Since Jan 1st, 2002, for any EFI which engages in the encouraged category of projects in the Catalogue Guiding the Foreign Investment in Industries approved by the State Council and meets any of the following conditions, the investor may, with regard to the proceeds from additional investment other than that stated in the original contract, separately calculate and enjoy the reduction in or exemption of the enterprise income tax provided for in Paragraphs 1 and 2 of Article 8 of the Tax Laws:

1. The newly increased amount of registered capital due to the additional investment is no less than 60 million USD;

2. The newly increased amount of registered capital due to the additional investment is no less than 150 million USD, and no less than 50% of the enterprise' original registered capital.. The "original registered capital" means: the registered capital before any additional investment by EFIs in new projects of production, business operation or merger.

The encouraged category of projects above-mentioned refer to the foreign investment projects with additional investments approved before April 1, 2002, which fall under the Encouraged and Restricted B Categories listed in the Catalogue Guiding the Foreign Investment promulgated by the former State Development and Plan Commission and other competent departments in 1997, and the foreign-investment projects with additional investments approved after April 1, 2002, which fall under the Encouraged and Restricted B Categories listed in the Catalogue Guiding the Foreign Investment promulgated by the former State Development and Plan Commission and other competent departments in 2002.

All the new production projects which have been funded by multiple investments subsequent to an EFI's initial investment (additional investments in original production projects not included) and which have never been subject to any tax reduction or exemption, may be consolidated into one for calculating the incremental registered capital. If the incremental registered capital meets the requirements, a tax holiday may be granted to the consolidated project separately.

For the above-mentioned consolidated project entitled to a tax holiday separately, the tax holiday shall be calculated from the first profit-making year of the project formed as a result of the first additional investment. Beginning the year the additional investments meet the requirements, the EFI may enjoy tax preferences for the remaining term of the tax holiday.

An EFI shall distinguish the additional investment projects with the original investment project in terms of production and business operation. Account books and vouchers shall be maintained separately to calculate the respective taxable income accurately. If an EFI fails to compute the respective taxable income reasonably, the tax authorities may do so based on proportions of income, capital, etc. of the enterprise.