Circular on Some Issues Concerning Execution of Preferential Policies on Enterpr

Circular on Some Issues Concerning Execution of Preferential Policies on Enterprise Income Tax

Cai Shui [2009] No.69

Financial departments (bureaus), state tax bureaus and local tax bureaus of provinces, autonomous regions, municipalities directly under the Central Government and separately planning cities and the Bureau of Finance of Xinjiang Production & Construction Corp.,

According to the relevant provisions of the Enterprise Income Tax Law of the People¡¯s Republic of China (hereinafter referred to as the Enterprise Income Tax Law) and the Implementing Regulations of the Enterprise Income Tax Law of the People¡¯s Republic of China (No. 512 Decree of the State Council, hereinafter referred to as the Implementing Regulations), the issues concerning execution of preferential policies on enterprise income tax are hereby notified as follows:

Article 1 The enterprises that enjoy the transitional preferential policies as provided in the Circular of the State Council on Implementation of the Transitional Preferential Policies on Enterprise Income Tax (Guo Fa [2007] No.39) and the preferential policies concerning the western development, may pay half of the tax payable calculated according to the applicable tax rate of the enterprises within the half-reduction period of regular tax reduction and exemption. In other circumstances of regular tax reduction and exemption, enterprises shall pay half of tax payable calculated according to the statutory tax rate for enterprise income tax, namely, 25%.

Article 2 The tax preferential circumstances where enterprises shall not receive duplicate preferences, for which no change is allowed after the enterprise has made the choice as provided for in Paragraph 3 of the Circular of the State Council on the Implementation of the Transitional Preferential Policies on Enterprise Income Tax (Guo Fa [2007] No. 39) shall be limited to the tax preferences under the categories of regular tax reduction and exemption and reduction of tax rates as provided for in the Transitional Preferential Policies on Enterprise Income Tax and the Enterprise Income Tax Law as well as Implementing Regulations thereof.

For tax preferences provided for in the Enterprise Income Tax Law and the Implementing Regulations thereof, enterprises meet the conditions provided may enjoy them at the same time.

Article 3 Where an enterprise is in any circumstance of consolidation, division or restructuring when enjoying the transitional tax preferences, it shall be handled according to the provisions of the Circular of the Ministry of Finance and the State Administration of Taxation on Some Issues concerning Handling of Enterprise Income Tax for Enterprises Reconstructing Businesses (Cai Shui [2009] No.59).

Article 4 After January 1, 2008, the distribution of the equity investment gains such as dividend and bonus from the accumulative undistributed profits in 2007 and previous years among resident enterprises shall be handled according to Article 26 of the Enterprise Income Tax Law and Article 17 and 83 of the Implementing Regulations.

Article 5 With respect to the branch of an enterprise, which was established before Mar.16, 2007, and has separately enjoyed relevant tax preferences according to the preference provisions provided in the formal income tax laws for domestic and foreign enterprises, if it satisfies the policy conditions listed in the Circular of the State Council on Implementation of Transitional Preferential Policies on Enterprise Income Tax (Guo Fa [2007] No.39), the branch may separately enjoy the transitional preferential policies on enterprise income tax provided in the aforesaid Circular.

Article 6 The international financial institutions prescribed in Item (2) of Article 91 of the Implementing Regulations include the International Monetary Fund, the World Bank, the Asian Development Bank, the International Development Association, the International Fund for Agricultural Development, the European Investment Bank and other international financial institutions specified by the Ministry of Finance and the State Administration of Taxation. The preferential loans refer to loans with interest rates lower than the interest rates in the corresponding periods for the same kind of loans.

Article 7 The number of employees referred in Item (1) and (2) of Article 92 of the Implementing Regulations refers to the sum of the number of employees who have established labor relationship with the enterprise and the number of persons under labor dispatch received by the enterprise. The indicator for the number of employees and total assets shall be determined according to the average value of monthly average values of the enterprise in a year. The specific calculation formula is as follows:

Monthly average value = (value at the beginning of the month + value at the end of the month) ¡Â 2

Average value of monthly average values of the year = sum of the monthly average values of the year ¡Â 12

For an enterprise opens or terminates its business activities in the middle of a year, its actual business period shall be taken as the taxable year to determine the above-mentioned indicators.

Article 8 The treatments for small-scale enterprises with meager profits as prescribed in Article 28 of the Enterprise Income Tax Law shall be applicable to the enterprises with conditions for establishing and accounting its taxable incomes. The enterprises that pay their enterprise income tax according to the Measures for Deciding and Collecting Enterprise Income Tax (Guo Shui Fa [2008] No.30) shall temporarily be inapplicable to the applicable tax rates for small-scale enterprises with meager profits before they obtain the conditions for accurately accounting their taxable incomes.

Article 9 The software and IC production enterprises established before the end of 2007 may enjoy the preferential policies on reduction and exemption of enterprise income tax within a specified period according to the Circular of the Ministry of Finance and the State Administration of Taxation on Some Preferential Policies on Enterprise Income Tax (Cai Shui [2008] No.1) after recognition. The enterprises that have obtained profits and started to enjoy the preferential policies on reduction and exemption of tax within a specified period in 2007 or previous years may continue to enjoy the policies since 2008 until expiration.

Article 10 The special equipment for environmental protection, energy and water conservation and safe production that purchased and actually used as prescribed in Article 100 of the Implementing Regulations includes the above-mentioned special equipment which is leased by enterprises as the lessee by means of financing lease and the ownership of which will transferred to the enterprises as the lessee after expiration of the lease period as agreed in financing lease contracts, and which satisfies prescribed provisions. If the ownership of the rented equipment is failed to be transferred to the enterprises as the lessee after expiration of financing lease period, the enterprises as the lessee shall stop the enjoy the preferences of deduction of enterprise income tax and pay the deducted enterprise income tax.

Article 11 The over-two-year investments in unlisted medium and small-scale hi-tech enterprises as prescribed in Article 97 of the Implementing Regulations include the investments that have reached two years before Jan. 1, 2008. The medium and small-scale hi-tech enterprises refer to the enterprises with annual sales and total assets less than RMB200mn respectively and employees less than 500, which have acquired the qualifications for hi-tech enterprises according to the Measures for Administration on Recognition of Hi-tech Enterprises (Guo Ke Fa Huo [2008] No. 172). Among them, the enterprises that have obtained the qualifications for hi-tech enterprises before the end of 2007 do not need to go through re-recognition within the prescribed validity period.

Article 12 This Circular shall be executed from January 1, 2008.

Ministry of Finance

State Administration of Taxation

April 24, 2009