No. [2000]WJMF 218 dated April 18, 2000  

 I. Form and scope of operations of overseas funded research and development centers.

1. Overseas funded research and development centers could be in the form of Sino-foreign equity joint ventures, Sino-foreign contractual joint ventures or solely overseas owned enterprises established by overseas investors (including overseas funded investment companies), or in the form of independent departments or subsidiary companies established within overseas funded enterprises;

2. research and development center is an institution engaged in research and development in the fields of natural science and its related technologies and experimental developments (including intermediate experiments in support of research and development work), the contents of research and development could be basic research, research in product applications, or high-tech and social welfare research; the subjects of research and develop do not include projects prohibited in the "Guiding List for Overseas Investment in Industries" and the research and development centers are not allowed to engage in technology trade other than on achievements of their technology research and development centers are not allowed to engage in technology trade other than on achievements of their technology research and development or in activities beyond the scope of intermediate experiments, Research and development centers may transfer the achievements of their own research and development work an may also cooperate in research and development with science and research academies and institutes in the country in the form of entrustment or joint research and development. The research and development centers do not include training centers.

 II. Conditions for the establishment of overseas funded research and development centers.

1. a research and development center must have a clear scope and specific projects of research and development, a fixed place or location, the necessary instruments and equipment and other essential conditions for research and development. The invement in research and development shall not be less than US￥20 million.

2. A research and development center must provide full-time administrative and research and development personnel among whom personnel above bachelor's degrees directly involved in research and development work shall not be less than 80% of the total number of personnel involved in research and development.

 III. Procedures for the establishment of overseas funded research and development centers.

1. Research and development centers established by overseas investors in the form of Sino-foreign equity or contractual joint ventures or solely foreign owned enterprises shall be approved by authorities for examination and approval of such enterprises at the Provincial level;

2. The establishment of research and development center within overseas funded enterprises (including investment companies):

(1) Establishment of subsidiary research and development companies or independent research and development departments shall be approved by the authorities approving the establishment of the overseas enterprises in accordance with their corresponding powers; however, in the case of restricted category A enterprises under the prescribed limit, approval should be obtained without exception from authorities at the Provincial level (or to be processed according to the following paragraph for submission to the original approving authorities for the record);

(2) For establishment of independent research and development departments within established overseas funded enterprises for which the business scope of such enterprises already included "research" or "development" operations, supplementary related papers concerning the independent research and development departments (see Item 3 of this Article) shall be submitted to the original approving authority for the record; and if such operations were not included in the business scope of the enterprise, amendments to its contract and articles of association should be made and submitted to the original approving authority for approval. Conditions of submission for the record and recognition of the qualifications of the enterprise increasing the scope of operations are the same as Article II.

3. Applications to the approving authorities shall include the following supplementary contents:

(1) The orientation and scope, principal missions and plans for implementation of the research and development;

(2) the place and location and information regarding the conditions relating to the research work;

(3) sources of fund for carrying out the research and development work, stating specific uses and amounts together with corresponding fiscal budgets;

(4) List of imports within the total amount of investment or with the enterprise's own funds covering equipment and supporting technology, components, spare parts for own use and research samples and chemical regents used in the process of research and development;

(5)statements in respect of the advance nature of the contents of research and development and the ownership of the fruit of the research and development work.

 IV. Other stipulations:

1. Overseas funded research and development centers shall carry out research and development work according to the law, and investment for the establishment of the research and development center must be used in research and development operations;

2. Funds required in research and development centers established in the form of independent departments or subsidiary companies shall be listed separately in the annual fiscal budgets of the enterprises establishing such centers and accounted for separately;

3. Investments in research and development centers in the form of independent departments or subsidiary companies by restricted category A overseas funded enterprises shall not be over 50% of the total investment of the enterprises in question;

4. research and development centers shall submit reports to the approving authorities prior to March 31 each year on the progress made in research and development and business operations in the preceding year;

5. For preferential polices to be enjoyed by research and development centers in accordance with relevant stipulations of the State, see the attachment hereunder.

ATTACHMENT POLICIES ON OVERSEAS FUNDED RESEARCH AND DEVELOPMENT CENTERS

 I. Imports of equipment and supporting technology, components and parts for own use within the total amount of investment (excluding commodities and vessels, airplanes, special vehicles and construction machinery listed in the "Catalogue of Imports Not Exempt from Duties for Projects of Overseas Investment") not constituting a laboratory or intermediate experiment of a manufacturing scale shall be exempt from import duties and import-link taxes.

 II. In accordance with the "Circular of the General Administration of Customs Concerning Policies on Collection of Import Duty for Further Encouragement of Overseas investment"[No.ss(1999)791], imports with own funds of equipment and supporting technology, components and parts for own use in technological transformation within the originally approved business scope and conforming to the abovementioned conditions shall be exempt from import duty and import-link taxes.

 III. Income from transfers of technology developed on its own shall be exempt from business tax.

 IV. For any increase in the cost of research and development over 10% (including 10%) on the previous year, a further deduction of 50% of the actual cost of research and development may be made to offset the taxable income of the current year by approval of the taxation authorities.

 V. Other preferential policies stipulated by the State.