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State Administration of Taxation, Ministry of Commerce
Notice of the State Administration of Taxation and the Ministry of Commerce on the Examination and Approval Procedures of Income Tax
Reduction and Exemption for Technology Importing Enterprises
Guo Shui Fa [2005] No. 45
To state taxation bureaus and departments of commerce in all provinces, autonomous regions, municipalities directly under the Central
Government, cities specifically designated in the state plan, local taxation bureaus in Guang Dong province, Hai Nan province and
Shen Zhen municipality, the competent departments of commerce in all provinces, autonomous regions, municipalities directly under
the Central Government, cities specifically designated in the state plan and Xinjiang Production and Construction Corps. :
For the purpose of stimulating technology import and standardizing the procedure for income tax reduction and exemption, the procedures
of examination and approval on income tax reduction and exemption for royalties enterprises concerning technology import shall
be clearly stipulated further as following:
1.
The term Technology Import refers to the action of transferring technology through trade, investment, or economic and technological
cooperation from a foreign country to China. For the technology import contracts that comply with relevant regulations, the foreign
enterprise may enjoy the preference of enterprise income tax reduction and exemption.
2.
If the royalties gained from any specific technology provided by a foreign enterprise complies with the stipulations of Item 4,
Paragraph 3, Article 19 of “Law of the People’s Republic of China on Income Tax of Foreign Investment Enterprises and Foreign Enterprises”
and Article 66 of the “Implementation Rules” thereof, providing that the specific technology is advanced or if the technology is
provided with favorable terms, the reduction or exemption shall be reported to every higher administration up to the State Administration
of Taxation, where a final approval shall be obtained.
3.
Foreign enterprise applicants for income tax reduction or exemption should entrust the technology import company to perform the application
procedures. The technology import company should apply for a Letter of Proposal for the Reduction and Exemption of Enterprise Income
Tax at the administrative department where the company’s technology import contract is registered. There shall be two kinds of letter
of proposal: A and B (See Attachment One and Attachment Two for formats). If the technology import contract is included as an attachment
to the foreign investment company’s enterprise contract or charter, the company should apply for Letter B; in the case of other circumstances
the company should apply for letter A. The following materials should be provided at the time of application:
(1)
Photocopy of technology import contract;
(2)
Registration certificate for the technology import contract;
(3)
Data chart for the technology import contract;
(4)
Letter of application for the reduction and exemption of income tax for foreign enterprises;
(5)
Letter of commission from the foreign enterprise to entrust the technology import company to perform the procedures for income tax
reduction and exemption; and
(6)
The application for income tax reduction and exemption submitted by the technology import company;
For those companies whose technology import contract is included as an attachment to the foreign investment company’s enterprise contract
or charter, the approval letter for the contract or charter and the Certificate of approval for foreign investment enterprises or
the Certificate of approval for enterprises invested by Taiwan, Hong Kong or Macao businesses shall be used in lieu of the aforesaid
Registration certificate for the technology import contract to apply for the “Letter of Proposal for the Reduction and Exemption
of Enterprise Income Tax”(Letter B) at the administrative department where the original contract/charter was examined and approved.
4.
After applying for the “Letter of Proposal for the Reduction and Exemption of Enterprise Income Tax”, the technology import company
shall provide other materials listed in Article 3 of this Circular to perform the tax reduction and exemption procedures at the
taxation administrative department.
5.
The competent departments of commerce shall strictly perform the examination and approval procedure in accordance with the Law of
the People’s Republic of China on Income Tax of Foreign Investment Enterprises and Foreign Enterprises and the Implementation Rules
thereof when providing the letter of proposal. If the terms of the technology import contract contain any of the following content,
it shall not be regarded as a contract with “favorable terms” in the eyes of the tax law, and the letter of proposal shall not be
granted in principle:
(1)
Importing restricted technology;
(2)
The contract contains fundamental provisos that are against the regulations of the Regulations of the People’s Republic of China on
Technology Import and Export Management;
(3)
The royalties is paid in the form of commission, and the deduction percentage is higher than 5%.
In cases it is claimed that the contract involves with advanced technology and deserve the letter of proposal, a special explanation
should be attached.
6.
If the State Administration of Taxation has any questions with the letter of proposal provided by the competent departments of commerce
of any of the provinces, autonomous regions, municipalities directly under the Central Government, and cities under separate state
planning , a request for re-examination may be delivered to the Ministry of Commerce.
7.
The Ministry of Commerce is in full charge of the designing of the format for the letter of proposal; the local competent department
of commerce may download the form from the “Laws and Regulations” section at the “Department of Science and Technology” page on the
Ministry of Commerce’s website.
8.
This Notice shall be implemented as of the day of distribution.
Attachments:
1.
Letter of Proposal for the Reduction and Exemption of Enterprise Income Tax (Letter A) (omitted)
2.
Letter of Proposal for the Reduction and Exemption of Enterprise Income Tax (Letter B) (omitted)
State Administration of Taxation
Ministry of Commerce of the People’s Republic of China
March 17, 2005
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