otherwise stipulated by the state, goods produced by FIEs directly for export are entitled to zero tariff.

Sino-foreign joint venture banks or foreign banks in SEZs will be exempt from business tax for five years starting from the day they open for business.

FIEs engaged in farming, plantation, forestry, animal husbandry and aquaculture will be exempt from VAT on sales of their own farm produce.

Goods exported by outward processing and assembly enterprises and related processing fees will be exempt from VAT and consumption tax.

Goods produced in compensation trade projects for export that have been levied VAT in the production stage are eligible for tax rebate after such goods are declared for export. For the export of goods under compensation trade, tax rebate will be granted and supporting export exchange earning receipts are not required.

Other Concessions

Foreign-invested agricultural projects will be given priority in land-use arrangements and are eligible for preferential land price. Experimental agricultural projects utilising foreign investment are eligible for even more preferential land-use fees and will be given priority for extension of land-use leases.

For projects under the encouraged category in the Catalogue for the Guidance of Foreign Investment Industries, the domestic sales ratio may be further relaxed according to the form of investment, total amount of investment and extent of advanced technology used.

Experimental agricultural projects utilising foreign investment will be given priority by finance departments in the granting of loans.

Foreign companies may use foreign exchange to buy materials and components from Chinese foreign trade companies, industrial companies, outward processing and assembly companies, and enterprises with import and export rights for carrying out outward processing and assembly activities.