Circular of the State Administration of Taxation on How to Deal with Related Iss

Offices of the State Administration of Taxation of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan, Local Taxation Bureau of Guangdong Province, Local Taxation Bureau of Hainan Province, and Shenzhen Local Taxation Bureau,

In accordance with the Enterprise Income Tax Law of the People's Republic of China, the Regulations on Implementing the Enterprise Income Tax Law of the People's Republic of China, the Law on the Administration of Tax Collection of the People's Republic of China, the Detailed Rules on Implementing the Law of the People's Republic of China on the Administration of Tax Collection as well as the Notice of the State Council on the Implementation of the Transitional Preferential Policies Concerning Enterprise Income Tax (Guo Fa [2007] No. 39), you are hereby notified of the tax treatments after the cancellation of several previous tax preferential policies on foreign-invested enterprises and foreign enterprises:

1. About how to treat the former tax-refund policies in respect of re-investments of foreign investors of foreign-invested enterprises.

In case a foreign investor directly re-invests the post-tax profit, which it obtains from its foreign-invested enterprise, into the said foreign-invested enterprise to increase its registered capital, or invests the post-tax profit as capital to set up another foreign-invested enterprise, if it has finished the re-investment before the end of 2007 and accomplished the modification or registration in the industry and commerce administrative departments of the State, it may handle the re-investment tax refund formalities under the Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises and other related provisions. No tax refund will be made for any re-investment, which was made with the to-be-distributed profit of the year 2007 before the end of 2007.

2. About how to treat foreign enterprises' enterprise-income-tax-exempt income from China such as interests and loyalties

As regards the income that a foreign enterprise obtains from transfer of know-how or allowance of credit to China, if the related contract was signed before the end of 2007 and met the tax exemption conditions as provided for in the Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises, the foreign enterprise may be allowed to be exempted from the income tax upon approval of the taxation organ excluding the extension or supplementary contract or expansion clauses during the valid period of the contract. All competent taxation organs should do well in tracking and managing the performance of such contracts and should issue tax payment certificates in time.

3. About how to treat the foreign-invested enterprises that enjoy a certain period of tax reduction or exemption preferential treatment with the conditions changed after 2008

As regards a foreign-invested enterprise that enjoys such preferential treatment as tax reductions or exemptions for a specified period pursuant to the Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises, if its production and business operation nature or business period changes after 2008 and if, as a result, it no longer meets the conditions as provided for in the Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises, it should, subject to the Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises, still make up the tax reduced or exempted as of the change, which it has enjoyed during the specified period (including the transition preferential period) . When a competent taxation organ settles the tax on such enterprise each year, it should check the changes of its business scope and business period, etc.