LAWS

Circular of the State Administration of Taxation on How toDeal with Related Issues after Cancellation of Several Previous TaxPreferential Policies on Foreign-invested Enterprises and Foreign Enterprises Guo Shui Fa [2008] No. 23

Offices of the State Administration of Taxation of allprovinces, autonomous regions, municipalities directly under the CentralGovernment and cities specifically designated in the state plan, Local TaxationBureau of Guangdong Province, Local Taxation Bureau of Hainan Province, andShenzhen Local Taxation Bureau,

In accordance with the Enterprise Income Tax Law of thePeople's Republic of China, the Regulations on Implementing the EnterpriseIncome Tax Law of the People's Republic of China, the Law on the Administrationof Tax Collection of the People's Republic of China, the Detailed Rules onImplementing the Law of the People's Republic of China on the Administration ofTax Collection as well as the Notice of the State Council on the Implementationof the Transitional Preferential Policies Concerning Enterprise Income Tax (GuoFa [2007] No. 39), you are hereby notified of the tax treatments after thecancellation of several previous tax preferential policies on foreign-investedenterprises and foreign enterprises:

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

In case a foreign investor directly re-invests the post-taxprofit, which it obtains from its foreign-invested enterprise, into the saidforeign-invested enterprise to increase its registered capital, or invests thepost-tax profit as capital to set up another foreign-invested enterprise, if ithas finished the re-investment before the end of 2007 and accomplished themodification or registration in the industry and commerce administrativedepartments of the State, it may handle the re-investment tax refundformalities under the Income Tax Law of the People's Republic of China onForeign-invested Enterprises and Foreign Enterprises and other relatedprovisions.

No tax refund will be made for any re-investment, which wasmade 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 fromtransfer of know-how or allowance of credit to China, if the related contract wassigned before the end of 2007 and met the tax exemption conditions as providedfor in the Income Tax Law of the People's Republic of China on Foreign-investedEnterprises and Foreign Enterprises, the foreign enterprise may be allowed tobe exempted from the income tax upon approval of the taxation organ excludingthe extension or supplementary contract or expansion clauses during the validperiod of the contract.

All competent taxation organs should do well in tracking andmanaging the performance of such contracts and should issue tax paymentcertificates in time.

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

As regards a foreign-invested enterprise that enjoys suchpreferential treatment as tax reductions or exemptions for a specified periodpursuant to the Income Tax Law of the People's Republic of China onForeign-invested Enterprises and Foreign Enterprises, if its production andbusiness operation nature or business period changes after 2008 and if, as aresult, it no longer meets the conditions as provided for in the Income Tax Lawof the People's Republic of China on Foreign-invested Enterprises and ForeignEnterprises, it should, subject to the Income Tax Law of the People's Republicof China on Foreign-invested Enterprises and Foreign Enterprises, still make upthe tax reduced or exempted as of the change, which it has enjoyed during thespecified period (including the transition preferential period) .

When a competent taxation organ settles the tax on suchenterprise each year, it should check the changes of its business scope andbusiness period, etc.

State Administration of Taxation Feb,27th,2008