Circular on Revising the Scope of the Tax Refund Policy for the Purchase of Domestically-manufactured Equipment for Foreign-invested Projects

1. For the purposes of this Circular, the scope of enterprises eligible for tax refunds on the purchase of domestically-manufactured equipment includes foreign-invested enterprises recognized as ordinary payers of value-added tax, foreign-invested enterprises that engage in transport business or the development of ordinary housing that are not ordinary payers of value-added tax and Sino-foreign cooperative joint ventures that engage in the exploration for, development and production of, offshore oil. Foreign-invested enterprises include Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures and wholly foreign-owned enterprises.*

If a foreign-invested enterprise purchases domestically-manufactured equipment for its own use in the name of a branch (or branch factory), the applications for the tax refunds shall be made by the branch (or branch factory) to the competent tax refund authority of the place where it is located. In the case of a Sino-foreign cooperative joint venture oil field project that exploits offshore oil resources, the applications for tax refunds shall be made by the operator of the cooperative oil field, the operating organization or the operating branch. Foreign-invested enterprises that, in accordance with provisions, are subject to an expanded value-added tax set-off scope, shall not be eligible for value-added tax refunds on purchases of domestically-manufactured equipment that fall within their total investment.

2. Foreign-invested projects (Encouraged Foreign-invested Projects) in the encouraged category of the Foreign Investment Industrial Guidance Catalogue and those falling under the Catalogue for Guiding Foreign Investment in the Dominant Industries of the Central and Western Regions (the Encouraged Foreign Investment Catalogues) shall be eligible for value-added tax refunds on the domestically-manufactured equipment purchased therefor. Whenever an Encouraged Foreign Investment Catalogue is revised, the Encouraged Foreign Investment Catalogue in effect, at the time of the approval of a project, shall prevail in respect of tax refunds on the purchase of domestically-manufactured equipment for such project.

Encouraged Foreign-invested Projects shall not be eligible for tax refunds on domestic purchases of domestically-manufactured equipment that are covered by the Catalogue for Import Commodities Not Exempt from Duty and Tax for Foreign-invested Projects (the Non-exempt Commodities Catalogue). Whenever the state revises the Non-exempt Commodities Catalogue, the Non-exempt Commodities Catalogue in effect, at the time a dedicated value-added tax invoice is issued for the purchase of domestically-manufactured equipment, shall prevail in respect of whether the equipment is covered by the Non-exempt Commodities Catalogue.

In the case of engineering projects for Encouraged Foreign-invested Projects, if the foreign-invested enterprise entrusts the construction to another enterprise under a contracted labour and materials arrangement, it may execute with the contractor an agreement for the entrusted purchase of domestically-manufactured equipment, entrusting the purchase of domestically-manufactured equipment to the contractor. The contractor shall then turn over the dedicated value-added tax invoices to the foreign-invested enterprise, which may then apply for tax refunds in accordance with provisions.

3. For the purposes of this Circular, the term 'domestically-manufactured equipment' means equipment produced in the People's Republic of China and purchased as fixed assets for an Encouraged Foreign-invested Project, and includes ancillary equipment, spare parts, etc. purchased together with the equipment under a purchase contract.

4. In the event of a conflict between this Circular and past provisions, this Circular shall prevail.

Translator's note:

* There appears to be a typographical error in the Chinese version as it reads 'foreign-invested enterprises' (??????). The term should be read as 'wholly foreign-owned enterprises' (??????).