State Administration of Taxation, Circular on Issues Relevant to the Enjoyment of Preferential Treatment as Production Enterprises by Foreign Investors Investing in and Operating Natural Gas Projects

Issued: May 30 2007

Main Contents: Foreign-invested enterprises (FIEs) that engage in the processing and sale of natural gas (including the concurrent investment in the construction of urban gas transmission pipeline networks) shall fall under the scope of production enterprises in the energy industry as stipulated in Article 72(2) of the PRC Implementing Rules for the Foreign-invested Enterprise and Foreign Enterprise Income Tax Law (the Implementing Rules). The revenue of such FIEs that is derived from the processing and sale of natural gas and the relevant businesses shall be entitled to the corresponding preferential tax treatment (Article 1). In the case of FIEs that only engage in the construction and operation of urban gas transmission pipeline networks, their income and revenue derived from the operation of urban gas transmission pipeline networks shall, in addition to the preferential treatment for production enterprises specified in the PRC Foreign-invested Enterprise and Foreign Enterprise Income Tax Law, be entitled to a tax reduction of 15% on the basis of the "energy and transportation construction projects" specified in Article 73(1)(iii) of the Implementing Rules upon approval of the State Administration of Taxation (Article 2). Where the tax authorities have not determined the applicable tax treatment for FIEs already established that engage in the aforementioned businesses, the applicable preferential tax treatment may be determined according to this Circular for the income obtained from the year in which the enterprise commenced production and business operations onwards. Where the tax treatment has already been determined by the tax authority, the income of the enterprise as of year 2007 shall be adjusted according to this Circular (Article 3).

Related Legislation: PRC Foreign-invested Enterprise and Foreign Enterprise Income Tax Law, Apr 9 1991, CLP 1991 No.3 p.25; and PRC Implementing Rules for the Foreign-invested Enterprise and Foreign Enterprise Income Tax Law, Jun 30 1991, CLP 1991 No.7 p.16