GuoShuiFa [2003] No. 61 June 4, 2003

State taxation bureaus and local taxation bureaus of provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan:

In order to encourage foreign companies, enterprises, other economic organizations or individuals (hereinafter referred to as foreign investors) to take up business starting investment in China, the Ministry of Foreign Trade and Economic Cooperation, the Ministry of Science and Technology, the State Administration for Industry and Commerce, the State Administration of Taxation and the State Administration of Foreign Exchange jointly promulgated the Provisions on Administration of Foreign-Invested Business Starting Investment Enterprises (2003 No. 2 Decree, hereinafter referred to as Administration Provisions) in January of 2003. Concerning the issues related to enterprise income tax of foreign-invested business starting investment enterprises (hereinafter referred to as FIBSIE), it is hereby clarified as follows in compliance with the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises (hereinafter referred to as Tax Law) and its rules for the implementation.

I. According to the relevant provisions, the FIBSIE engaged in stock equity investment and transfer and providing business starting investment management service and consultative service to enterprises do not belong to productive enterprises stipulated by Article 72 of Tax Law and cannot enjoy the preferential tax treatment stipulated by Tax Law to productive enterprises with foreign investment.

II. The FIBSIE organized as a legal entity should declare and pay enterprise income tax with FIBSIE as one taxpayer according to Tax Law.

III. The FIBSIE not organized as a legal entity may declare and pay enterprise income tax by different investors respectively according to Article 7 of detailed rules of Tax Law; or it may declare and pay enterprise income tax as a whole according to Tax Law after its application is approved by local tax organs.

If the FIBSIEs, which are not organized as a legal entity, declare and pay enterprise income tax by investors respectively, foreign investors should calculate and pay enterprise income tax as foreign companies establishing agencies or offices in China. But for those FIBSIEs without a legal entity, which do not establish business starting investment management agencies and do not take up business starting investment management and consultation directly, but authorize one business starting investment management enterprise or another FIBSIE to manage and operate, foreign investors could declare and pay enterprise income tax as foreign enterprises not establishing agencies and offices in China.

IV. The FIBSIE, this circular mentioned, refers to enterprises with foreign investment that are approved by legal procedure and engaged in business starting investment according to the requirement and conditions of Administration Regulations. The names of the enterprises should include the characters of business starting investment.

V. This circular shall enter into force as of March 1, 2003.

Promulgated by The State Administration of Taxation on 2003-6-4