A: (1) Income Tax

Income tax rate: The current rate of income tax imposed upon foreign investment enterprises is 33%, though it is set at the lower rate of 15% in special economic zones, national hi-tech industrial zones and national grade economic and technical development zones. In coastal regions and provincial capitals the rate is 24%.

Tax-reducing policy: Foreign investment enterprises may enjoy the benefit of business income tax not being collected during the first two years after the beneficial year; a half income tax may then be imposed for the succeeding 3 years.

Foreign investment enterprises in the central and western regions are also encouraged by the State via 5 years' of tax reductions, with the possibility of a further 3 years' half income tax thereafter.

In the case of advanced technology enterprises, they are exempted from income tax for two years and are then subject to a half income tax for the following six. Export enterprises enjoy the benefits of two years' exemption and three years at half rate.

(2) Turnover Tax

From 1st January 1994, China started to implement unified Value Added Tax, consumption tax and business tax in foreign invested enterprises whilst simultaneously abolishing industrial and commercial consolidated tax. Foreign enterprises and foreign invested enterprises are exempted from business tax in technological transfer. If the foreign invested enterprise purchases equipment made domestically within the volume of total investment, there is a benefit of a refund of value added tax on domestically-made equipment.

(3) Import Tax

Tariff Rate: The Chinese government has lowered import tariff rates several times; the current rate is 12% and China's WTO concession will render the tariff to lower further according to the agreed time line.

Tariff Exemption Policy for Equipment Import: The importation of equipment for foreign or domestic-invested projects which are both encouraged and supported by the State shall be granted tariff and import- stage value-added tariff exemption. Provided that the foreign-invested product is subject to the Category of Encouragement, all equipment imported for its use within the aggregated investment shall be exempted from tariff and import-stage value-added tax (unless the project comes under the heading of those not entitled to Tariff Exemption). The aims of this policy are to expand the use of foreign investment and to encourage the influx of foreign technology whilst maintaining a healthy and developing domestic economy.

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