GuoShuiFa [1993] No.45 July 21,1993

The tax bureaus of various provinces, municipalities directly under the Central Government and autonomous regions, the tax bureaus of various municipalities separately listed on the State plan and various sub-bureaus of the Offshore Oil Taxation Administration:

In accordance with related stipulations on the experimentation with the shareholding system, the state permits some pilot enterprises to issue domestic special shares (referred to as B-shares for short) in Renminbi and shares issued and 1isted abroad (referred to as overseas shares for short), we hereby clarify the question concerning tax on the profits earned by enterprises with foreign investment, foreign enterprises and individual foreigners from the transfer of the above-mentioned stocks (stock rights) which they hold and from the incomes gained from dividends (bonuses):

I. Profits earned from the transfer of stocks (stock rights)

1. The net income earned by enterprises with foreign investment from the transfer of stocks or stock rights, as well as the net incomes gained by foreign enterprises through the offices and sites they set up within China from the transfer of China's domestic enterprise shares which they hold shall be charged into the amount of the enterprise's current taxable incomes and income tax shall be paid. The net loss caused by the transaction of the above-mentioned stocks may eat up the amount of the enterprise's current taxable income.

2. The net profit earned by a foreign enterprise from the transfer of B-shares issued by China's domestic enterprises and overseas stocks held not by its offices and sites set up within China and the net incomes gained by individual foreigners from the transfer of Be-shares issued by China's domestic enterprises and overseas stocks are temporarily exempt from income tax.

3. A foreign enterprise and individual foreigner, who earns income from the transfer of the stock rights of an enterprise with foreign investment within China that exceeds the income gained from the transfer of part of the amount of his investment, shall still pay withholding income tax or individual income tax at a 20 percent rate in accordance with the stipulations of the Documents of the Ministry of Finance (87) coded Cai Shui Wai Zi No. 033 and the Document of the Ministry of Finance (84) coded Cai Shui Zi No.114.

II. Income from dividends

1. In accordance with the stipulations of Article 19 of the Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises and the stipulations of Paragraph 2 of Article 5 of the Rules for the Implementation of the Individual Income Tax Law of the People's Republic of China, the profits (dividends) gained by foreign investors from the enterprises with foreign investment and the dividends and bonuses gained by individual foreigners from the Chinese-foreign equity joint ventures are exempt from income tax.

2. The income from dividends (bonuses) gained by foreign enterprises and individual foreigners who hold B-shares or overseas shares from China's domestic enterprises which issue B-shares or overseas shares, is temporarily exempt from enterprise income tax and individual income tax.

III. This Circular shall enter into force as of the day of receipt of the document.

Promulgated by The State Administration of Taxation on 1993-7-21