The Ministry of Finance [1988] No.91 June 15, 1988

The present set of interim provisions is formulated in respect of reduction and exemption of enterprise income tax and consolidated industrial and commercial tax for foreign investors in order to promote the economic and technological exchange, absorb the foreign investment, import foreign technology and accelerate economic development in China's open coastal economic areas, namely the East Liaodong Peninsula, Shandong Peninsula, Yangtze river delta, Zhujiang river delta and a triangular area in south Fujian comprising Xiamen, Zhangzhou and Quanzhou. It reads as follows:

Article 1 Subject to approval by the Ministry of Finance, the productive enterprises established by foreign investors in China's open coastal economic areas (hereinafter referred to as open area enterprises) shall pay their enterprise income tax at a preferential tax rate of 15% if they are technology-intensive or knowledge-intensive enterprises;or if the foreign investors have contributed more than US $ 30 million of investment to the enterprise and is expected to take a long time to recoup their investment; or they are engaged in energy, transport and port construction projects.

Subject to approval by the Ministry of Finance, open area enterprises engaged in the following lines of business but are not qualified under the requirements set in the preceding paragraph may pay their enterprise income tax at a 20% discount:

1. machinery manufacturing, electronic industry;

2. metallurgy, chemical, building materials industry;

3. light industrial products, textiles, packaging industry;

4. medical instrument production, pharmaceutical industry;

5. agriculture, forestry, animal husbandry and aquaculture and their related processing business, and

6. building industry.

The reduction and exemption of enterprise income tax for open area enterprises shall be carried out, on the basis of the above-mentioned tax rate and subject to the scope, conditions and terms stipulated in the "Provisions of the State Council of the People's Republic of China for the Encouragement of Foreign Investment", "Income Tax Law on Chinese-foreign Equity Joint Ventures" and "Income Tax Law on Foreign Enterprises".

Article 2 The people's governments of provinces, autonomous regions and municipalities directly under the Central Government are given the authority to determine the reduction and exemption of the local income tax for open area enterprises.

Article 3 The dividends, interest, rentals and royalties and other income derived from China by foreign investors, where they have not established an establishment, are subject to income tax at a reduced tax rate of 10% unless such income has already been subject to income tax exemption by law. The people's governments of provinces, autonomous regions and municipalities directly under the Central Government can grant more preferences to the foreign investors regarding tax reduction and exemption if the foreign investors can provide capital and equipment on favorable terms, or transfer advanced technology to China.

Article 4 The production equipment, operational facilities, construction materials and means of transport, office equipment imported by open area enterprises as part of their initial investment or new investment shall not be subject to consolidated industrial and commercial tax.

Article 5 Apart from crude oil, finished oil products and those products according to other State's regulations, exports produced by open area enterprises are not subject to consolidated industrial and commercial tax but those products which are to be sold in the domestic markets will have to pay the said tax according to the provisions.

Article 6 The raw materials and processed materials, parts and components and packing materials imported by open area enterprises and used in the manufacturing of export products are not subject to consolidated industrial and commercial tax but those used in the manufacturing of products which are to be sold in the domestic markets are subject to the said tax according to the provisions.

Article 7 The household articles and transport vehicles carried by the foreign workers who work for or reside in an open area enterprise shall not be subject to consolidated industrial and commercial tax. However, the foreign workers must be able to present a certificate issued by a municipal government (directly subordinated under a provincial government) or a higher level authority regarding the exemption and the amount of articles (vehicles) they carried into the country must be within a reasonable limit.

Article 8 In order to facilitate quarantine work on imported plants and animals, experimental farms may be set up in the one or two islands of Guangdong, Zhejiang, Fujian, Jiangsu or Shandong so that the imported fine strains (breeds) of plants or animals can be tested and cultivated. Since these experimental farms are of the nature of research and development projects they shall not be subject to all kinds of tax for five years starting from their first profit-making year.

Attachment:

I. Circular of the State Council Concerning Extending the Range of the Open Coastal Economic Areas(omitted)

II. List of the County and Municipality in the Yangtze river delta, Zhujiang river delta and a triangular area in south Fujian comprising Xiamen, Zhangzhou and Quanzhou (omitted)

Promulgated by The Ministry of Finance on 1988-6-15