(October 28, 1999)  

 I.  In the case of expanded investment by overseas funded enterprises with their own profits, including directly increasing the registered capital of the enterprise or investing inother overseas funded enterprises whose remaining duration of operation is not less than 5 years, the investors, either foreign or Chinese, shall be refunded the income tax already paid on the part of the reinvestment in the current year. For those reinvestments in technologically advanced enterprises or product-for-export enterprises, refundment shall be 100% of the income tax already paid on the part of the reinvestment in the current year whereas for those enterprises not falling under the above mentioned "two types", the refundment shall be 40% of the income tax paid.

 II.  In the case of expanded investment in manufacturing enterprises whose duration of operations is over 10 years, preferential treatment shall be applicable to the income tax on the profit obtained from the new investment as for a newly established enterprise regardless of the origin of the increased investment. For the part of increased investment that can be accounted for profit and loss separately, the new profit shall enjoy the treatment of "exemption for 2 years and reduction for 3 years" in income tax from the year profit is realized; whereas for that part of increased investment that cannot be accounted for profit and loss separately, the profit realized in the year prior to the year of increase in investment shall be taken as a basis, and income tax shall be levied from the year realizing a profit according to the preferential treatment of "exemption for 2 years and reduction of 3 years" on the newly increased profit at a ratio of reinvestment to total investment.

Tax exempted for increased profit of new investment=

(Increased registered capital Registered / capital after increase in investment) x   (Taxable profit of current year - Taxable profit prior to increase in investment) x   Applicable tax rate for income tax of current year

 III.  Overseas businesses acquiring small and medium sized enterprises in this Municipality may be given priority on similar conditions and enjoy preferential policies of the Municipality on the reduction of value of net assets of the enterprise concerned to reduce the cost of acquisition. The items of reduction in the net assets of the enterprise to be acquired are:

1. Medical expenses of retirees listed prior to the acquisition of the enterprise (calculated on the average medical expenses of retirees in the Municipality and the number of retirees of the enterprise concerned according to a duration of 15 years which is the remaining life-span of retirees in the Municipality);

2. Pensions for family of staff or workers died while on duty listed prior to the acquisition of the enterprise;

3. Wages for personnel on long sick leave, suffering from vocational decease or mental decease, or disabled while on duty who have really lost their ability to work, to be calculated on the basis of data of the year prior to acquisition to the legal age of retirement;

4.. Social insurance payments and wages of staff and workers not listed as cost or unpaid prior to the acquisition;

5. Expenses relating to listed retirees prior to the acquisition but not included in unified items of collection for retirement (calculated at an average of RMB900 yuan per person per year for 15 years which is the average remaining life-span of retirees in the Municipality);

6. Relocation payments for redundant staff and workers, to be calculated at 20% of the number of on-post staff and workers in the year prior to the acquisition and the standard of wages sahll be the average wage of on-post staff and workers of the Municipality in that year.

The above-mentioned deductions shall be listed as accounts payable of the enterprise for acquisition and paid first out of these accounts when the expenses actually occur. In case of any deficiencies, payments are to be made in accordance with relevant stipulations.

 IV.  For investment companies and consulting services established by foreign businesses in the Municipality, if the duration of operation is over 10 years, the preferential policy of "exemption for 1 year and reduction for 2years" on income tax shall be applicable from the year a profit is realized.

 V.  Applications for refundment of enterprise income tax shall be processed at the Municipal Bureau of Finance and District or County Bureau of Finance respectively in accordance with the management system of public finance and budgeting levels now in force. While going through the formalities for refundment, the following papers shall be submitted:

1. Written report on application for refundment of enterprise income tax;

2. Forms for Examination and Approval of Income Tax Refundment (see Attachment 1& Attachment 2);

3. Copy of Finance Registration of original investing enterprise and invested enterprise;

4. Reports of Auditing of Accounts and Investment Verification issued by a Chinese Chartered Public Accountant;

5. Other papers required by the Finance Authority in charge.

 VI.  Account entries of enterprise on receipt of tax refundment.

1. On receipt of tax refundment by overseas funded enterprise - debit: bank deposit, credit: undistributed profit.

2. On receipt of tax refundment by Chinese investor - debit: bank deposit, credit: capital accumulation fund.

 VII.  In case the duration of operation of the overseas funded enterprise receiving investment falls short of the duration of operation stipulated in this CIRCULAR, the overseas funded enterprise or the Chinese investor who enjoyed tax refundments shall repay the income tax refunded.