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The Regulations of Hubei Province on Enterprises Invested by Foreigners, Overseas Chinese and Compatriots From Taiwan, Hong Kong and Macao (Amendment)(Decree 87 of the Hubei Provincial People's Government: The amendments are made in accordance with the Decree 116 of the Hubei Provincial People's Government issued on March 23, 1997.) Chapter I. General Principles Article 1 The Regulations are formulated in accordance with relevant state provisions and in light of the actual conditions of this province, with a view to improving investment environment, encouraging foreign companies, enterprises, other economic organizations or individuals (hereafter referred to as "foreign investors"), and overseas Chinese and compatriots from Taiwan, Hong Kong and Macao and their companies and enterprises (hereafter also referred as "foreign investors") to make investments in this Province, and accelerating economic development. Article 2 Foreign investors may make their investments in cash, machines and equipment or other materials, proprietary technology or industrial property rights, etc. to establish joint ventures, co-operatively managed enterprises, exclusively foreign-owned enterprises or joint-stock companies with limited liability in this province. Foreign investors may buy property rights and equity of enterprises, and engage in development on a large tract of land and leasing business in this province. Enterprises of this province may establish listed Chinese-foreign joint-stock companies with limited liability through issuing stocks according to law. Foreign investors may, by BOT mode, engage in the construction of infrastructure facilities, such as highways, bridges, tunnels, wharves, power plants and other key urban development projects. Article 3 Foreign investors are encouraged to make investment in the following fields:(1) New agricultural technologies, comprehensive development of agriculture, and construction of energy, communications and key raw material facilities;(2) New, high and advanced technologies much needed in this province, which can help improve the performance of products, save energy and raw materials, and raise the technological level and economic benefits of enterprises, or are helpful to producing new equipment and materials that can substitute imports and fit in with market demands;(3) Projects that cater to international market demand, and are helpful to upgrading the quality of products, tapping new markets, expanding export of products and increasing income in foreign exchange;(4) New technologies and equipment for comprehensive utilization and recycling of resources, and that for prevention of environmental pollution;(5) Projects that are conducive to bringing into play the human and resource advantages of this province and conform to state industrial policies; and(6) Other projects encouraged by the state and this province. Article 4 A foreign-invested enterprise in this province must abide by Chinese laws and run its business according to law. Its lawful rights and interests are protected by Chinese laws. Article 5 People's governments at all levels shall exercise administration over foreign-invested enterprises according to law. No department or unit is allowed to infringe upon the lawful rights and interests of foreign-invested enterprises or interfere in their legal operational autonomy. Article 6 The Hubei Provincial Department of Foreign Trade and Economic Cooperation (hereafter referred to as the "foreign economic and trade department") is responsible for management and coordination of the affairs relating to absorption of foreign investment in this province. Chapter II. Project Application, Examination and Approval Article 7 Within its relevant powers authorized by the State Council, the Provincial People's Government shall delegate rights to examine and approve foreign investment to administrative offices at the levels of prefectures and cities in accordance with the industrial policy and the nature of a project. The administrative offices of various prefectures and cities shall handle the matters of examination and approval within the limits of their authority. Article 8 Regarding the establishment of a joint venture or co-operatively managed enterprise in this province, whose examination and approval is within the limits of authority of this province, the project application and feasibility study report shall be examined and approved in accordance with the procedures prescribed by the state. A capital construction project shall be examined and approved by the Provincial Planning Commission, and a technological transformation project by the Provincial Economic and Trade Commission. Projects involving industries restricting foreign investment listed in the "Guiding Index for Foreign Investment" shall be examined and approved by the Provincial Development Planning Commission and the Provincial Economic and Trade Commission respectively, according to their nature, or be submitted to the State Council or relevant departments of the State Council for examination and approval. Projects involving industries encouraged or permitted for foreign investment by the state shall be examined and approved by the planning commissions and economic and trade commissions at the prefecture and municipal level, if the locality where they are located can independently provide needed conditions for construction, production and management, the investor can balance payments in foreign currencies, and the project is not subject to quota- and license-control and its a total investment is less than US$10 million. The department in charge of project examination and approval shall deal with the matter and give a reply within seven days from the date of receiving the complete application documents. [Notes: According to the Decision of the Provincial People's Government on Amendments to Articles 8 and 10 in the Regulations of Hubei Province on Enterprises Invested by Foreign Businesses, Overseas Chinese and Compatriots From Taiwan, Hong Kong and Macao, promulgated by Decree 116 of the Hubei Provincial People's Government issued on March 23, 1997, the revised Article 8 is as follows: "Regarding the establishment of a joint venture or co-operatively managed enterprise in this province, whose examination and approval is within the limits of provincial authority, the project plan and feasibility study report shall be examined and approved in accordance with the procedures prescribed by the state. A capital construction project shall be examined and approved by the Provincial Development Planning Commission, and a technological transformation project examined and approved by the Provincial Economic and Trade Commission. Projects involving industries restricting foreign investment listed in the Guiding Index for Foreign Investment' shall be examined and approved by the Provincial Development Planning Commission and the Provincial Economic and Trade Commission, respectively, according to their nature, or be submitted to the State Council or relevant departments of the State Council for examination and approval. The productive projects involving industries encouraged or permitted for foreign investment by state regulations shall be examined and approved by development planning commissions and economic and trade commissions at prefecture and municipal levels respectively, if the locality where they are located can independently provide needed conditions for project construction, production and management and the investor can balance payments in foreign currencies on its own, and the project is not subject to quota- and license-control and its total investment is less than US$30 million. The department in charge of project examination and approval shall deal with the matter and give a reply within seven working days from the date of receiving complete application documents. Projects examined and approved by governments at prefecture and city levels shall be submitted for the record to the Provincial Development Planning Commission and the Provincial Economic and Trade Commission, respectively, according to their nature, within seven working days after approval.] If the Chinese party of a foreign-invested project as prescribed in the above provisions is a state-owned enterprise and makes investments in fixed assets such as land, properties and equipment, it shall present the State-Owned Assets Assessment Confirmation Certification issued, upon verification, by the State-owned assets management department, when going through the procedures for project examination and approval. (The assessment results of land confirmed by the land administration department shall be submitted to the state-owned assets management department.) Article 9 A record filing system shall be implemented in dealing with feasibility study report of foreign-invested projects involving in industries encouraged or permitted by the state and with a total investment of less than US$300,000. A capital construction project shall be filed with the Provincial Planning Commission and a technological transformation project with the Provincial Economic and Trade Commission. If the Provincial Planning Commission or the Provincial Economic and Trade Commission has any doubt about the project upon receiving the report, they shall notify, within three days, the enterprise concerned and make a decision on the matter according to law within one month. Article 10 The foreign economic and trade department shall be in charge of examination and approval of the contract (the application) and the articles of association of a foreign-invested enterprise, and, upon verification, issue the certificate of approval. Projects within the limits of authority of this province for examination and approval shall be handled and given a reply from the provincial foreign economic and trade department within seven days after providing the complete application documents. [Notes: According to the Decision of the Provincial People's Government on Amendments to Articles 8 and 10 in the Regulations of Hubei Province on Enterprises Invested by Foreign Businesses, Overseas Chinese and Compatriots From Taiwan, Hong Kong and Macao, promulgated by Decree 116 of the Hubei Provincial People's Government issued on March 23, 1997, the above provisions in Article 10 shall be revised as: "The foreign economic and trade department shall be in charge of examination and approval of the contract and the articles of association of a foreign-invested enterprise, and, upon verification, issue the certificate of approval. The Provincial Department of Foreign Trade and Economic Cooperation shall be in charge of the examination and approval of the contract and the articles of association of foreign-invested enterprises, whose project application and feasibility study report are subject to the approval of the Provincial Development Planning Commission and the Provincial Economic and Trade Commission, and, upon verification, issue the certificate of approval. The foreign economic and trade departments of various prefectures and cities shall be in charge of the examination and approval of the contracts and the articles of association of foreign-invested enterprises, whose project applications and feasibility study reports are subject to the approval of a prefecture or city, and, upon verification, issue the certificate of approval. Relevant documents shall be submitted, within seven working days after the contract and the articles of association of the enterprise have been approved, to the Provincial Department of Foreign Trade and Economic Cooperation for examination and verification, and the latter shall submit them to the Ministry of Foreign Trade and Economic Cooperation for the record. Local foreign economic and trade departments shall deal with the matter and give a reply within seven working days from the date of receiving the complete application documents while handling projects within this province's limits of authority for examination and approval of foreign invested projects.] Article 11 The establishment of a foreign-invested enterprise shall be submitted to the State Council or relevant departments of the State Council for examination and approval by the Provincial Development Commission, the Provincial Economic and Trade Commission or the provincial foreign economic and trade department, according to its nature, under any of the following circumstances:(1) A manufacture project whose total investment exceeds the amount within this province's limits of authority for examination and approval;(2) A project that needs assistance from the state in terms of funds, energy, transportation, raw materials and other production and construction conditions;(3) A project whose products need quota and license for export;(4) A project without a set term of operation;(5) A project involving industries restricted for foreign investment that are listed in the Guiding Index for Foreign Investment and subject to the examination and approval of the State Council or relevant departments of the State Council; or(6) A project that must be submitted to the State Council or relevant departments of the State Council for examination and approval. Article 12 A foreign-invested enterprise, which has obtained the certificate of approval, shall, within 30 days and by presenting the certificate of approval and relevant documents, go through the procedures of registration with the administrative departments of industry and commerce, taxation, customs, and that of foreign exchange. Chapter III. Registration of Enterprise Article 13 A foreign-invested enterprise shall apply to the Provincial Administrative Department for Industry and Commerce for prior approval of its name before the contract (the application), the articles of association and relevant documents are formally signed. The Provincial Administrative Department for Industry and Commerce shall, within three days after accepting the application, handle the matter and give a reply. Article 14 The approved foreign-invested enterprise shall, within a prescribed time limit, apply to the industry and commerce administrative department for registration of its legal entity and obtain a business license. The industry and commerce administrative department shall deal with the matter and give a reply within seven days after formally accepting the application. Article 15 After a foreign-invested enterprise has been registered, the industry and commerce administrative department shall issue an announcement. Contents of the announcement shall include: the name of the enterprise, its address, the scope of production and operation, the registered capital, the type of the enterprise, the legal representative, the term of operation and branches of the enterprise. After the business license has been obtained, all parties of the foreign-invested enterprise shall make their respective financial contributions in accordance with the prescriptions in the contract (the application) and the articles of association of the enterprise, and shall go through the procedures of verification of capital. At the same time, the matter shall be reported to the department in charge of the examination and approval of the contract (the application) and the articles of association. An enterprise that fails to pool funds as prescribed by the contract shall be regarded as dissolved of itself, and its certificate of approval shall cease to be effective automatically. The enterprise shall go through the formalities for the nullification of registration at the industry and commerce administrative department, and hand in the business license for cancellation. The industry and commerce administrative department shall revoke the business license of those, who have failed to go through the formalities for the nullification of registration and hand in the business license for cancellation, and make an announcement of the matter. Article 16 When a foreign-invested enterprise changes its name, address, the scope of production and operation, the term of operation, the joint venture partner or the legal representative, or increases or decreases its registered capital, it shall, in accordance with relevant regulations, report to the original department that examined and approved the contract (the application) and the articles of association for approval, and shall, within 30 days from the date of approval for the changes, apply to the industry and commerce administrative department for registration, by presenting the approval document, the resolution of the board of directors and an application for registration of the changes. Article 17 Upon expiration or termination of operation in advance of the term, the foreign-invested enterprise's board of directors shall submit an application for dissolution or termination. When the application has been verified and approved by the original department for examination and approval of the contract (the application) and the articles of association, the foreign economic and trade department shall issue an announcement to cancel the approval certificate of the enterprise. After liquidation of its taxes, debts and assets, the enterprise shall cancel its registration with the industry and commerce administrative department and hand in the original and duplicates of business license and official seals. Article 18 If a foreign-invested enterprise needs to extend its term of operation, it shall register the extension of the term with the industry and commerce administrative department within 30 days from the date of approval by the original department for examination and approval of the contract (the application) and the articles of association. Article 19 A foreign-invested enterprise, which has not engaged in any business operation for six months after obtaining a business license or ceased operation for more than one year, shall be considered having terminated operation. The foreign economic and trade department shall cancel the certificate of approval of the enterprise. The industry and commerce administrative department shall revoke its business license, take over its official seals and inform its bank of deposit of the matter. Article 20 If a foreign-invested enterprise needs to present a certificate of legal entity for its overseas operations, the industry and commerce administrative department shall, upon verification, issue a duplicate of the enterprise's business license. Chapter IV. Use of Land Article 21 A foreign-invested enterprise may obtain the land-use right lawfully through allocation or assignment so as to engage in land development, utilization and management. Those who have obtained the land-use right through assignment, may, within the period of its use, lawfully transfer, lease or mortgage the land-use right, or use it for other economic operations permitted by the state. Article 22 A foreign-invested enterprise that needs to use land shall apply to the land administration department of the city or county where it is located. After the application is approved, the enterprise shall sign with the land administration department a contract for the use of land or for the assignment of the land-use right. The land administration department shall be responsible for requisitioning the land, coordinating relevant departments to join efforts with the foreign-invested enterprise in resettling residents of the requisitioned land properly, and granting the enterprise the land-use right. A foreign-invested enterprise that needs to enlarge the confines of the land in use shall go through the procedures as prescribed in the preceding provisions for examination and approval of the enlargement. Article 23 A foreign-invested enterprise shall, within six months from the date of being granted the land-use certificate, submit construction and investment plans to the local land administration department, and begin construction within nine months. A foreign-invested enterprise that has justifiable reasons and presents supporting documents may appropriately postpone the time prescribed in the preceding provisions upon the approval of the Provincial Land Administration Department and the Provincial Foreign Economic and Trade Department. Article 24 If the land-use right of a foreign-invested enterprise has been owned by the Chinese partner of the enterprise who obtained the right through assignment, the Chinese partner may use it as its contribution to the joint venture within the period of its use. If the land-use right has been obtained through allocation, the Chinese partner may use it as its contribution to the joint venture after it has gone through supplementary formalities of assignment. Article 25 A foreign-invested enterprise that has obtained the land-use right through allocation shall pay the land-use fee. Standards for land-use fees are as follows (the payment for land in a downtown area of the city directly under the jurisdiction of the provincial government shall be set forth separately by relevant department of the province):(1) Export-oriented and advanced-technology enterprises established by overseas Chinese and compatriots from Taiwan, Hong Kong and Macao shall be exempted from land-use fees for four years beginning from the date prescribed in the land-use contract. Upon expiration of the exemption period, those in an area where the fees for land-use and development are charged as one shall pay five to eight per square meter on an annual basis. Those located in an area where the development fee is collected by lump sum or those that develop the site independently, shall pay no more than two yuan per square meter annually for the land-use right. Those involving in utilizing and transforming the existing manufacture enterprises hall be exempted from payment for the land-use right for five years, and shall pay no more than 1 yuan per square meter per year for the land-use right after the expiration of the exemption period.(2) Among other foreign-invested enterprises other than those prescribed in clause (1) of this article, the export-oriented and technologically advanced enterprises shall be exempted from charges for the land-use right for three years beginning from the date prescribed in the contract for its use. From the fourth year, those located in an area where the fees for development and land-use are calculated and collected as one, shall pay five to 12 yuan per square meter annually. Those located in an area where payment for the development is collected separately, shall pay two yuan, at highest, for each square meter of land annually.(3) Foreign-invested projects engaged in development of state-owned wastelands, barren slopes, barren hills, idle water surface and beaches or invest in transformation of medium- and low-yield land, improvement of farmland infrastructure and introduction of advanced farming techniques and new varieties shall be exempted from land-use fees for the first 10 years (including the construction period). After the first 10 years, the enterprise shall be charged at a favorable rate granted to land used for agricultural purposes. Article 26 Handling of assignment, transfer, leasing and mortgaging of a foreign-invested enterprise's land-use right shall be in accordance with the Provisions of Hubei Province on Assignment and Transfer of the Right to the Use of State-Owned Land in Urban Areas (Decree 45 of the Provincial Government). Chapter V. Taxation Article 27 A foreign-invested enterprise shall, within 30 days from the date of obtaining the business license, register with the tax authorities. All foreign-invested enterprises shall pay tax according to law. Article 28 Exemption and reduction of business income tax of foreign-invested enterprises shall be carried out in accordance with the following provisions:(1) Foreign-invested manufacture enterprises (excluding projects involving in the development of petroleum, natural gas, rare metals, precious metals and other resources) with an operation term of 10 years or more shall be exempted from income tax in the first and second profit-making years, and levied an income tax at a reduced tax rate of 15 percent.(2) Among foreign-invested manufacture enterprises, those established in the Wuhan Economic and Technological Development Area shall pay income tax at a reduced tax rate of 15 percent; those established in the old urban districts of the three cities of Wuhan, Huangshi and Yichang shall pay income tax at a reduced tax rate of 24 percent. Foreign-invested enterprises in these cities, where the projects are technology-intensive, or where the foreign investment exceeds $30 million and has a longer time for capital recovery, or where the projects involve energy, communications and other infrastructure construction, upon approval by authorized tax authorities, shall be levied an income tax at a reduced rate of 15 percent.(3) Foreign-invested hi-tech enterprises established in the Wuhan Donghu Hi-tech Development Area and the Xiangfan Hi-tech Development Area shall, from the date of being confirmed, pay income tax at a reduced tax rate of 15 percent. Those scheduled to operate for a period of 10 years or more shall be exempted from income tax for the first and second profit-making years.(4) Export-oriented foreign-invested enterprises, upon the expiration of the two-year exemption and three-year 50 percent reduction in income tax, when their yearly value of exports accounts for 70 percent or more of the yearly output value shall continue to be levied an income tax at a reduced tax rate of 15 percent, and those who already enjoy an income tax rate of 15 percent shall be allowed to pay income tax at a rate of 10 percent.(5) Chinese-foreign joint ventures engaged in port and wharf construction shall be levied an income tax at a reduced tax rate of 15 percent; those scheduled to operate for a period of 15 years or longer shall be exempted from income tax for five years beginning from the first profit-making years.(6) Foreign-invested enterprises engaged in farming, forestry and animal husbandry or established in remote, economically underdeveloped areas shall be exempted from income tax for two years and be allowed a 50 percent reduction in income tax for three years, and may, upon approval by the tax authorities of an application filed by the enterprise, be allowed a 15-30 percent reduction in income tax for another 10 years following the expiration of the period for exemption and reductions specified above.(7) A foreign-invested enterprise, where its foreign investor directly reinvests in it its share of profit obtained from the enterprise to increase its registered capital, or takes this portion as capital to establish another foreign-invested enterprise in this province, and operation term of the new enterprise will be no less than five years, shall be refunded 40 percent of the income tax already paid on the reinvested portion. An enterprise, where its foreign investor reinvests its share of profit obtained from the enterprises in expansion of export-oriented or technology-advanced enterprises scheduled to operate for a period of no less than five years, shall be refunded the whole income tax already paid on the reinvested portion. Article 29 Foreign-invested enterprises shall be exempted from local income tax during the eligible period for specified exemption and reduction of income tax. Following the expiration of the prescribed period, foreign-invested export-oriented or technology-advanced enterprises may be exempted from local income tax for another nine years; those involved in energy, communications, raw materials and other infrastructure and basic industries, or in development-oriented agriculture or social undertakings, or those who have established joint ventures, cooperatively managed or exclusively-owned enterprises through utilization and transformation of existing manufacture enterprises, shall be exempted from local income tax for six more years; and other foreign-invested enterprises shall be exempted from local income tax for three more years. Extension of the period for exemption from local income tax may be applied upon the expiration of the period for exemption of local income tax. When a foreign-invested enterprise's operation term is shorter than that specified above, the period for exemption of local income tax shall expire at the end of its operation period. Article 30 The share of profits obtained from the enterprise that its foreign investor remits abroad shall be exempted from income tax. Article 31 The machines and equipment, and spare and component parts imported by a foreign-invested enterprise, where the cost is within its total amount of investment, shall be exempted from customs duties and turnover tax on import intermediate links. Article 32 The urban real estate tax and vehicle and vessel license plate tax shall not be levied on foreign-invested enterprises for the time being. Article 33 Foreign-investment enterprises established after April 1, 1994, whose products have been directly exported, shall, in accordance with relevant state regulations, be granted treatment of being exempted from value-added tax (VAT) and consumption tax or refunded the paid amount. Article 34 Foreign-invested enterprises established before December 31, 1993, that are subject to additional tax burden due to the change to levy of VAT, consumption tax and business tax, shall, upon approval by the tax authorities of an application filed by the enterprise, be refunded any overpayment accruing from increased tax burden within its period of operation, but for a period of no more than five years at longest. Foreign-invested enterprises whose products are directly exported shall be exempted from VAT and consumption tax. Chapter VI. Labor and Personnel Management Article 35 A foreign-invested enterprise may, in accordance with the needs of production and business operations, determine its organizational setup and size of staff on its own and decide for itself the time and means for recruitment, and requirements and number of staff and workers to be recruited. The enterprise shall submit its employment plan to the local labor department for the record. Article 36 A foreign-invested enterprise shall recruit needed staff and workers, by public invitation of applicants, through employment agencies of the local labor and personnel departments at prefecture and county (city) levels and above. When its needs are unable to be satisfied locally, the enterprise may recruit staff and workers in other areas, with the consent of the local labor and personnel departments. In the event of a real need for recruitment in rural areas, a foreign-invested enterprise established in urban area must, with the consent of the local labor department, go through relevant formalities. No foreign-invested enterprise is allowed to recruit active students or minors under 16 years of age. Article 37 The assigning unit of the Chinese members in the board of directors of a joint venture or a contractual joint venture shall not arbitrarily transfer these managerial personnel to other posts during their term of office. When the transfer is necessary, the assigning unit shall solicit opinions of the other parties in the joint venture and go through formalities with the original department in charge of examination and approval of the contract (the application) and the articles of association. Senior Chinese managerial personnel, professionals and technical personnel hired by a foreign-invested enterprise shall not be transferred to other posts within the period of their employment contract without the consent of the board of directors and the general manager of the enterprise. Article 38 While employing staff and workers, a foreign-invested enterprise shall sign a labor contract or an employment contract with each individual employee,