Ⅰ Principal taxes that foreign-invested enterprises must pay (local tax excluded)

Income duty

Enterprises must pay 30 percent of the income as the corporate income tax and 3 percent as the local income tax after costs have been deducted from corporate revenues.

Value Added Tax (VAT)

The output tax is the total income of sales revenue plus processing service charges, and multiplied by 17 percent of the tax rate; the input tax is equal to the tax paid according to the goods purchased currently.

VAT payable＝current output tax－current input tax

Ⅱ Major tax preferences that Dalian foreign-invested enterprises enjoy:

*Income tax preferences

In order to encourage foreign enterprises to invest in Dalian, the government implements different preferential tax treatments to different regions and industries according to special industrial policies, including reduction of tax rates, regular tax reduction and exemption, accelerated depreciation, refund of the income tax paid on the reinvested amount, exemption of corporate income tax with the investment contributions by purchasing domestic made equipment and additional deduction of technical developing costs.

Reduction of tax rate

The legal corporate tax rate is 30 percent, but can be reduced to 15 percent and 24 percent, according to the situation.

1. Corporate income tax is levied at a reduced rate of 15 percent:

(1) Dalian Eco-Tech Development Zone is one of the first state-level eco-tech development zones. The foreign-invested productive enterprises in the zone enjoy a reduced rate for corporate income tax at 15%.

(2) Enterprises that are set up in urban areas and open coastal economic area (Pulandian, Wafangdian and Zhuanghe) and engaged in the following projects enjoy a reduced rate of 15 percent: skill-intensive or knowledge-intensive projects; projects with an investment of over USD 30million and a long period for investment recovery; and projects related to energy, communications and port construction.

(3) Dalian High-Tech Industrial Zone is a state-level high-tech industrial zone. Foreign-invested high-tech enterprises set up in the zone enjoy a reduced rate for corporate income tax of 15 percent.

(4) For the Sino-foreign joint ventures engaged in construction of ports and docks, the corporate income tax is levied at a reduced rate of 15 percent.

(5) Foreign-invested banks and Sino-foreign joint venture banks with an operation period of more than 10 years or foreign investors have invested a capital or the head office has invested a working capital of over USD 10 million enjoy a reduced rate for corporate income tax of 15 percent.

2. Corporate income tax is levied at a reduced rate of 24 percent

(1) Foreign-invested productive enterprises set up in urban areas and open coastal economic areas enjoy a reduced rate for corporate income tax of 24 percent.

(2) Dalian Golden Pebble Beach Tourist Resort is a state-level tourist resort in China. Foreign-invested enterprises set up in the resort enjoy a reduced rate for corporate income tax of 24 percent