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Circular of the State Administration of
Taxation on the Relevant
Issues Concerning the Enterprise Income Tax Refunded for the
Reinvestment Made by Foreign Investors
(Promulgated on July 17, 2002 by the STATE ADMINISTRATION OF TAXATION)
The bureaus of
state taxes of the provinces, autonomous regions,
municipalities directly under the Central Government, and cities
under separate State Planning, the Bureau of Local Taxes of Guangdong
Province, and the Bureau of Local Taxes of Shenzhen City:
Recently, some regions have presented several issues that need to be
further clarified in respect of the execution of the preferential
policies on tax refund for reinvestment, the relevant issues are
hereby clarified as follows in order to regulate the execution of the
relevant preferential policies on tax refund for reinvestment
provided for in the Law of the People's Republic of China on the
Income Tax of Foreign-Funded Enterprises and Foreign Enterprises
(hereinafter referred to as taxation law) and the implementation
rules thereof:
1. Where a
foreign-funded enterprise, pursuant to the resolution of
its board of directors, reinvests with the accumulation fund (or
development fund or reserve fund) it drew from the profits after
payment of the enterprise income tax pursuant to the relevant
provisions, and increases the registered capital of the enterprise
correspondingly, with respect to the part of the aforesaid
reinvestment of the foreign investors that is used to increase the
registered capital, tax refund for reinvestment by foreign investors
maybe granted, in accordance with Article 10 of the taxation law and
other relevant provisions.
2. The
expression "directly used to invest and establish
other foreign-funded enterprises" mentioned in Paragraph 1 of Article
80 of the implementation rules of the taxation law including the
following circumstances:
1) The fund is directly used to make reinvestment to establish other
new foreign-funded enterprises, and the amountreinvested constitutes
the registered capital of the newenterprise;
2) The fund is directly used to make reinvestment to increasethe
registered capital of any existing foreign-fundedenterprise.
Where a foreign investor makes reinvestment with the profitsobtained
from any foreign-funded enterprise to purchase theequity of other
investors in an existing enterprise, and doesnot increase the
registered capital or working fund of thatenterprise, that investor
may not enjoy the preferentialtreatment of tax refund for
reinvestment.
3. Where a foreign investor makes reinvestment with assets inforeign
currencies, the amount of reinvestment shall beconverted into RMB,
at the exchange rate promulgated by thestate on the day the
enterprise accepting the reinvestmentactually receives the said
amount, as the amount ofreinvestment on the basis of which the
rebate shall becomputed.
4. Where a foreign investor makes direct reinvestment
orreinvestments with the after-tax profits of a year obtainedfrom
any foreign-funded enterprise, the amount of reinvestmenton the
basis of which the tax refund is computed may notexceed the limits
computed according to the followingformulas:
Limit on the amount of reinvestment = (taxable income of
theforeign-funded enterprise in the year of the said
after-taxprofits are obtained - amount of the enterprise income
taxactually paid by the foreign-funded enterprise in that year)the
proportion of the equity (or distribution) the foreigninvestor holds
in the foreign-funded enterprise in that year
Where the foreign investor makes reinvestment with all theafter-tax
profits obtained from the foreign-funded enterprisesin the same
year, if the amount of reinvestment is less thanthe aforesaid limit,
the tax refund shall be computed on thebasis of the actual amount of
the reinvestment; where theaforesaid limit is exceeded, the tax
refund shall be computedon the basis of the limit, and no tax refund
will be computed for the exceeding part.
5. The
"foreign-funded enterprises in which foreign investors hold
100% of the shares and which especially engage in the investment
business" as prescribed in the Official Reply of the State
Administration of Taxation on the Relevant Issues Concerning the Tax
Refund for the Reinvestment Made by Foreign-Funded Enterprises
(No.154 [1995] of the State Administration of Taxation) shall include
the enterprises that especially engage in the investment business and
in the businesses related thereto.
The businesses related to investment business shall be confined to
the assistant professional services such as purchase of raw
materials, sale of products and after-sale services, financial and
technical supports etc. that are provided by a foreign-funded
enterprise within the companies belonging to the group invested by
that enterprise in accordance with the Interim Provisions on the
Establishment of Investment Companies by Foreign Merchants and
the supplementary provisions thereof promulgated by the Ministry of
Foreign Trade and Economic Cooperation on April 4, 1995 and within
the scope fixed by that enterprise's business license; as well as the
research and development, consultation, training and export
businesses undertaken within the prescribed scope inside and outside
of the companies belonging to the group invested by that enterprise.
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