State Administration of Taxation, Tax Issues Relevant to Acquisition of Equity Interest in Domestic Enterprises by Foreign Investors Circular

Issued: May 28 2003
Effective: January 1 2003

Main contents: The Circular clarifies three transition issues concerning enterprise income tax preferential treatment for foreign-invested enterprises established after acquisition of equity interests in domestic enterprises by foreign investors:
- the business operation period of such foreign-invested enterprises shall start from the date of issue of the business licence of the restructured foreign-invested enterprise and end at the date prescribed in the business and commerce registration for the restructured foreign-invested enterprise;
- the restructured foreign-invested enterprise shall continue to make up the operational losses cumulated before the restructuring over the remaining years of the period prescribed by Article 11 of the PRC Foreign-invested Enterprise and Foreign Enterprise Income Tax Law for making up losses; and
- the profit-making year of the restructured foreign-invested enterprise should be the year that it is being restructured and remains profitable after the deduction of the losses of previous years allowed to be made up. The enterprise may decide which year to start tax reduction and exemption if the actual production and operation period of the profit-making year is less than six months.
Related legislation: Acquisition of Domestic Enterprises by Foreign Investors Tentative Provisions, Mar 7 2003, CLP 2003 No.3 p27 and PRC Foreign-invested Enterprise and Foreign Enterprise Income Tax Law, April 9 1991, CLP 1991 No.3 p25