Provisional Regulations for Special Economic Zones and 14 CoastalCities on Reduction and Exemption of Enterprises Income Tax and Con-solidated Industrial and Commercial Tax by The State Council of ThePeople's Republic of China

Provisional Regulations for Special Economic Zones and 14 CoastalCities on Reduction and Exemption of Enterprises Income Tax and Con-solidated Industrial and Commercial Tax by The State Council of ThePeople's Republic of China (Promulgated on 15 November, 1984) Whole document Provisional Regulations for Special Economic Zones and 14 Coastal Cities on Reduction and Exemption of Enterprises Income Tax and Consolidated Industrial and Commercial Tax by The State Council of The People's Republic of China (Promulgated on 15 November, 1984) In order to facilitate the expansion of foreign economic cooperation and technical exchange, the use of foreign investment and the transfer or license of advanced technology for the purpose of expediting the socialist modernization program, the following regulations are hereby formulated to grant reduction and exemption of enterprise income tax and consolidated industrial and commercial tax (hereinafter referred to as CIC tax) to joint ventures, cooperative enterprises and wholly foreign-owned enterprises operated by companies, enterprises or individuals (hereinafter referred to as "overseas business people") from foreign countries, Hong Kong or Macao in the four special economic zones of Shenzhen, Zhuhai, Xiamen and Shantou, and the 14 coastal port cities of Dalian, Qinhuangdao, Tianjin, Yantai, Qindao, Lianyungang, Nantong, Shanghai, Ninbo, Wenzhou, Guangzhou, Zhanjiang and Beihai.

I. Special Economic Zones 1. A 15 percent preferential enterprise income tax shall be levied on the income derived from production, business and other sources by any joint venture, cooperative enterprise or wholly foreign-owned enterprise (hereinafter referred to as "special zone enterprise") operating in the special economic zones (hereinafter referred to as "special zones").

(1) For enterprises engaged in industry, communications and transport, agriculture, forestry and livestock breeding, which have a contract life of 10 years or longer, a two-year tax holiday commencing from the first profit-making year is granted followed by a 50 percent reduction from the third to the fifth year, upon application and approval by the special zone tax authorities.

(2) An enterprise engaged in the service trade, which has overseas investment exceeding US $ 5 million and a contract life of 10 years or longer, income tax shall be exempted in the first profit-making year, followed by a 50 percent reduction in the second and third year, upon the application and the approval by the special zone tax authorities.

2. Reduction or exemption of local income tax for special zone enterprises shall be decided upon by the people's governments of the special zones.

3. Overseas business peoples in joint ventures in the special zones are exempted from enterprise income tax when repatriating profits derived therefrom.

4. A 10 percent income tax shall be levied on income derived from dividends, interest, rentals, royalties and other sources in the special zones by overseas business people who have not set up offices in China, except the cases in which tax exemption is granted according to the law.

Further incentives as tax reductions or exemptions to the overseas business people who have provided investment and equipment on favorable terms or transferred advanced technology shall be decided by the people's governments of the special zones.

5. CIC tax shall be exempted for importing taxable machines, equipment, raw materials, spare parts and accessories, means of transport and other means of production by special zone enterprises for their own production purposes, before the special zone control border lines are completed. The import of the means of transport and consumer durable that are on the state restriction list shall be subject to taxation according to the tax rules in force. The CIC tax rate for imported various mineral oils, cigarettes, wines and other daily necessities shall be cut by half.

After the special zone control border lines are completed, CIC tax rate shall also be cut by half for imported various mineral oils, cigarettes and wines, while other imported goods shall be free from CIC tax.

Cigarettes, wines, personnel articles and home appliances brought in by overseas business people within reasonable quantity and for their own use will also be exempted from CIC tax.

6. Consolidated industrial and commercial tax shall be exempted for export products made by special zone enterprises, except those on the state restriction list or those otherwise provided.

7. A 50 percent CIC tax reduction is allowed for production made by special zone enterprises when sold within the special zones and also for various mineral oils, cigarettes, wines, etc. With the exemption of a few products for which the levying of or reduction in the CIC tax shall be determined by the people's governments of the special zones, all other products are henceforth exempted from the CIC tax.

8. If special zone enterprises should ship inland their imported goods or products they produced on which CIC tax was reduced or exempted tax shall be paid retroactively upon entering the inland areas according to the tax law. But the CIC tax shall be free on personnel articles brought in by overseas business people from the special zones to the inland areas, if they are in reasonable quantities and for their own use.

9. CIC tax shall be levied on income derived from commerce, communications and transport and service undertakings by the special zone enterprises according to the tax rate prescribed in the tax rules in force. The CIC tax rate on incomes from banking and insurance shall be three percent. The above-mentioned enterprises have need for a reduction or exemption of the CIC tax for a fixed period at the initial stage of their operations shall be decided by the people's governments of the special zones.

10. For joint ventures, cooperative enterprises and wholly foreign-owned enterprises operating in the Hainan Administrative Zone of Guangdong Province, the reduction or exemption of enterprise income tax and CIC tax may be granted with reference to the relevant provisions for the special zones.

II Economic and Technological Development Zones of 14 Coastal Port Cities 1. A 15 percent preferential enterprise income tax shall be allowed on the income derived from production, business or other sources by joint ventures, cooperative enterprises or wholly foreign-owned enterprises (hereinafter referred to as "development zone enterprises") operating in the economic and technological development zones (hereinafter referred to as "development zones"). But these with a contract life of 10 years or longer shall, upon application and the approval by the city tax authorities, enjoy a two-year tax holiday, commencing from the first profit-making year, followed by a 50 percent reduction from the third to the fifth year.

2. The reduction and exemption of local income tax for development zone enterprises shall be decided upon by the city people's governments.

3. Overseas business peoples in an joint venture in the development zones are exempted from income tax when repatriating profits derived therefrom.

4. A 10 percent income tax shall be levied on income derived from dividends, interest, rentals, royalties and other sources in the development zones by overseas business people who have not set up offices in China, except in cases in which tax exemption is granted according to the law. Further reduction or exemption to be given to overseas business people who have provided investment and equipment on favorable terms or transferred advanced technology, shall be decided by the people's government of the city to which the development zone belongs.

5. CIC tax shall be exempted on the building materials, production equipment, raw and other materials, spare parts and accessories, components and elements, means of transport and office supplies imported by development zone enterprises for their own use. If the products of the development zone enterprises processed with such tax exempt imported raw and other materials, spare parts, accessories, components or elements turn to sell in China, CIC tax shall be paid retroactively for the imported materials and parts pursuant to tax rules.

6. CIC tax shall be exempted for products made and exported by development zone enterprises except those on the state export restriction list. The products sold in China shall be subject to tax as prescribed in tax rules in force.

7. CIC tax shall be exempted for household articles and private vehicles brought in by overseas employees or by overseas business people living in the development zones in reasonable quantity, upon presentation of the authorized documents issued by the administrative committees of the development zones concerned.

III. The old city of the 14 Coastal Port Cities and Shantou, Zhuhai, and Xiamen 1. A 15 percent preferential enterprise income tax shall be allowed, upon the approval by the Ministry of Finance for joint ventures, cooperative enterprises and wholly foreign-owned enterprises operating within the old city limits of the 14 coastal port cities and of Shantou, Zhuhai, and Xiamen (hereinafter referred to as "old city enterprises"), if those old city enterprises are technology or knowledge intensive, or with overseas investment exceeding US $ 30 million and requiring a long term recovery, or belong to the fields of energy, communications or port construction.

A 20 percent tax reduction of income tax rate prescribed in the tax rules in force, is allowed for old city enterprises in the following fields of productive operations which are not entitled to tax reduction as prescribed in the preceding paragraph subject to approval of the Ministry of Finance: (1) machine building, electronic industry; (2) metallurgical, chemical, building material industry; (3) light industry, textile and packaging industry; (4) medical apparatus, pharmaceutical industry; (5) agriculture, forestry, animal husbandry, aquaculture, and their related processing industries; (6) building construction industry.

The reduction and exemption of enterprise income tax shall be implemented according to the preferential tax rate mentioned above and within the prescribed period of time and scope set in the income tax laws for Chinese-foreign joint ventures and the wholly foreign-owned enterprises respectively.

2. The reduction and exemption of local income tax for old city enterprises shall be determined by the city people's governments.

3. A 10 percent income tax shall be granted on income obtained from dividends, interest, rentals, royalties or other sources in the old cities by overseas business people who have not set up offices in the territory of China, except in those cases in which tax exemption is granted according to the law. Further incentives in tax reduction or exemption to be given to those overseas business people who have provided investment and equipment on favorable terms or transferred advanced technology, shall be decided by the city people's governments.

4. CIC tax shall be exempted for production equipment, office or business equipment and building materials imported by old city enterprises, as part of the investment or additional investment of the enterprises, as well as for vehicles and office supplies imported for their own use.

5. CIC tax shall be exempted for export products made by the old city enterprises, except those products that are on the state export restriction list. Products sold in China shall be taxable according to the tax rules in force.

6. CIC tax shall be exempted for raw and other materials, spare parts and accessories, components and elements and packaging materials imported by old city enterprises for making export products; but those imported for products to be sold in China shall be taxed according to the tax rules in force.

7. CIC tax shall be exempted for household articles and private vehicles brought in by overseas employees working in the old city enterprises or by overseas business people living in the old cites, upon presentation of the authorized documents issued by the competent departments of the city people's governments and on the condition that the said articles or vehicles are within reasonable quantity.

IV. Date of Enforcement The provisions on the income tax reduction and exemption in these regulations shall be implemented from the 1984 tax year, while the provisions on the reduction and exemption of CIC tax shall be effective on December 1, 1984.