Taxation: preferential taxation policies

Updated: Nov 20, 2017 chinadaily.com.cn Print

Ⅰ Principal taxes that foreign-invested enterprises must pay (local tax excluded)

Income duty

Enterprises must pay 30 percent of the income as the corporate income tax and 3 percent as the local income tax after costs have been deducted from corporate revenues.

Value Added Tax (VAT)

The output tax is the total income of sales revenue plus processing service charges, and multiplied by 17 percent of the tax rate; the input tax is equal to the tax paid according to the goods currently purchased.

VAT payable= current output tax-current input tax

Ⅱ Major tax preferences that Dalian foreign-invested enterprises enjoy:

*Income tax preferences

In order to encourage foreign enterprises to invest in Dalian, the government implements different preferential tax treatments to different regions and industries according to special industrial policies, including reduction of tax rates, regular tax reduction and exemption, accelerated depreciation, refund of the income tax paid on the reinvested amount, exemption of corporate income tax with the investment contributions by purchasing domestic made equipment and additional deduction of technical developing costs.

Reduction of tax rate

The legal corporate tax rate is 30 percent, but can be reduced to 15 percent and 24 percent, according to the circumstances.

1. Corporate income tax is levied at a reduced rate of 15 percent:

(1) Dalian Eco-Tech Development Zone is one of the first state-level eco-tech development zones. The foreign-invested productive enterprises in the zone enjoy a reduced rate for corporate income tax at 15 percent.

(2) Enterprises that are set up in urban areas and open coastal economic areas (Pulandian, Wafangdian and Zhuanghe) and engaged in the following projects enjoy a reduced rate of 15 percent: skill-intensive or knowledge-intensive projects; projects with an investment of over 30 million dollars and a long period for investment recovery; and projects related to energy, communications and port construction.

(3) Dalian High-Tech Industrial Zone is a state-level high-tech industrial zone. Foreign-invested high-tech enterprises set up in the zone enjoy a reduced rate for corporate income tax of 15 percent.

(4) For the Sino-foreign joint ventures engaged in construction of ports and docks, the corporate income tax is levied at a reduced rate of 15 percent.

(5) Foreign-invested banks and Sino-foreign joint venture banks with an operation period of more than 10 years or foreign investors have invested a capital or the head office has invested a working capital of over 10 million dollars enjoy a reduced rate for corporate income tax of 15 percent.

2. Corporate income tax is levied at a reduced rate of 24 percent

(1) Foreign-invested productive enterprises set up in urban areas and open coastal economic areas enjoy a reduced rate for corporate income tax of 24 percent.

(2) Dalian Golden Pebble Beach Tourist Resort is a state-level tourist resort in China. Foreign-invested enterprises set up in the resort enjoy a reduced rate for corporate income tax of 24 percent.

Regular tax reduction and exemption

1. Two-year exemptions and three-year reductions: any enterprise with foreign investment of a productive nature scheduled to operate for a period of not less than ten years must from its first year of profit be exempted from corporate income tax in the first and second years and allowed a 50 percent reduction in the third to fifth year.

The newly established software manufacturing enterprises must from the first year of profit be exempted from corporate income tax in the first and second years and allowed a 50 percent reduction in the third to fifth year.

2. Five-year exemption and five-year reduction: The Sino-foreign joint ventures engaged in construction of ports and docks scheduled to operate for a period of not less than fifteen years must from the first year of profit be exempted from corporate income tax in the first to fifth year and allowed a 50 percent reduction in the sixth to tenth year period.

3. One-year exemption and two-year reduction: The foreign-invested banks and Sino-foreign joint venture banks scheduled to operate for a period of not less than 10 years in which foreign investors have invested a capital or the head office has invested a working capital of over $10 million dollars must from the first year of profit be exempted from corporate income tax in the first year and allowed a 50 percent reduction in the second and third years.

4. Two-year exemption: The Sino-foreign high-tech joint ventures set up in the high-tech industrial zones specified by the State Council must from the first year of profit be exempted from corporate income tax in the first and second years.

5. Extension of the 50 percent reduction in corporate income tax: Advanced technology enterprises which remain advanced technology enterprises after the period of enterprise income tax exemptions or reductions has expired may continue to pay corporate income tax at a 50 percent reduced rate for another three years, but the rate must not be lower than 10 percent.

Export-oriented enterprises whose output value of export products reaches more than 70 percent of its total output may continue to pay corporate income tax at a 50 percent reduced rate, but the rate should not be lower than 10 percent.

Local income tax

All foreign-invested enterprises in Dalian must from the first year of profit be exempted from local income tax in the first seven years according to the relevant regulations promulgated by Dalian Municipal Government. For the enterprises engaged in the projects encouraged by Dalian, they could be exempted from local income tax for another three years.

Accelerated depreciation

The term of depreciation for fixed assets (except for houses or buildings) and intangible assets of industrial enterprises in Dalian - one of the old industrial bases in Northeast China - could be curtailed by 40 percent, at most, based on the depreciation term specified in the existing provisions.

Refund of the income tax paid on the reinvested amount

Foreign investors in foreign-invested enterprises who reinvest the profits in the original enterprises to add the registration capital or as capital for investment in other foreign-invested enterprises, with an operation period of no less than 5 years, must be returned 40 percent of the total income tax already paid for the reinvested portion. Those recognized as advanced technology enterprises or export-oriented enterprises must be returned the complete 100 percent.

Exemption of corporate income tax with the investment contributions by purchasing domestic made equipment

Any domestic equipment that is purchased by foreign-invested enterprises engaged in the projects encouraged by the government will have 40 percent of the purchasing investment of the domestic equipment as an income tax credit in the year that the equipment is purchased as compared to the previous year. If it is not enough to or not used to offset the newly increased tax in the current year, the following investment could continue to be used to offset the income tax.

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