Provisions of Incentive Policies of Chongqing for Encouraging Foreign Investment

On l4th April 200l

Chongqing, P.R.China

Chapter l Sectors Available for Investment

Article l

Foreign Merchants (Foreign merchants as referred to hereinafter are inclusive of merchants of Hong Kong, Macao and Taiwan) and their invested enterprises in China are free to make any investments or to have any operations in this City without restrictions on sector, proportion of investment, forms of investment, category of trades and term of running, unless other wise stipulated by the state.

Foreign merchants are encouraged to invest in the City's infrastructure and resource exploration projects covering areas of agriculture, water conservancy, ecology, communication, public works, environment protection, minerals, tourism, traditional enterprise renovation, high & new technology-oriented industries, as well as establishment of R & D centers.

Chapter 2 Examinations and Approvals

Article 2

For a wholly foreign owned project or a joint venture project between foreign merchants and domestic non-state owned enterprise with an investment volume of less than US$30 million, and if such a project is enlisted in the Encouraged Project, and which does not require the general considerations and co-ordinations of the state and does not cause pollutions, the feasibility study of such a project shall be subjected to a system of" filing up for record."

For a same project with the above conditions but with a volume of over US$30 million, its feasibility study and project proposal shall be submitted together for examinations and approvals.

For a project with an investment volume of over US$30 million, which does not require the general considerations and co-ordinations of the state and is covered by the Encouraged Project in A Guided Catalogue of Sectors for Foreign Investment or covered by the Advantageous Project in Mid & West China for Foreign Investment, its Joint Venture Contract and the Articles of Association shall be for the approval of Chongqing Foreign Trade & Economic Relations Commission, to be documented in Ministry of Foreign Trade & Economic Co--operation.

Chapter 3 SAIC (Business) Registration

Article3

The forms of investment covering project which is enlisted in the Encouraged Project can be decided by foreign merchants on their own. Foreign merchants can also at same time operate enterprises or services associated with the above projects according to the state's applicable regulations.

Article 4

Support shall be extended to the interchange and restructuring of foreign and domestic assets, such interchange and restructuring shall be treated as an amendment registration, opening registration shall not be charged.

Article 5

A key project or the one with a registered capital of above US$2.00 million is allowed to be named after the common names of the business it is dealing in. Foreign merchants upon taking over a domestic enterprise may fee1 free to apply for a new name or use the origina1 name of the enterprise which is taken over.

Article 6

In the event of foreign merchants investing in an domestic enterprise in manners of contracting, leasing and share participation, or in the event of a foreign invested enterprise re-investing in a domestic enterprise, the receiving enterprise, if the foreign capital reaches 25% can be treated as a foreign invested enterprise and shall enjoy the preferential policies applied to normal foreign invested enterprises.

Chapter 4 Taxation

Article 7

The corporate income tax of a foreign invested enterprise of production nature shall be levied at 24%, which is a reduced rate. For those which have an operation term of over 10 years, the corporate income tax shall be exempted for the first and the second year starting from the first profitable year whilst the corporate income tax of the 3rd, 4th an 5th year sha1l be levied at half of the rate.

The foreign enterprises covered by the Encouraged Project and the Grade 2 Restrictive Project as listed in A Guided Catalogue of Sectors for Foreign Investment, or those which are approved by the state for purpose of advantageous projects may enjoy a corporate income tax of I5% for three years fol1owing the expiration of the existing preferential policies.

For those foreign invested enterprises of production nature involving intensive technology and intelligence, those involving an investment of over US$30 million and with a long return period and those covering energy, communication and port construction, corporate income tax shal1 be levied at l5% subject to the final approval of the State Taxation Bureau. The corporate income tax of foreign invested enterprises of production nature inside Chongqing Economic & Technological Development Zone and New Towns of North Chongqing shall be levied at l5%, which is a reduced rate.

The corporate income tax of foreign invested enterprises inside Chongqing High & New Tech Industrial Development Zone, if regarded as high & new tech enterprises shall be levied at l5%, which is a reduced rate. The corporate income tax of those with an operation term of over 10 years shall be exempted for the first 2 years starting from the first profitable year, subject to the approval of local taxation authority.

If an enterprise with advanced technology still remains to be an advanced enterprise after the expiration of applicable preferential tax treatment it has enjoyed, its corporate income tax can be levied at half of the rate for another three years according to taxation law.

However in the event of the corporate income tax, which is reduced at half of the rate being under l0%, a l0% rate shall be levied.

Article 8

Upon expiration of the preferential tax treatment by the state, an export-oriented foreign invested enterprise in the event of its export volume reaching above 70% of its total output in a year shall enjoy a corporate income rate at l0% for the same year.

Article 9

For foreign invested enterprises covering the areas of communication, power supply, post service and broadcasting, the corporate income tax shall be exempted for the first 2 years and to be levied at half of the rate for another 3 years.

Article l0

In the event of a foreign merchants of financial institution transferring in or a branch receiving from its head office an amount of US$l0 mi1lion, and with an operation term of over l0 years, its corporate income tax can be levied at l5%, that of first year can be exempted, and that of the second and the third year can be levied at half of the rate, starting from the first profitable year, subject to approval of taxation authorities.

Article 11

In the event of a foreign enterprise having no affiliates or operation premises in China but are receiving incomes out of shares, interests, rents, license and rest of earnings, corporate income tax shall be levied at l0%.

Article l2

In the event of foreign merchants re-investing its profit out of a foreign invested enterprise in the same enterprise to increase registered capital or investing in a new enterprise, and if such re-invested operations will have a term of 5 years or above, 40% of its paid income tax on its reinvestment part shall be returned. In case that its profit is re-invested in expanding an export-oriented enterprise or an enterprise with advanced technology, and if such re-invested operations wil1 have a term of 5 years or above, a11 its paid income tax on its re-investment part shall be returned.

Article 13

In the event of a foreign invested enterprise utilizing badland for developing agricultural technological project and ecologic agriculture project, the agricultural tax shall be exempted for 5 years starting from the first earning year. For developing agricultural specialties which are tax payable, such payable agricultural specialties tax shall be exempted for 10 years starting from the first earning year.

Article l4

For foreign invested enterprises engaged in agricultural development, the corporate income tax shall be levied at l5%-30% for l0 years following expiration of stipulated preferential tax rate, subject to the approval of taxation authorities.

Article 15

For a foreign invested enterprise engaged in exploiting an unused land whose right of use is not yet determined, the agricultural tax shall be exempted for 5 years, or the agriculture specialty tax shall be exempted for 8 years, starting from the first earning year.

Article l6

For foreign invested projects which are covered by advantageous industries as encouraged for foreign investment in mid and west China, import duties and import linkage tax may be exempted according to the State Council's Adjusting Policy on Equipment import in case that an enterprises investing in such projects will import, within its budget of total investment or with its additional funds beyond the total investment equipment, associated technology, spares and accessories which are not manufactured in China or the technical specifications of same manufactured in China can not meet the requirement.

Article l7

The local corporate income tax of a foreign invested enterprise with production nature shall be exempted whilst for a foreign invested enterprise with non-production nature but with an operation term of over l0 years the loca1 corporate income tax sha1l be exempted for the first 2 years starting from the profitable year, to be followed by levying at half of the rate for the 3rd, 4th and 5th year.

Chapter 5 Land & Housing

Article l8

In the event of foreign merchants developing with high technology state-owned badland, bad mountains and bad beaches whose right of use is not yet determined for purpose of planting, forestry, husbandry, fishery and quality agricultural production, the right of use may be granted by way of auction and leasing for a term of use for 50 years maximum.

Article l9

In the event of a foreign invested enterprise being engaged in agricultural development, infrastructure construction inc1uding power station, airport, highway, bridge, port, dock water works (piping system excluded ) water conservancy and environment protection, the lowest price of same land shall apply. If approved by municipal government, the 50% of the charges on land can be just recorded, to be paid off within 6 years.

Article 20

Foreign invested enterprises engaged in building and operating high- class highway, port and dock shall enjoy priority in running real estate, service trade and road/river transport business along the highway and port as included by master plan of the city.

Article 2l

In the event of foreign merchants establishing a production enterprise by way of joint venture and co-operative operations, and on condition that the legal entity of Chinese partners remains unchanged, the let-out fees of use of land can be used as a Chinese state share for pouring into the enterprises.

Article 22

In the event of a foreign invested enterprise being engaged in economical house and buildings, the same treatment to Chinese domestic enterprises shall apply.

Article 23

In the event of the ownership and the operation right of a Chinese enterprise being hired by an overseas legal entity and the Chinese legal entity being written off the right of use of the allocated land shall be withdrawn by a government at county level or above, and the land will be let out or reallocated for the use of the hiring enterprise according to the approval procedures of land use. The hiring party shall pay land-use fees or ground-use fees to the government according to relevant regulations.

If the hiring activity allows the existence of the legal entity of the Chinese enterprise or only the right of operation of Chinese enterprise is hired, apart from the above which will be applicable to the right of land-use, the Chinese enterprise can also rent the land to the hiring party subject to the approval of authorized land administration department, the ground fees shall be paid by the renting party (or an agreed party).

Article 24

In the event of foreign invested enterprises obtaining the right of land-use in this City by way of administrative allocation, the ground fees shall be charged at half of the rate. Among them, for those who are engaged in agriculture, forestry, husbandry, fishery operations, science & technology, education, health causes, as well as infrastructure constructions including power station, airport, highway, bridge, port, dock, water works (piping system excluded), water conservancy and environment protections, ground fees shall be exempted.

Article 25

Ground/land use fees of foreign invested enterprises winning the Municipal Export Certificate of Advanced Technological Certificate shall be free of charge for 3 years starting from the date of approval of the ground/land use.

Article 26

Ground/land use fees of foreign invested enterprises in minority areas, the state and provincial poverty areas shall be free of charge.

Article 27

In the event of foreign merchants taking over and restructuring bankrupt enterprises or those which are in distress, charges on transfer registration upon re-registration of ownership of buildings and use of land shall be free.

Article 28

Foreign merchants (foreign enterprises and their representation offices in China) are encouraged to invest in non-oil/gas mineral resource explorations and exploitations according to Mineral Resource Law and A Guided Catalogue of Sectors for Foreign Investment. Foreign merchants are allowed to undertake non-oil/gas mineral risk assessment in manners of wholly foreign owned operations or on co-operative basis with Chinese partners.

A foreign invested enterprise engaged in geologic survey, upon finding mineral areas whose mining right have not been given yet or finding important information on source of mineral areas shall enjoy the priority in exploring such areas.

Article 29

Foreign merchants shall enjoy the priority in exploiting the minerals which are explored by them, except for those which are prohibited by law. Foreign merchants are allowed to use their advanced technology or equipment as share contributions to joint exploration and exploitation of non-oil/gas minerals. Foreign merchants are free to buy over the non-oil/gas mineral exploration or exploitation rights of Chinese large and mid size state-owned enterprises. A foreign invested enterprise is also free to sell its non-oil/gas mineral exploration and exploitation rights according to law.

Article 30

Foreign merchants are entitled to compete for mining right in manners of public bidding and auction according to A Guided Catalogue of Sectors for Foreign Investment.

Article 3l

Foreign invested enterprises engaged in mineral resource explorations and exploitations, whilst enjoying normal applicable incentive taxation and charges as granted by the state and local government shall enjoy following preferential treatment: -

(1) The fee of use of mining right shall be free of charge for 1 year and charged at half of the rate for 2 years in the event of non-oil/gas mineral explorations and exploitations.

(2) In the event of non-oil/gas minerals enlisted in the encouraged list of A Guided Catalogue of Sectors for Foreign Investment being exploited, the mineral resource compensation fee shall be free of charge for 2 years.

(3) In case of associated and accompanying minerals other than major non-oil/gas minerals being exploited, the mineral resource compensation fee of associated and accompanying minerals shal1 be charged at half of the rate.

(4) The mineral resource compensation fee shall be free of charge in case of tai1 minerals being exploited.

(5) Mineral resource compensation fee shall be charged at half of the rate for 3 years in case that an international1y advanced technology or equipment is utilized to have exploited minerals which can be hardly exploited by existing Chinese technology.

(6) In case that the exploitation recovery rate, mineral selection recovery rate and comprehensive utilization rate is made to be higher than originally designed level or the state standard by an effective technology introduced, the mineral resource compensation fee shall be charged at half of the rate for 3 years. Additionally the mineral resource compensation fee on excessive minerals exploited more than original design or state standard shall be free.

(7) In case that the mineral resource explorations and exploitations take place in the minority, the state and provincial poverty areas, the mining fee shall be free of charge for 5 years. Furthermore, the ground fees and the part of mining fee which belongs to local government shall be charged at half of the rate.

(8) Foreign invested enterprises suffered an annual loss due to force causes may be given a grace period to pay the mineral resource compensation fee for the year at a loss, the fee of use of mining right of the year at a loss can also be charged at less than 50% of the rate.

(9) The cost of geological examination and exploration which has actually identified minerals in a plotted area, which are available for exploitation can be taken as deferred assets from the first year when minerals are exploited, to be amortized in 5 years before tax, or to be amortized in 2 years before tax in the event of the mining license being valid for less than l0 years. Examination and exploration cost occurring during exploitation activities can be charged to cost of production.

(10) Depreciations of fixed assets can be accelerated during the actual exploitation stage, subject to the approval of taxation authority.

(11) In the event of a state financed mine being explored or exploited, the fee on mining right can be charged at 70% of the assessed amount, which can be also paid in installments.

Chapter 6 Foreign Exchange & Credit

Article 32

A foreign invested enterprise may open a foreign currency account in authorized banks or rest of financial institutions, subject to the approval of the State Administration of Foreign Exchange Chongqing Foreign Exchange Administration Department (hereinafter referred to as "CFEAD").

Article 33

An overseas legal person or natural person for purpose of financing an intended foreign invested enterprise may, in the name of the overseas legal person or natural person and with a letter of intention for an investment and proof(s) of remittance app1y to CFEAD for opening a temporary foreign currency account to deposit an early investment. This account may be used for an extended period of time in case of special need.

Article 34

In the event of foreign merchants transferring outward the profit, dividend or bonus of foreign invested enterprises and the salary or rest of the legal earnings of foreign, HK, Macao and Taiwan employees, they can just do it upon presentation of a reso1ution of the board, taxation Proof(s) or rest of documentation from their foreign exchange account or designated banks.

Article 35

In case that a foreign invested enterprise uses its profit which is in RMB as verified by CFEAD to make a re-investment, such an investment shall be regarded as an investment in foreign currency.

The rest of investment in PR China by foreign invested enterprises in RMB originating from account settling, share transfer and preceding return of investment shall also be regarded as an investment in foreign currency.

Article 36

All banks in this City shall extend to foreign invested enterprises crediting supports in the same way as extended to domestic enterprises in case that foreign invested enterprises should need working capital to enable export-oriented productions.

Article 37

A foreign invested enterprise may mortgage its foreign currency to Chinese banks for RMB loan, as well as to apply for an RMB loan with the guarantee of foreign banks.

Chapter 7 Import & Export

Article 38

A foreign invested enterprise manufacturing product for export may apply the establishing a bonded warehouse or plant, subject to the approval of Customs Head Office while establishment of bonded warehouse for spares and accessories can be approved by local Customs office.

Article 39

For commodity inspections of imported equipment which are carried out jointly by commodity inspection authority and the importing enterprises, commodity inspections of imported equipment associated with foreign invested resource exploitation, power station, airport, highway, bridge, port, dock, high-tech--oriented industries projects and commodity inspections of equipment imported by enterprises whose annual export volume takes up 50% of the total annual output, the commodity inspection fees shall be charged at 50% of the state stipulated rate. Based on this calculation, if a charge on a single case reaches RMB5,000 yuan, then only 80% of the excessive amount shall be actually charged on the single item.

Article 40

For equipment imported within total investment of projects covered by Encouraged Project and the Grade 2 Restrictive Project as listed in A Guided Catalogue of Sectors for Foreign Investment, the Customs duty and the linkage VAT shall be exempted with the exception of the commodities enlisted in the List of Imports for Foreign Invested Projects Which Shall Not be Duty Free.

Article 4l

Unvalued equipment to be imported as required by re—export (oriented processing shall be duty free, raw materials or accessories as required by producing export commodities sha1l be bonded by Customs.

A foreign invested enterprise sha1l export product manufactured by themselves as duty free.

Article 42

The exit & entry inspection and quarantine authority sha1l carry out eva1uations of the assets imported by foreign invested enterprises within total investment promptly, efficiently and justly according to the relevant regulations. Evaluation charge on an amount of US$1 .00 to 5.00 million shall be at 0.25%, eva1uation charge on an amount of US$5.00 to l0 million shall be at 0.2%, evaluation charge on an amount of US$l0 to l00 million shall be at 0.l %. Based on this calculation, if an eva1uation charge on a single case reaches RMB5000 yuan, then only 80% of the excessive amount shall be actually charged on the single item.

Article 43

The products manufactured by enterprises are allowed to be exported by enterprises themselves, if in case the export invo1ves an export quota or export 1icense, the enterprises shall app1y to relevant authorities for solutions. In case of products to be exported being products to be handled by authorized agent on1y, such products shall be sold to authorized agents for export or to be exported on the basis of an agency export agreement. In the event of the products being exported by a foreign trade company on the basis of an agency agreement, all foreign currency incomes except for the agreed agency charges shall be maintained by the enterprises for future development.

Article 44

In the event of a foreign invested enterprise importing materials subjected to quota system for their own use, the application and approval procedure shall be as same as for Chinese domestic enterprises.

Article 45

In the event of a foreign invested enterprise importing seed, seeding, stud stock, forage, animal and planting medicine subject to approval of forestry authority and inspections of exit & entry quarantine authority, import license shall not be required and such materials imported shall be in the custody of Customs and cleared at Customs just by presentation of import/export contacts, unless other stipulated by the state.

Article 46

In the event of a foreign invested enterprise importing production equipment and necessary technology or accessories as required to enable cultivation, planting, breeding and agro-produce processing and in the event of foreign resident personnel who have obtained residential card importing reasonable number of house articles, Customs duty and linkage VAT shall be exempted.

Chapter 8 Personnel Management

Article 47

Special technical & management personnel shall be allowed to work in foreign invested enterprises.

Article 48

Technical personnel working in foreign invested enterprises are free to apply for corresponding technical specialty qualifications without restrictions on identity territory, post and schooling educations. Those who have made outstanding contributions are even entitled to apply for technical specialty qualifications of a higher grade according to municipal regulations on accreditation of technical specialty qualification for special personnel.

Article 49

Foreign invested enterprises are free-to transfer in or temporarily call in employees of units of different ownership, such transfers shall be treated as same as for Chinese domestic enterprises.

Article 50

A foreign invested enterprise may entrust a personnel exchange agency to arrange public recruitment of Chinese employees.

The personnel to be recruited can be decided by foreign invested enterprises on their own, personnel & labor administrations shall give priorities in completing necessary formalities, and no administration expenses shall be charged by municipal personnel and labor departments except for normal service fees which are charged by the handling agencies.

Article 5l

In the event of a foreign invested enterprise applying to labor assurance administration for Permit for Employment of Foreigners in PR China and Employment Permit for Foreigners in PR China, service fees and employment administration expenses shall be exempted.

Article 52

Foreign invested enterprises recruiting yearly graduates from colleges, technical secondary schools and postgraduates can either contact directly the colleges and schools or entrust municipal personnel exchange institutions as an agent to make the recruitment and complete necessary formalities.

Chapter 9 Removal Development

Article 53

In the vent of a foreign invested enterprise taking over and merging, or entering into a joint venture or co-operative operations with enterprises inside Three-Gorges Project area which will be removed, such newly founded enterprises shall be treated as a removal enterprise.

Article 54

In the event of foreign merchants investing in constructions of communication, energy, telecom and environment protection inside the Three-Gorges Project, not only the re-constructions will be covered by preferentia1 policy, but also the extended constructions will be covered. For those who sell the right of use of re-constructed facilities for a certain period of time, priorities shall be given in distribution of Removal Compensation Fund.

Chapter l0 Miscellaneous

Article 55

The proportion of export and sales in Chinese market of products manufactured by foreign invested enterprises can be decided by enterprises on their own, unless otherwise stipulated by the state.

Article 56

A foreign invested enterprise shall enjoy the same treatment as extended to a domestic enterprise in respect of water, power, gas supplies, as well as highway maintenance charges on vehicles of foreign invested enterprises and of foreign merchants.

Article 57

In the event of a foreign invested enterprise re-structuring an enterprise in distress and having taken over all employees, the land-use fee can be exempted subject to approval of municipal government.

Article 58

In case that the foreign personnel of foreign invested enterprises need to stay for a long term as required by the contract stipulations, formalities for such long stay shall be handled by Municipal Public Security Authority. In case that the Chinese personnel working in wholly foreign owned enterprises or foreign invested enterprises between foreign enterprises and Chinese partners of non-state-ownership need to go abroad for business purpose, the formalities for going abroad shall be handled by Municipal Pubic Security Authority whilst the formalities for Chinese personnel working in other foreign invested enterprises going abroad for business purpose shall be handled by Municipal Foreign Affairs Office.

Article 59

Agricultural project with investment in minority areas, the state and provincial poverty areas shall be covered by state preferential policies applicable to minority and poverty areas.

Article 60

The above provisions shall come to effect from date of publication, and is superseding the original Preferential Policies Encouraging Foreign Investment in Chongqing (promulgated in l997), Supplementary Provisions of the Preferential Policies Encouraging Foreign Investment in Chongqing (promulgated in l998) and the Preferential Policies Encouraging Foreign Investment in Agricultural Sector of Chongqing (promulgated in l997) which are hereby declared as abolished immediately.