I. Major Tax Categories

Taxes that are applied to foreign-invested enterprises, foreign enterprise and foreign citizens in China (including compatriots from Hong Kong, Macao and Taiwan) are: corporate income tax, personal income tax, turnover taxes (include value-added tax, consumption tax, and business tax), land tax, stamp duty, vehicle and vessel tax, urban real estate tax, etc. Imports and exports will pay tariff and import-stage value-added tax in accordance with Customs' tariff statutes.

Corporate Income Tax

a. Foreign-invested enterprise or foreign enterprise that has set up establishment or place in China to engage in production or business operations must pay corporate income tax, and the tax is levied at the rate of 30 percent, as well as another 3 percent for local income tax.

b. Foreign enterprise that has not set up establishment or place, but have gained profits （bonus）, interest, rent, license utilization fee, and other kinds of income from Chinese territory should pay 20 percent income tax.

Value-Added Tax

All units and individuals engaged in the sale of goods, provision of procession, repairs and replacement services, and the importation of goods within territory of the People's Republic of China are taxpayers of Value Added Tax. The basic tax rate of VAT shall be 17%; for taxpayers selling or importing food gains, edible vegetable oils, tap water, books, newspapers, magazines, feeds, chemical fertilizers, agricultural chemicals, agricultural machinery and some other goods, the tax rate shall be 13%.

Consumption Tax

All units and individuals engaged in the production, sub-contracting processing or import of consumer goods like tobacco, alcoholic drinks, alcohol, cosmetics, skin-care and hair-care products, precious jewelry and precious jade and stones, firecrackers, and fireworks, gasoline, diesel oil, motor vehicle tyres, motorcycles, motor cars, within territory of the People's Republic of China are taxpayers of Consumption Tax. There are 11 taxable items and 14 tax rates (tax amounts) of Consumption Tax, from the lowest 3% to the highest 45%. The computation of tax payable for Consumption Tax shall follow either with rate on value or the amount on value method.

Business Tax

All units and individuals engaged in the provision of services as transportation and communications, posts and telecommunications, finance and insurance, construction, culture and sports, entertainment, servicing, the transfer of intangible assets or the sale of immovable properties within territory of the People's Republic of China shall pay Business Tax in accordance with regulations. There are 3 tax rates of Business Tax, from the lowest 3% (such as transportation and communications fee) to the highest 20% (such as entertainment).

Tariff

The average tariff rate of China is 12%.

Stamp Duty

All units and individuals engaged in the procession of purchase and sale, machining, contracting, property tenancy, goods transportation, storage, loan, property insurance, technological contract, as well as quitclaim deed, business account book, and certificate of authorization within territory of the People's Republic of China shall pay Stamp Duty in accordance with regulations. The lowest tax rate of Stamp Duty is 0.05? and the highest is 1? Each certificate of authorization and business account book (not include account book that records capital) must paste a stamp of 5 Yuan.

Urban Real Estate Tax

The house property owned by foreign-invested enterprise or foreign citizen shall pay Urban Real Estate Tax in accordance with regulations. The computation shall follow either with the value of house property after a one-off deduction of 10%-30%, and the annul tax rate is 1.2%; or with the rent of house property, and the tax rate is 12%. Urban Real Estate Tax takes one year as a unit, and is paid by stages.

Vehicle and Boat Tax

Vehicles and boats owned by foreign-invested enterprise shall pay Vehicle and vessel Tax in accordance with Interim Regulations Concerning the Vehicle and Vessel Usage License Plate Tax. Tax payable on Camion, powerboat and non-powerboat is calculated on the base of the carrying capacity or net tonnage of camion or boat, which on other motor vehicle and non-motor vehicle is on base of the number of vehicles payable.

Personal Income Tax

(i) Within territory of the People's Republic of China, personal wage and stipend shall pay Personal Income Tax. The rate of Personal Income Tax is computed with progressive taxation, and is divided into 9 degrees from the lowest 5% to the highest 45%.

(ii) Individual's income that come from designing, upholstering, installation, drawing, assaying, testing, medical treatment, law, accounting, consultation, lectures giving, news, broadcasting, translation, auditing, painting and calligraphy, carving, film, recording, kinescoping, performance, acting, advertising, exhibition, technological services, introduction services, broking, commission services, and other kind of labour, shall also pay Personal Income Tax. Make a reduction of 800 Yuan if each income is below 4000 Yuan, or reduce 20% if above 4000 Yuan, and the remaining amount is the income payable and shall pay Personal Income Tax at the rate of 20%. If the income payable of an individual's one-off labour reward exceeds 20000 to 50000 Yuan, the tax rate of the exceeding part shall increase 5%; if the income payable exceeds 50000 Yuan, the tax rate of this part shall increase 10%.

Deed Tax

All units and individuals that receive land or house property within territory of the People's Republic of China shall pay Deed Tax in accordance with regulations. The transferring of land and house property refers to: (i) Remising of the utilization right of national land, not include the transferring of management right of countryside collective land contracting; (ii) Transferring of utilization right of land, include selling, gifting and exchanging; (iii) House buying and selling; (iv) House gifting; (v) House exchanging. The rate of Deed Tax ranges from 3% to 5%.

II. Preferential Tax Policies

The Chinese government levies low tax on enterprises with foreign investment, and the main preferential tax policies include: practice preferential rate of Corporate Income Tax, reduce Corporate Income Tax, as well as exempt tariff and import-stage value-added tax of import equipment.

Preferential Rate of Corporate Income Tax: The normal rate of Corporate Income Tax for foreign-invested enterprise is 33%, but preferential tax policies are offered to the sectors and regions where investment is encouraged by the state.

The 15% preferential rate of tax apply to

	Enterprises with foreign investment located in special economic zones
	Production Enterprises with foreign investment located in Pudong New District (Shanghai)
	Production Enterprises with foreign investment located in state economic and technological development areas
	Enterprises with foreign investment located in state new and hi-tech industrial zones that adopt new and high technology;
	Enterprises with foreign investment that are engaged in projects such as energy, communications, port and dock.

The 24% preferential rate of tax apply to

	Production Enterprises with foreign investment located in open coastal economic zones, open cities beside sea, river or frontier, or provisional capitals
	Production Enterprises with foreign investment located in the old part of cities possessing special economic zones or state economic and technological development areas.

Reduction of Corporate Income Tax

	The production enterprises with foreign investment that have an operation period exceeding 10 years shall, from the year they begin to make profit, be exempted from income tax for the first two years and allowed a 50% reduction for the following three years;
	The enterprises with foreign investment that adopt advanced technology shall be exempt from income tax for the first two years and allowed a 50% reduction for the following six years; In addition to the two-year tax exemption and three-year tax reduction treatment, foreign-invested enterprises producing for export shall be allowed a reduced income tax rate of 50% as long as their annual export accounts for 70% or more of their sales volume (If a production enterprise pays corporate income tax on the rate of 15% and fits in this condition, then it could pay corporate income tax on the rate of 10%. ) ;
	Enterprises with foreign investment engaged in agriculture, forestry and animal husbandry, and enterprises with foreign investment established in remote and underdeveloped areas may, upon approval by the State Bureau of Taxation, be allowed a 15 to 30 percent reduction on the income tax for a period of another 10 years following the expiration on the period of tax exemption and reduction as provided for above;
	The income tax on enterprises with foreign investment located in mid-west China that are engaged in projects encouraged by the government shall be levied at a reduced rate of 15% for a period of anther three years following the expiration of the five-year period of tax exemption and reduction;
	The income tax on enterprises with foreign investment located in mid-west China that are engaged in projects encouraged by the government shall be levied at a reduced rate of 15% during the period of 2001 to 2010;
	Reinvestment and tax refunding. The foreign investor of an enterprise with foreign investment which reinvests its share of profit obtained from the enterprise in a project with an operation period of no less than 5 year shall, upon approval by the State Bureau of Taxation of an application filed by the investor, be refunded 40% of the income tax already paid on the reinvested amount. Foreign reinvested export-oriented enterprises shall be refunded 100% of the income tax already paid on the reinvested amount;
	Profits of foreign investors gained from wholly foreign-owned enterprise shall be exempt from income tax;
	Deduction of local income tax. The exemption and reduction of local income tax on enterprises with foreign investment that are engaged in encouraged industries and projects shall be decided by local government of province, autonomous region and municipality in accordance with actual situation.

III. Deduction and Exemption of Import Tariff

(i) Tariff rate: The present average tariff rate is 12%.

(ii) Tax exemption for imported equipment: Equipment imported for foreign-invested or domestic-invested projects that are encouraged and supported by the state shall, besides all commodities in Catalogue of Imported Commodities not Entitled for Tariff Exemption for Projects with Foreign Investment, enjoy tariff and import-state value-added tax exemption.