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PROVISIONS OF THE STATE COUNCIL FOR THE ENCOURAGEMENT OF FOREIGNINVESTMENT

PROVISIONS OF THE STATE COUNCIL FOR THE ENCOURAGEMENT OF FOREIGNINVESTMENT Important Notice: This English document is coming from "LAWS AND REGULATIONS OF THE PEOPLE'S REPUBLIC OF CHINA GOVERNING FOREIGN-RELATED MATTERS" (1991.7) which is compiled by the Brueau of Legislative Affairs of the State Council of the People's Republic of China, and is published by the China Legal System Publishing House.

In case of discrepancy, the original version in Chinese shall prevail.

Whole Document PROVISIONS OF THE STATE COUNCIL FOR THE ENCOURAGEMENT OF FOREIGN INVESTMENT (Promulgated on October 11, 1986) Article 1 These Provisions are formulated in order to improve the investment environment, facilitate the absorption of foreign investment, introduce advanced technology, upgrade product quality, expand exports in order to generate foreign exchange and develop the national economy.

Article 2 The State encourages foreign companies, enterprises and other economic organizations or individuals (hereinafter referred to as "foreign investors") to establish Chinese-foreign equity joint ventures, Chinese- foreign contractual joint ventures and foreign capital enterprises (hereinafter referred to as "enterprises with foreign investment") within the territory of China.

The State grants special preferences to the enterprises with foreign investment listed below: (1) Production enterprises whose products are mainly for export, which have a foreign exchange surplus after deducting from their total annual foreign exchange revenues the annual foreign exchange expenditures incurred in production and operation and the foreign exchange needed for the remittance abroad of the profits earned by foreign investors (hereinafter referred to as "product-for-export enterprises").

(2) Production enterprises possessing advanced technology supplied by foreign investors which are engaged in developing new products, and upgrading and replacing products in order to increase foreign exchange generated by exports or for import substitution (hereinafter referred to as "technologically advanced enterprises").

Article 3 Product-for-export enterprises and technologically advanced enterprises shall be exempt from payment of all subsidies to be granted by the State to staff and workers, except for the payment of or allocation of funds for labour insurance, welfare costs and housing subsidies for Chinese staff and workers in accordance with the provisions of the state.

Article 4 The site use fees for product-for-export enterprises and technologically advanced enterprises, except for those located in busy urban sectors of large cities, shall be computed and charged according to the following standards: (1) five to twenty CNY yuan per square metre per year in areas where the development fee and the site use fee are computed and charged together; (2) not more than three CNY yuan per square metre per year in site areas where the development fee is computed and charged on a one-time basis or areas which are developed by the above-mentioned enterprises themselves.

Exemptions for specified periods of time from the fees provided in the foregoing provision may be granted at the discretion of local people's governments.

Article 5 Product-for-export enterprises and technologically advanced enterprises shall be given priority in obtaining water, electricity and transportation services, and communication facilities needed for their production and operation. Fees shall be computed and charged in accordance with the standards for local state enterprises.

Article 6 Product-for-export enterprises and technologically advanced enterprises, after examination by the Bank of China, shall be given priority in receiving loans for short term revolving funds needed for production and distribution, as well as for other needed credit.

Article 7 When foreign investors in product-for-export enterprises and technologically advanced enterprises remit abroad profits realized by them from such enterprises, the amount remitted shall be exempt from income tax.

Article 8 After the expiration of the period for the reduction or exemption of enterprise income tax in accordance with the provisions of the state, product-for-export enterprises whose value of export products in that year amounts to 70 per cent or more of the value of their products for that year, may pay enterprise income tax at a rate reduced by one half of the current tax rate.

Product-for-export enterprises in the special economic zones and in the economic and technological development zones and other product-for-export enterprises that already pay enterprise income tax at a tax rate of 15 per cent and that comply with the foregoing conditions, may pay enterprise income tax at a reduced rate of 10 per cent.

Article 9 After the expiration of the period of reduction or exemption of enterprise income tax in accordance with the provisions of the state, technologically advanced enterprises may extend for three years the payment of enterprise income tax at a rate reduced by one half.

Article 10 Foreign investors who reinvest their shares of profits from their enterprises in order to establish or expand product-for-export enterprises or technologically advanced enterprises for a period of operation of not less than five years, after application to and approval by the tax authorities, shall be refunded the total amount of enterprise income tax already paid on the reinvested portion. If the investment is withdrawn before the period of operation reaches five years, the amount of enterprise income tax refunded shall be repaid.

Article 11 Export products of enterprises with foreign investment, except crude oil, finished oil and other products subject to special state provisions, shall be exempt from the consolidated industrial and commercial tax.

Article 12 Enterprises with foreign investment may arrange the export of their products directly or may also export by consignment to agents in accordance with state provisions. For products that require an export license, in accordance with the annual export plan of the enterprises, an application for export licenses shall be made every six months.

Article 13 Machinery and equipment, vehicles used in production, raw materials, fuel, bulk parts, spare parts, machine component parts and fittings (including imports restricted by the state), which enterprises with foreign investment need to import in order to carry out their export contracts do not require further applications for examination and approval and are exempt from the requirement for import licenses. The Customs shall exercise supervision and control, and shall inspect and release such imports on the basis of the enterprise contracts or the import-export contracts.

The imported materials and items mentioned above are restricted to use by the enterprise itself and may not be sold on the home market. If they are used as products to be sold on the domestic market, import procedures shall be gone through in accordance with relevant provisions and duties shall be paid according to relevant regulations.

Article 14 Under the supervision of the foreign exchange control departments, enterprises with foreign investment may mutually adjust their foreign exchange surpluses and deficiencies among themselves.

The Bank of China and other banks designated by the People's Bank of China may provide cash security services and may grant loans in Renminbi to enterprises with foreign investment.

Article 15 The people's governments at various levels and relevant departments in charge shall guarantee the right of autonomy of enterprises with foreign investment and shall support enterprises with foreign investment in managing themselves in accordance with internationally advanced scientific methods.

Within the scope of their approved contracts, enterprises with foreign investment have the right to draw up, of their own accord, production and operation plans, to raise funds, to use funds, to purchase production materials and to sell products; and to determine by themselves the wage levels, the forms of wages and the bonus and allowance system. Enterprises with foreign investment may, in accordance with their production and operation requirements, determine by themselves their organizational structure and personnel system, employ or dismiss senior management personnel, increase or dismiss staff and workers. They may recruit and employ technical personnel, managerial personnel and workers in their locality. The units to which such employed personnel belong should back the employment and permit the transfer. Staff and workers who violate the rules and regulations, and thereby cause certain bad consequences may, in accordance with the seriousness of the case, be given varying sanctions, up to that of discharge. Enterprises with foreign investment that recruit, employ, dismiss or discharge staff and workers, shall file a report with the local labour and personnel department for the record.

Article 16 All regions and departments must implement the "Circular of the State Council Concerning Firmly Curbing the Indiscriminate Levy of Charges on Enterprises". The people's governments at the provincial level shall formulate specific measures and strengthen supervision and administration in this regard.

Enterprises with foreign investment may refuse to pay indiscriminately apportioned charges if such cases occur and may also appeal to the local economic committees up to the State Economic Commission.

Article 17 The people's governments at various levels and relevant departments in charge shall strengthen the co-ordination of their work, improve efficiency in handling matters and shall promptly examine and approve matters reported by enterprises with foreign investment that require response and resolution. For the agreements, contracts and articles of association of enterprises with foreign investment to be examined and approved by the departments in charge under the State Council, the relevant examination and approval authorities must, within three months from the date of receipt of all documents, decide to approve or not to approve them.

Article 18 Product-for-export enterprises and technologically advanced enterprises mentioned in these Provisions shall be confirmed as such by the foreign economic relations and trade departments where such enterprises are located in conjunction with the other relevant departments in accordance with the enterprise contract, and certificates of confirmation shall be issued.

If the actual results of the annual exports of a product-for-export enterprise are unable to hit the target of a surplus in the foreign exchange balance as set in the enterprise contract, the taxes and fees which have already been reduced or exempted in the previous year shall be paid in the following year.

Article 19 These Provisions, except for those articles that are specifically applicable to product-for-export enterprises, shall be applicable to all enterprises with foreign investment. These Provisions apply, from the date of entry into effect, to those enterprises with foreign investment that obtained approval for establishment before the date of entry into effect of these Provisions and that qualify for the preferential terms of these Provisions.

Article 20 For enterprises established with investment by companies, enterprises and other economic organization or individuals from Hong Kong, Macao, or Taiwan, matters shall be handled by reference to these Provisions.

Article 21 The Ministry of Foreign Economic Relations and Trade shall be responsible for interpreting these Provisions.

Article 22 These Provisions shall enter into effect as of the date of promulgation.

Note: New provisions have been formulated with regard to this Article which shall thus be implemented in accordance with the provisions in Opinions Concerning Further Confirming the Autonomy of Enterprises with Foreign Investment in the Employment of Their Personnel, formulated by the Ministry of Labour and Personnel and transmitted by the General Office of the State Council. - The Editor


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