Circular on Measures for Reviewing the Qualifications of Foreign-invested Research and Development Centres for Tax Exemptions/Refunds on Procured Equipment

Repealed on October 10 2011: http://www.chinalawandpractice.com/Article/2944878/Circular-on-Continuing-Implementation-of-the-Tax-Policy-for.html

(Issued by the Ministry of Commerce, Ministry of Finance, General Administration of Customs and State Administration of Taxation on, and effective as of, March 22 2010.)

Shang Zi Fa [2010] No.93

Competent commerce departments, finance departments (bureaux), fiscal inspection offices and offices of the State Administration of Taxation of provinces, autonomous regions, municipalities directly under the central government and cities with independent development plans, Guangdong branch of the General Administration of Customs, subordinate customs, and the commerce bureau and finance bureau of the Xinjiang Production and Construction Corp:

With a view to encouraging foreign investors to invest in and establish research and development centres and actively engage in technical innovation, pursuant to relevant provisions of the Tentative Provisions for the Exemption of Import Taxes on Articles Used for Scientific and Technological Development Purposes (Order of MOF, GAC and SAT [2007] No.44) and Ministry of Finance, General Administration of Customs and State Administration of Taxation, Circular on Tax Policies for Equipment Procured by Research and Development Institutions (Cai Shui [2009] No.115), we hereby notify you on the handling of matters relating to the exemption of import taxes on articles imported by foreign-invested research and development centres for scientific and technological development purposes and the refund in full of the value-added tax on Chinese-made equipment procured by them as follows:

1. Explanation of the Relevant Conditions in Document Cai Shui [2009] No.115

(1) A foreign-invested research and development centre shall have been approved by, or received confirmation from, the competent commerce department in accordance with relevant provisions.

(2) If a foreign-invested research and development centre is an independent legal person, the amount indicated on its approval certificate of a foreign-invested enterprise shall prevail in respect of its total investment.

(3) For a foreign-invested research and development centre that has been established for less than two years and that lacks independent legal person status, the term “total investment in research and development” means the assets injected in the most recent two years by the foreign-invested enterprise to which it belongs specifically for the purpose of its establishment and construction, and includes the assets that the foreign-invested enterprise is set to inject and execute a purchase contract for (a list of the assets that have already been procured and a list of the contracts for the assets that it is set to procure shall be submitted).

(4) The term “annual expenditures of research and development funds” means the average annual expenditures of research and development funds during the most recent two years. If the research and development centre has been established for less than two full financial years, the calculation may be made by taking the actual expenditures of research and development funds for any 12 successive months since its establishment; the injection made in cash and physical goods shall not be less than 60%.

(5) The full-time research and experimental development personnel shall be the enterprise's scientific and technological activity personnel who are engaged full time in three types of activities – basic research, applied research and experimental development – and includes those persons directly involved in the aforementioned three types of activities as well as relevant full-time science and technology management personnel and direct service personnel providing information and documentation, materials supply and equipment. The aforementioned personnel are required to have executed employment contracts (with a term of at least one year) with the foreign-invested research and development centre or the foreign-invested enterprise to which it belongs. The number of such persons shall be their number on the day immediately preceding the date on which the enterprise submitted the application.

(6) When calculating in the aggregate the original value of the equipment purchased, the original values of the imported equipment and of the procured Chinese-made equipment shall be calculated together, and shall include those of the equipment for which purchase contracts have been executed and which are delivered by the end of 2010 (a list of the purchase contracts and the delivery dates shall be submitted). The aforementioned equipment shall fall within the scope of the equipment set forth in the List of Scientific and Technological Development, Scientific Research and Teaching Equipment (the Equipment List) attached to document Cai Shui [2009] No.115.

2. Review of Qualification Conditions

(1) The competent commerce department of the province, autonomous region, municipality directly under the central government, city with independent development plans or Xinjiang Production and Construction Corp together with the finance and state tax departments at the same level and customs of the place where the enterprise is located (the Reviewing Departments) shall set the filing date based on local circumstances. A foreign-invested research and development centre shall submit an application and relevant materials to the Reviewing Departments in accordance with the relevant requirements hereof.

(2) The Reviewing Departments shall regularly hold joint meetings, review the application materials submitted by enterprises and determine the list of enterprises that satisfy the qualification conditions for tax exemptions/refunds based on the conditions set forth in Article 1 of document Cai Shui [2009] No.115 and the requirements hereof.

(3) Following their review, the Reviewing Departments shall publish a list of the foreign-invested research and development centres that satisfy the conditions for tax exemptions/refunds in the form of an announcement, with copies sent to the (Department of Foreign Investment Administration of the) Ministry of Commerce, the (Department of Taxation and the Department of Customs Duties of the) Ministry of Finance, the (Customs Duties Collection Administration Department of the) General Administration of Customs and the (Department of Goods and Labour Taxes of the) State Administration of Taxation for the record. To those that do not satisfy relevant provisions, the competent commerce department shall issue a written review opinion based on the decision of the joint meeting and give the reason. The aforementioned announcement and review opinions shall be issued within 60 working days from the date on which the Reviewing Departments accepted the applications.

(4) Every two years, the Reviewing Departments shall conduct a re-examination of the qualifications of those foreign-invested research and development centres that have obtained qualifications for tax exemptions/refunds. They shall cancel the qualifications to enjoy the preferential tax exemption/refund policy of those foreign-invested research and development centres that no longer satisfy the conditions.

3. Materials that Need to be Submitted

When a foreign-invested research and development centre applies for qualifications for tax exemptions/refunds on procured equipment, it shall submit the following materials:

(1) an application letter for the qualifications for tax exemptions/refunds on equipment procured by a foreign-invested research and development centre and a review form;

(2) photocopies of its approval certificate of a foreign-invested enterprise and business licence; if it is not an independent legal person, photocopies of the approval certificate of a foreign-invested enterprise and business licence of the foreign-invested enterprise to which it belongs and the document confirming its being a foreign-invested research and development centre (the official reply from, or the Confirmation of a Foreign-invested Project the Development of Which is Encouraged by the State issued by, the competent commerce department);

(3) a capital verification report and a photocopy of its audit report for the preceding year;

(4) a detailed breakdown of its research and development expenses and expenditures, a detailed breakdown and list of its equipment purchase expenditures, and the materials that it is required to submit as specified in Items (2) and (5) of Article 1;

(5) a list of its full-time research and experimental development personnel (including their names, positions, employment contract terms and contact information); and

(6) other materials that the Reviewing Departments require to be submitted.

4. Administration of the Relevant Work

(1) Once the announcement has been published, a foreign-invested research and development centre included on the list in the announcement may, in accordance with relevant provisions, directly carry out the procedures for the exemption of taxes on relevant articles imported for scientific and technological development purposes with customs of the place where it is located and the procedures for tax refunds on procured Chinese-made equipment with the state tax department. For qualified equipment procured between July 1 2009 and the date of issuance of this Circular, refund for the taxes that have already been levied may be applied for with local customs or the state tax authority.

(2) When jointly conducting a review to determine whether an enterprise is qualified, the relevant departments may, if they deem it necessary, go to the enterprise to review relevant information, understand the circumstances and verify the truthfulness of the application materials submitted by the enterprise. Additionally, they shall pay attention to strengthening policy guidance of and service to the enterprise so as to enhance work efficiency.

(3) The competent provincial-level commerce authorities shall input the relevant information appearing on the Form for the Review of the Qualifications of a Foreign-invested Research and Development Centre for Tax Exemptions/Refunds on Procured Equipment into the research and development centre section of the foreign investment examination and approval management system in a timely manner and file the same electronically with the Ministry of Commerce for the record.

(4) Customs and state tax departments shall strengthen their oversight of equipment for which tax exemptions/refunds have been granted. If an enterprise violates provisions by transferring, selling, diverting for other purposes or otherwise disposing of, without authorisation, equipment on which it has enjoyed preferential tax policy, it shall be penalised in accordance with relevant provisions and shall not be eligible for tax exemption/refund for one year from the date on which the violation was brought to light. If it was criminally prosecuted in accordance with the law, it shall not be eligible for tax exemption/refund for three years from the date on which the violation was brought to light.

This Circular shall be effective upon issuance. Relevant departments nationwide are asked to duly implement this Circular in accordance with its requirements. If a problem is encountered in the course of implementation, you are asked to report the same in a timely manner.

Telephone number of the (Department of Foreign Investment Administration of the) Ministry of Commerce: omitted

Attachment: Form for the Review of the Qualifications of a Foreign-invested Research and Development Centre for Tax Exemptions/Refunds on Procured Equipment (omitted)