1. Taxation issues concerning Beijing's implementation of the policies for open coastal cities

Since January 1st, 1995, production-oriented enterprises shall pay enterprise income taxes at a reduced rate of 24 percent when approved by the competent tax authorities, provided they meet the following conditions: production-oriented EFIs engaged in productions and business operations in the administrative jurisdiction region of Beijing; the said productions and business operations tally with the regulations of the Tax Laws and interpretations by the State Administration of Taxation on EFI-related clauses; the nature of EFIs that run both productive business and non-productive business should be defined according to the Document G.Sh.F. (1994) No 209 issued by the State Administration of Taxation, i.e. if the productive business is covered in their business licenses, and if the income from the productive business is more than 50 per cent of the total output for the year, the EFIs are considered as production-oriented, while those without productive business in the scope of their business licenses, no matter how large the proportion of their productive business, should not enjoy the tax preferences production-oriented enterprises.

With the approval of the competent tax authority, the tax rate for production-oriented enterprises entitled to tax concessions may be further reduced from 24 per cent and on this basis they may pay taxes at a halved rate.

For non-production oriented enterprises and those EFIs not deemed as production-oriented under the Tax Laws, the rate of enterprise income tax should remain 30 per cent, and 3 per cent for the local income tax.

The following production-oriented enterprises in the administrative jurisdiction region of Beijing may apply to the competent tax authorities for a tax reduction, and after reviewed by the competent tax authority and the municipal office of state taxation administration and finally approved by the State Administration of Taxation, a 15 per cent income tax rate shall apply: technology and knowledge intensive projects; projects with US$30 million foreign investment and a long period of return on investment; projects on resources, transportation, port construction, etc.

For foreign-funded financial institutions authorized to be established in the city, if the capital contribution by foreign investors or the working capital transferred from the head offices exceeds US$ 10 million and the operation period is over ten years, upon the review of the competent tax authorities and approval by State Administration of Taxation, they may pay the enterprise income tax at a reduced rate of 15 per cent. From the first profit-making year, they shall be exempted from the enterprise income tax in the first year and pay the tax at a halved rate during the second and third years.

Where dividends, interests, rents and royalties are paid to foreign enterprises, companies or economic organizations without establishments or places in China, the payer shall withhold and remit the enterprise income taxes payable by the said foreign entities. Beginning Feb. 27th, 1995, for those foreign enterprises, companies or economic organizations with establishments in China, dividends, interests, rents, royalties and any other Beijing-sourced income obtained through the conclusion of contracts are subject to income taxes at a reduced rate of 10% before the approval of the competent tax authority, unless tax exemption is granted under the laws. If the foreign entities provide funds or equipments on a favorable term, or transfer advanced technologies, they may apply to the competent tax authority for additional tax preferences which are subject to the final approval of State Administration of Taxation.

2. Production-oriented enterprises in Beijing Economic and Technological Development Zone

All the production-oriented enterprises operating in this zone shall pay the enterprise income tax at a reduced rate of 15 per cent for the income derived from the zone. Those production-oriented EFIs with an operation period of over ten years, since their first profit-making year, may enjoy two years¡¦ exemption from enterprise income tax and three years¡¦ income tax reduction by half.

If an EFI commences its operation in the middle of a year and makes profit for the current year yet the actual period of operation is less than six months, the EFI may choose to commence the term of tax exemptions and reductions from the following year, but the profit of the current year of the EFI shall be taxed under the Tax Laws.

3. Beijing experimental zone for new technology industry development

New technology enterprises in the experimental zone (covering Fengtai zone and Changping Park) may enjoy the following tax reduction or exemption: the income tax rate shall be reduced to 15 per cent; if the export value is over 40 per cent of the gross output value of the year as verified by the tax authorities, the income tax rate can be reduced to 10 per cent; since the date of establishment, the new technology enterprises shall be exempted from income taxes for the first three years and taxed at a halved rate from the fourth year through the sixth year.

In February 1999, the Beijing municipal government adjusted the scope of the experimental zone. Two unusable lots in Qinghe and Malianwa, totaling 18 square kilometers, are excluded from the zone while Beijing Electronic Zone and part of Beijing Economic and Technological Development Zone, with a combined area of 17.5 square kilometers, are incorporated into it. As a result, the high/new technology enterprises newly incorporated in the experimental zone may enjoy the preferential taxation policy applicable for the zone since Jan. 1st, 1999; meanwhile, those mapped out of the zone may not enjoy the policy any more, and the production-oriented EFI so mapped out may enjoy preferential taxation policy for production-oriented enterprises. EFIs that have obtained Certificate for New Technology Enterprises or Certificate for High and New Technology Enterprises in the newly expanded experimental zone may choose to enjoy tax preferences either as new technology enterprises or as production-oriented enterprises since Jan. 1st, 1999. If those previously under the tax holiday as production-oriented enterprises turn to apply for tax preferences as new technology enterprises, they may enjoy tax reductions or exemptions under the new status for the remaining years of the tax holiday beginning at the date of their establishment. The tax preferences for production-oriented enterprises ceases to be applicable for them.