I.Taxation Regulation & Tax Incentives

The taxes governing the foreign-invested enterprises include: Enterprise Income Tax; Local Income Tax; Value-Added Tax (VAT); Consumer Tax; Business Tax; Individual Income Tax; Urban Real Estate Tax; Vehicle and Vessel Licence Tax, Stamp Tax.

1.Enterprise Income Tax and Preferential Treatment. Foreign-invested enterprises and foreign enterprises in China are governed by "the Foreign Investment Enterprises and Wholly Owned Foreign Enterprises Income Tax Law of the Peoples Republic of China." (See appendix table).

The reduced enterprise income tax rate for sino-foreign joint ventures engaged in port and wharf construction is 15%. The enterprise income tax rate for sino-foreign joint ventures whose operating life will be 15 years and more, upon receiving approval from tax authorities in the province, autonomous region, or municipality directly under the control of the Central Government that they are located in, will be exempted from enterprise income tax for five years from the first profit-making year. These enterprises will also be granted a 50% reduction in enterprise income tax commencing from the sixth year until the tenth year (with tax rate not less than 10%).

2.Local Income Tax and Tax Exemptions. Local income tax for foreign-invested enterprises and foreign enterprises is 3% of assessed income.

During the two year period of tax exemption and the three year period of reduced tax as granted by the Central Government regulations, exporting enterprises and technologically advanced enterprises with foreign investment are exempt from local enterprise income tax. Local income tax will be exempted after the above-mentioned five year exemption period if more than 50% of the output of an enterprise is exported the same year. Technologically advanced enterprises will continue to receive exemption from local tax for a period of three years after the above-mentioned five year exemption period. Local income tax will be exempted if a foreign-invested enterprise with production nature is established and operated in an established Economic & Technological Development Zone under the approval of the Jiangsu Province.

3.Tax Rebates for Enterprise Profits Reinvested in China

(1) Foreign investors who reinvest its profits in China with business period of not less than 5 years would obtain a 40% rebate on income tax.

(2)Foreign investors who reinvest profits to establish or expand an export-oriented or high-technology enterprises with business period of not less than 5 years, would obtain a full rebate on income tax paid on the amount reinvested.

In the event of an enterprise of the above-mentioned nature withdrawing before it has been in operation for five years, all tax rebates must be returned to the relevant tax authorities.

4.No Tax on Repatriated Profits. For foreign investors who have received a share of profits after tax, or profits exempted from tax, from foreign-invested enterprises and who repatriate the profits abroad, no tax shall be paid on the repatriated profits.

5.VAT, Consumption Tax, and Business Tax. Foreign-invested enterprises and foreign enterprises are governed by the interim provisions of the PRC on Value Added Tax, Business Tax, and Consumption Tax from January lst, 1994. The former Industrial and Commercial Consolidated Tax is no longer in effect.

6.Individual Income Tax, Reduced Tax and Tax Exemptions

(1) Income from wages and salaries in excess of specified amounts will be subject to a progressive income tax, the rate of which ranges from 5 to 45%.

Income derived from provision of personal services, royalties, dividends, the leasing of property and other kinds of income will be subject to a flat rate of tax of 20%.

(2) The amount of each category of tax shall be calculated as follows:

(a)For income from wages and salaries, tax shall be paid on the monthly income remained. after deducting RMB 800 per month.

(b)For income derived from the provision of personal services, royalties, or from the leasing of property, where the amount received does not exceed RMB 4,000 each time, expenses of RMB 800 can be deducted of income before tax is paid. Where the amount of income received exceeds RMB 4,000 an amount equivalent to 20% can be deducted for expenses. The remaining amount shall be taxed.

Income derived from interest, share dividends, bonus dividends and other sources will be taxed on the amount received for each payment.

(3)The scope of tax exemptions or tax reduction. For foreigners working in foreign-invested enterprises and foreign enterprises, resident representatives of other economic organisations, or foreigners working in various Chinese institutions, the tax-free portion to be deducted from income for the individual income tax is 4000 yuan/ month. For those live in China for less than 5 years, income obtained from outside China will not be subject to individual income tax.

7.Pre-taken Income Tax. Where foreign enterprises have not set up an office or other form of establishment in China but have income derived from within China from profits, interest, share dividends, rental income, royalties or other sources, or where even though they have an office or some other form of establishment in China but the income derived from within China from the above - mentioned sources is not related to the activities of that office or establishment, above-mentioned income will be subject to income tax at a rate of 20%.

Where royalties have been received for patented technology provided for the purposes of carrying out scientific research, the development of energy resources, the development of transport and communications, the development of agricultural, forestry or animal husbandry products, or for the development of important technology, after permission has been received from the relevant tax authorities, those royalties received will be subject to income tax at a rate of 10%. In cases where the technology concerned is advanced or preferential conditions exist, exemption from income tax may be granted.

Where a taxation agreement exists between China and a foreign country, tax rate on income derived from share dividends, interest or royalties will generally be between 10% to 15%. The tax rate on income derived from rental of property will ranging from 6% to 10%.

8.Urban Real Estate Tax. Urban real estate tax is to be paid by the owner of the property. Where a property has been mortgaged, the tax will be paid by the mortgagee.

The taxable value of property owned by an enterprise is to be calculated on the amount remained after a 30% deduction from the original book value of the property. The annual tax rate is 1.2%.

9.Vehicle and Vessel Licence Tax. The amount of annual licence tax on passenger vehicles will vary from RMB 180 yuan to RMB 300 yuan per vehicle. The amount of annual licence tax for trucks is RMB 60 yuan per net tonnage. Tax on motorised boats shall be collected by customs on the basis of tonnage. Motorised boats are exempted from licence tax.

10.Stamp Tax. A small amount of stamp tax will be paid on economic and technological contracts or various documentations produced in economic activities with the rate ranging from 0.1% to 0.005%.

11.The foreign-invested enterprises, which registered at the relevant industrial and commercial administration department after January 1996, would enjoy the preferential policies of tax rebates for the product exported.

II . Personnel Management

1.Recruitment. The recruitment of staffs and workers needed by a foreign-invested enterprise can be made openly in local labour markets.

2.Labour Contract. Labour Contract should be signed between the foreign-invested enterprise and individuals concerned to identify the rights and obligations for both sides.

Enterprises shall not dismiss staff workers who are under medical treatment for work related to injuries or occupational diseases, or who are receiving treatment in hospital or non-work related injuries, or female staffs and workers who are pregnant, on maternity leave or who are on leave to nurse their new-born children.

A foreign - invested enterprise may dismiss staffs and workers who, within the employment contract period, become superfluous as a result of significant changes in production or technological conditions, or dismiss staffs and workers in accordance with regulations set out in the employment contract. However, workers and staffs to be dismissed must be given one month' s notification of dismissal. Staffs and workers who have been dismissed by a foreign-invested enterprise, as well as those whose contracts have expired, should be given compensation calculating on the basis of one month's average pay for every full year served in the enterprise for the first 10 years, and 1.5 month pay for every full year commencing from the eleventh year.

3.Salaries and Wages. The wages and salaries of employees in foreign-invested enterprises shall be determined according to the principle of being no lower than 120% of the average wages and salaries paid to employees by the local state-own enterprises in the same industry. Any decision to increase, decrease or leave salaries and wages unchanged should be made by the enterprise on the basis of its economic performance.

Salaries for senior staff members of a foreign-invested enterprise should be decided by the board of directors and be specified in detail in the employment contracts.

4.Labour Insurance and Welfare Benefits. Foreign-invested enterprises, in accordance with the relevant State and the provincial regulations, should make payment of or allocation of funds for labour insurance, welfare costs and housing subsidies for Chinese employees.

5.Labour Protection. Foreign-invested enterprises must adopt the state and local laws and regulations regarding labour protection, and adopt the system of working hours currently run in China. However enterprises with foreign investment are free to make decision on their own to reduce work hours.

Staffs and workers in foreign-invested enterprises are entitled to legal holidays and other special holidays as determined by the State. Normal wages should be paid to employees during the above-mentioned holiday and leave periods.

Foreign-invested enterprise must carry out the state and local laws and regulations concerning labour protection, production safety, and industrial sanitation, and, under the supervision of local labour departments, improve working conditions.

III . Administration of Land

According to the policy of separation of the ownership and the use of land, foreign-invested enterprises may obtain the right to use land through offering, transference, lease or cession. At present, foreign investors must go through offering procedure in order to start real estate, commercial, financial, tourist or entertainment projects. those qualified may also go through transference or lease procedures. For projects of other trades, they should, in principle, likewise go through offering, transference or lease procedures. Only with permission can they conduct paid cession procedure.

1.A foreign-invested enterprise or would-be investor from abroad can apply to obtain the right to use land by using the original grounds of the Chinese enterprise;

2.A foreign-invested enterprise or would-be investor from abroad can apply directly to the land Administration Bureau of local governments for the right to use land through offering;

3.A foreign invested enterprise or would-be investor from abroad may also obtain the right to use land from other land users through transference or lease;

4.The right to use land can also be obtained by means of cession.

IV . Charge Rates

1. Water and Electricity charges: Water and electricity required in production by foreign-invested enterprises, shall be included in supply plans established by each city, and these enterprises will be guaranteed priority in their supply. For export-oriented and technologically advanced enterprises with foreign investment, cost of water and electricity will be charged at the planning price, Other foreigninvested enterprise will have their charges calculated on the same basis as and be charged at the same price paid by local state-own enterprises.

Foreign-invested enterprises would be exempted from additional complimentary charges for water and electricity construction and capacity enlargement.

2.Communication Facility Charges. Fees will be charged at the same rate as local state-own enterprises in accordance with the regulations of the local people's municipal government.

V . Bank Loans

Foreign-invested enterprises shall be given priority by banks where they opened their account for the provision of loans for working capitals as part of the bank's loan quota.

Foreign-invested enterprises can, in accordance with the relevant bank regulations, apply to banks for loans under terms of mortgage of foreign currencies in their accounts as well as fixed assets.

Foreign-invested enterprises can borrow money from abroad to meet production and operating requirements. Borrowings are to be made and repaid by the enterprises concerned.