Circular on Tax Paid by Foreign Investors Merging the Stock
Equity of
Chinese Enterprisesthe State Administration of Taxation
GuoShuiFa [2003] No. 60
In order to promote and regulate the investment launched by foreign
investors in China, introduce foreign advanced technology and
management experiences, raise China's level of utilizing foreign
capital and realize reasonable allocation of resources, the former
Ministry of Foreign Trade and Economic Cooperation, the State
Administration for Industry and Commerce, the State Administration
of Foreign Exchange and the State Administration of Taxation jointly
promulgated the Interim Regulations Concerning the Issue that
Foreign Investor Merge Enterprises Within the Territory of China
(hereinafter referred to as Interim Regulations) in March of 2003,
which allows foreign investors to merge the stock equity of
enterprises without foreign investment within the territory of China
(hereinafter referred to as enterprises within the territory).
Concerning the tax issue involved in the merger, it is hereby
informed as follows:
I. Foreign investors enable enterprises within the territory to
become enterprises with foreign investment through purchasing the
stock equity of their shareholders or subscribe their increased
capital (hereinafter referred to as stock equity purchase). If
foreign investors have more than 25% of the total shares, the
enterprise may pay various taxes according to tax laws and
regulations suitable to enterprises with foreign investment.
II. For the enterprises with foreign investment changed into from an
enterprise within the territory through stock equity purchase, if
they meet the relevant conditions stipulated by the Income Tax Law
of the People''s Republic of China for Enterprises with Foreign
Investment and Foreign Enterprises (hereinafter referred to as Tax
Law) and its detailed rules, they could enjoy preferential tax
treatment made by Tax Law and other relevant provisions. The
preferential tax should be calculated according to the following
provisions:
(I) The beginning of business and operation period. The day when an
industrial and commercial organ approves and issues business license
means an enterprise with foreign investment changed into from an
enterprise within the territory through stock equity purchase begins
its business. From the beginning day to the business maturity date
set by industrial and commercial registration is operation period.
(II) The settlement of pre-establishment loss. The total business
loss that has not been made up before an enterprise with foreign
investment established may be covered by the enterprise with foreign
investment changed into from an enterprise within the territory
through stock equity purchase in the rest years of covering loss
stipulated by Article 11 of Tax Law.
(III) Identification of profit-making year. Profit-making year
refers to the year when an enterprise with foreign investment
changed into from an enterprise within the territory through stock
equity purchase is established and it still makes profit after
making up loss of the years before. In the profit-making year, if
the production period is less than 6 months, the enterprise may
choose the beginning year of tax reduction and remission according
to Article 77 of detailed rules of Tax Law.
III. The Circular shall enter into force as of January 1, 2003. The
enterprises with foreign investment changed from enterprises within
the territory through stock equity purchase established before the
promulgation of the circular should adhere to the circular if they
meet the conditions of Interim Regulations and the circular.
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