(1) Enterprise Income Tax

The income tax on enterprises with foreign investment established in Special Economic Zones, on foreign enterprises which have establishments or places in Special Economic Zones engaged in production or business operations, and on production-oriented enterprises with foreign investment in Economic and Technological Development Zones, shall be levied at the reduced rate of fifteen percent.

The income tax on production-oriented enterprises with foreign investment established in coastal economic open zones or in the old urban districts of cities where the Special Economic Zones or the Economic and Technological Development Zones are located, shall be levied at the reduced rate of twenty-four percent.

The income tax on enterprises with foreign investment engaged in energy resource, transportation, port, and dock projects may be levied at the reduced rate of fifteen percent with the approval of the State Administration of Taxation.
Production-oriented enterprises with foreign investment scheduled to operate for a period of not less than ten years shall, from the year beginning to make profit, be exempted from income tax in the first and second years and allowed a fifty percent reduction in the third to fifth year. However, the exemption from or reduction of income tax on enterprises with foreign investment engaged in the exploitation of resources such as petroleum, natural gas, rare metals, and precious metals shall be regulated separately by the State Council.

Chinese-foreign equity joint ventures engaged in port and dock construction where the period of operation is 15 years or more shall, following application by the enterprise and approval thereof by the tax authorities of provinces, autonomous regions, or municipalities directly under the Central Government of the location and commencing with the first profit-making year, be exempt from enterprise income tax from the first year to the fifth year and subject to enterprise income tax at a rate reduced by one half for the sixth year through the tenth year.

Enterprises with foreign investment engaged in agriculture, forestry or animal husbandry and enterprises with foreign investment established in remote underdeveloped areas may, upon application filed by the enterprise and approval by the competent department of tax affairs under the State Council, be allowed a fifteen to thirty percent reduction of the amount of income tax payable for a period of another ten years following the expiration of the period for tax exemption or reduction.

Export-oriented enterprises invested in and operated by foreign businesses may be levied at the reduced rate of fifty percent after the expiration of the period for tax exemption or reduction in accordance with the provisions of the Tax Law if the export value accounts for 70% or more of that year's total output value of the enterprise. However, export-oriented enterprises in the special economic zones and economic and technological development zones and other such enterprises subject to enterprise income tax at the tax rate of 15% that qualify under the above-mentioned conditions shall pay enterprise income tax at the tax rate of 10%.

Advanced technology enterprises invested in and operated by foreign businesses which remain advanced technology enterprises after the period of enterprise income tax exemptions or reductions has expired in accordance with the provisions of the Tax Law may continue to be taxed by half for an additional three years.

Losses incurred in a tax year by any enterprise with foreign investment and by an establishment or a place set up in China by a foreign enterprise to engage in production or business operations may be made up by the income of the following tax year. Should the income of the following tax year be insufficient to make up for the said losses, the balance may be made up by its income of the subsequent year, and so on, over a period not exceeding five years.

(2) Individual Income Tax

For foreign nationals working in enterprises with foreign investment or foreign enterprises set up in China, their taxable income is the balance of their monthly income after the deductions for expenses of 3200 RMB in addition to a monthly deduction for expenses of 800 RMB.

(3) Profit

The profits that foreign investors make from the enterprises with foreign investment are exempt from the income tax.

(4) Importing Equipment

Tariffs and import link value-added tax shall be exempted with respect to import equipment for their own use (including technology, matching components and parts along with imported equipment in accordance with contract) within the total amount of investment of encouraged projects in line with the Catalogue for the Guidance of Foreign Investment Industries, with the exception of the commodities listed in the Catalogue of Non-Duty-Free Commodities to Be Imported for Foreign-Funded Projects.

Foreign-funded enterprises whose business scope falls into the Encouragement Industry Catalogue stipulated by the state, or foreign-funded R&D centers, or foreign-funded technically advanced enterprises or foreign-funded export-oriented enterprises will be exempted from tariffs and import link value added tax in accordance with Circular of the State Council on the Adjustment of Tax Policy on Equipment Imports (Guo Fa [1997] No. 37) when they import, for their own technical updating, equipment and supporting parts, auxiliaries and relative technology within their original business scope that the local enterprises cannot produce or supply or the local productsĄŻ performance can not meet their requirement.

If foreign-funded enterprises import equipment for self use, as well as technology, matching components and parts along with imported equipment in accordance with contract in order to manufacture the commodities listed in the Catalog of the State High-tech Products, these items, except the ones listed in Catalogue of Non-Duty-Free Commodities to Be Imported for Domestic Investment Projects  (Guo Fa [1997] No. 37), shall be exempted from tariffs and import link value-added tax.