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.

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.