Official Reply on the Issue of the Handling of Preferential Income Tax Treatment of Foreign-invested Enterprises that Have Been Shut Down by the Government

(Issued by the State Administration of Taxation on February 12 2010.)

Guo Shui Han [2010] No.69

Jiangsu Provincial Office of the State Administration of Taxation:

Your Request for Instructions on the Issue of the Handling of the Preferential Income Tax Treatment of Foreign-invested Enterprises that Have Been Shut Down by the Government (Su Guo Shui Fa [2009] No.88) has been received. With respect to the issue of handling the preferential tax treatment of foreign-invested enterprises that have been shut down and liquidated as a result of revisions in state development plans (including urban construction plans etc.), resulting in their no longer satisfying the conditions of the former PRC Income Tax Law Concerning Foreign-invested Enterprises and Foreign Enterprises and transitional policies, we, after consideration, give our official reply as follows:

1. Pursuant to Article 79 of the former Implementing Rules for the PRC Income Tax Law Concerning Foreign-invested Enterprises and Foreign Enterprises, they shall pay back or return the amounts of the preferential enterprise income tax treatment that they enjoyed pursuant to such article.

2. If a foreign-invested enterprise or foreign enterprise leases out or transfers a piece of Chinese-made equipment purchased on or before December 31 2007 within five years from the date of the purchase thereof and it credited the investment against income tax in accordance with relevant provisions of the Ministry of Finance and the State Administration of Taxation, Circular on Issues Relevant to Crediting of Investments in Chinese-made Equipment Purchased by Foreign-invested Enterprises and Foreign Enterprises Against Enterprise Income Tax (Cai Shui Zi [2000] No.049), it shall, at the time of the leasing or transfer thereof, pay back the amount credited against its enterprise income tax for the purchase thereof, regardless of whether the lease or transfer occurred before, on or after January 1 2008.

3. If, pursuant to Article 10 of the PRC Income Tax Law Concerning Foreign-invested Enterprises and Foreign Enterprises, the foreign investor in a foreign-invested enterprise directly reinvested profits derived from such enterprise into the enterprise to increase its registered capital or used the same as its investment in the establishment of another foreign-invested enterprise on or before December 31 2007, and if the term of operations thereof was not less than five years and, with the approval of the tax authority, 40% of the enterprise income tax paid on the portion of the profits that were reinvested were refunded, and it withdraws its reinvestment before the lapse of five years, it shall return the tax refund.

cc Offices of the State Administration of Taxation and local taxation bureaux of provinces, autonomous regions, municipalities directly under the central government and cities with independent development plans