Investment Policies & Relevant Regulations
Q20: What if a wholly
foreign-owned enterprise's fiscal year is different from the calendar
year?
If a wholly foreign-owned enterprise has some difficulty in paying
taxes according to the tax year stipulated in the Tax Law, it can
apply to the local tax authorities.
After approval, it can pay taxes
according to the enterprise's own fiscal year which includes twelve
months.
Q21: Can a foreign invested
enterprise which has already been registered reduce or increase
its registered capital?
A foreign-invested enterprise can increase its registered capital
during its operation period, but the increase must be unanimously
approved and decided by board meeting and then it must be submitted
to the original approval authority for examination and approval.
If the increased amount exceeds the authority of the original examination
and approval authority, the application should be submitted to a
higher authority by the original examination and approval authority
A foreign-invested enterprise usually is not allowed to reduce its
registered capital during its operation period. If there are justified
reasons, the application should be submitted to the original examination
and approval authority according to relevant laws and regulations
of the State.
Q22: Can a registered
foreign invested enterprise enlarge its business scope?
A foreign-invested enterprise can enlarge its business scope during
its operation period, provided that the investors' capital contribution
has been paid up. The application shall be submitted to the original
examination and approval authority.
Q23: What are the regulations
about the merger and split-up of foreign invested enterprises?
In accordance with industrial policies of the State, foreign-invested
capital that are prohibited to establish wholly foreign-owned enterprises
and to be in the holding or leading position should not establish
wholly foreign-owned enterprises and be in the holding or leading
position after the merge or split-up. A company which is newly set
up or is divided from the former one can continue to enjoy the preferential
policies according to the regulations of the approval and examination
authorities, the Customs and taxation authorities. Before the company
pays off all the registered capital, provides cooperative conditions
and actually starts production and operation in light of its contract
and articles of association, the company is kept from merger or
split-up.
Q24: Can foreign invested
enterprises become shareholders by means of technology?
Foreign invested enterprises in Shanghai can become shareholders
by means of investing their industrial property right, proprietary
technology or advanced hi-tech achievement as an invisible capital
in the enterprise. The amount of money evaluating invisible capital
cannot exceed 20% of its registered capital; advanced hi-tech achievement
as an invisible capital can reach 35% of registered capital. Investment
value of invisible capital can be assessed by qualified institutions;
also it can be consulted to admit and be agreed to bear relevant
implicative liability by written agreement by all the investors.
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Q25: What preferential
policies can a foreign invested research & development center enjoy?
Foreign invested R&D center can be exempted from customs duty
and value added taxes on import in importing equipment for self
use, technology form a complete set accessories and spare parts,
which cannot be manufactured or whose quality cannot be guaranteed
at home. Foreign invested R&D center can be exempted from business
tax as same as state science & Research organizations.
Q26: What sort of preferential
policies can foreign investors in software and integrated circuit
industry enjoy?
Developing and manufacturing software products in China is encouraged
by the State. If, before the year 2010, normal Value Added Tax (VAT)
taxpayers who sell self-developed and self-produced software goods
pay BAT on the basis of legal tax rate of 17%, then the part of
tax paid by over 3% rate may be refunded for R&D and reproduction
on an extended scale of software enterprises. The newly set up software
enterprises which are verified by the relevant competent department
shall, form the year beginning to make profit, be exempt form income
tax in the first and second years and allowed from a fifty percent
reduction of income tax from the third to fifth years. Except goods
listed in Catalogue For Equipment Imported By Foreign Invested Enterprises
Not Enjoying Tax Exemption, the Customs Duties and VAT on importing
equipment may be exempt if the equipment, technology (including
software), accessories and parts imported together with the equipment
of software enterprises are imported for self-use.
Setting up integrated circuit manufacturing enterprises in the form
of Sino-foreign joint ventures or wholly foreign owned enterprises
in China is encouraged by the State. As for normal VAT taxpayers
who sell self-produced integrated circuit products (including mono-crystal
line silicon), if, before the year 2010, VAT is paid on the basis
of legal tax rate of 17%,then the real part of tax paid by over
6% may be refunded for R&D and reproduction on an extended scale.
Integrated circuit manufacturing enterprises, with a total investment
of over 8 billion RMB yuan or producing integrated circuit whose
line width is less than 0.25 micron may enjoy the same preferential
policies as that of energy and transportation projects and may also
be exempt form the Customs Duties and VAT on imported technology,
equipment, raw materials and consumables.
Q27: How can a joint
venture prolong its term after it expires?
If all the parties of the joint venture are willing to prolong the
term when it expires, the joint venture shall submit its application
for the extension of the term to the original office for approval
six months prior to the termination of the contract. Once approved,
the joint venture can have its term prolonged and be registered
at the ICAB.
Q28: What is an export-oriented
enterprise?
A manufacturing enterprise whose export volume(including export
on its own or via an agent) accounts for over 50% of its annual
sales, and who has a surplus of foreign exchange and has made a
profit during the year, is deemed as an export-oriented enterprise.
Q29: What is an advanced
hi-tech enterprise?
A manufacturing enterprise which is in conformity with the State's
Industrial Guidance and which adopts internationally advanced and
applicable process for manufacturing, technology, and equipment,
whose products's quality and technology take the lenad in the domestic
marker, can be acknowledged as an advanced hi-tech enterprise. In
getting that name, a foreign invested company should first apply
to Shanghai Foreign Investment Commission and get verified after
examination. Examinations will be carried out every year.
Q30: What preferential
policies can an export-oriented enterprise and an advanced hi-tech
enterprise enjoy?
a. Apart form the state provisions that they pay for or extract
for insurance, welfare and accommodation allowance for the Chinese
staff, export-oriented enterprises and advanced hi-tech enterprises
are exempt for other subsidies the state give to employees.
b. Export-oriented enterprises and advanced hi-tech enterprises
are given priority in the supply of water, electric power, transportation
and telecommunication required in business and charged at the same
prices as with State enterprises.
c. Export-oriented enterprises and advanced hi-tech enterprises
which need in production and circulation short-term funds of other
necessary loans shall be given priority once examined by the Bank
of China.
d. The exported-oriented enterprises can still be exempt form local
income tax after the period of local income tax exemption expires
when the value of exports exceeds 70% of the year's production value.
e. Advanced hi-tech enterprises can still pay their enterprise income
tax at a reduced rate of 50% for another 3 years after the period
of enterprise income tax exemption and reduction expire.
f. Those export-oriented enterprises & advanced hi-tech enterprises
in special economic zones and in economic development zones and
those already have been paying their enterprise income tax at a
reduced rate of 15% can have a 10% reduction if they fit in with
the situation mentioned previously.
g. "Two Types of Enterprises" which obtain the land-using
right by means of requisition of allocation, can enjoy the preferential
policies of land use fee exemption or reduction according to the
land grade.
It should be explained that the two types of enterprises mentioned
above is not perpetual. According to MOFTEC, an acknowledged export-oriented
enterprise will be examined by government authorities every year.
If it is disqualified, its preferential for several times, its verification
certificate will be revoked.
Q31: Where to apply
for the status of an export-oriented enterprise of an advanced hi-tech
enterprise?
Based on the principle of joining the administration and examination
& approval together and of localizing the administration of
wholly foreign- owned enterprises, districts(including Pudong New
Area), counties, some commissions, offices, bureaus are entrusted
to examine and verify the export-oriented enterprise. When applying
for advanced hi-tech enterprise status, a Foreign-Invested Enterprise
should first apply to the authority (equal to the level of district,
county or bureau) directly in charge of the enterprise for examination,
after that, the application will be submitted to Shanghai Foreign.
Investment Commission Coordination Division for Verification.
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