CIRCULAR OF THE NATIONAL DEVELOPMENT AND REFORM COMMISSION ON COOPERATING WITH FINANCE ADMINISTRATIVE DEPARTMENTS TO DO WELL IN THE IMPLEMENTATION OF PREFERENTIAL TAX POLICIES FOR STARTUP INVESTMENT ENTERPRISES

Circular of the National Development and Reform Commission on Cooperating with Finance Administrative Departments to Do Well in the
Implementation of Preferential Tax Policies for Startup Investment Enterprises

Fa Gai Cai Jin [2007] No. 609

Each archival organ for startup investment enterprises at the provincial level:

For the purpose of promoting the development of startup investment enterprises, the Ministry of Finance and the State Administration
of Taxation have jointly promulgated the Circular Concerning Related Tax Policies for Promoting the Development of Startup Investment
Enterprises (see the Affix, and hereinafter referred to as the Tax Policy Circular) on February 15, 2007. In accordance with the
Tax Policy Circular and the Interim Measures for Administrating Startup Investment Enterprises (hereinafter referred to as the Measures)
as jointly promulgated by the National Development and Reform Commission, the Ministry of Finance, the State Administration of Taxation
and other seven ministries and commissions in November 2005, the related matters are hereby notified as follows so as to coordinate
the implementation of the Tax Policy Notice:

In accordance with Item (1), Article 1 of the Tax Policy Circular, all archival organs shall, according to Articles 9 to 11 of the
Measures, rigidly inspect the archival filing requirements of a startup investment enterprise, and shall also examine the name used
in the industrial and commercial registration and the business scope of the archived startup investment enterprise again. Where a
startup investment enterprise completes the industrial and commercial registration prior to the promulgation of the Measures on November
15, 2005, the original registered name may be retained, but the business scope shall satisfy provisions in the Measures. Where a
startup investment enterprise completes the industrial and commercial registration after the promulgation of the Measures on November
15, 2005, it shall be registered as professional startup investment enterprises such as a “Start-up Investment Company Limited”,
“Start-up Investment Joint-stock Company Limited”, etc.

Whereas the deadline for the settlement and payment of each variety of enterprise income taxes is April 30 for the past years, for
the purpose of timely implementing preferential tax policies, the archival organ at each level shall, together with the finance administrative
department, verify as soon as possible whether the investment is made by the startup investment enterprises before the deadline as
provided for in the Measures, and inform the startup investment enterprises of doing well in declaring tax deduction. For the purpose
of ensuring that the investments made by startup investment enterprises practically conform to the related provisions in the Measures,
the archival organ shall, in accordance with Article 27 of the Measures, make irregular inspections into archived startup investment
enterprises and their management consulting enterprises, and finish regular annual inspections within five months after each accounting
year ends. Where a startup investment enterprise whose investment does not conform to the related provisions in the Measures upon
irregular inspections, it may not apply for deductions in taxable incomes after the year. Where It is found in regular inspections
that the investment of a startup investment enterprise investment does not conform to the related provisions in the Measures upon
regular inspections, the finance administrative department at the same level shall be suggested to cancel the deduction amount of
taxable incomes obtained upon application on the basis of the investment amount of the last year.

According to Article 6 of the Tax Policy Circular, the provincial finance administrative department of each province, autonomous
region, or municipality directly under the Central Government shall, together with the archival organ, examine and announce the name
list of startup investment enterprises that can enjoy tax preferences, and the provincial archival organ shall report this Commission
the name list of startup investment enterprises that can enjoy tax preferences.

Affix: Circular Concerning Related Tax Policies for Promoting the Development of Startup Investment Enterprises

The National Development and Reform Commission of the People’s Republic of China

March 20, 2007

The National Development and Reform Commission
2007-03-20

OFFICIAL REPLY OF THE STATE ADMINISTRATION OF TAXATION ON HOW TO DEAL WITH THE INCOME TAX ON THE GOVERNMENT SUBSIDES ACQUIRED BY FOREIGN-FUNDED ENTERPRISES AND FOREIGN ENTERPRISES

Official Reply of the State Administration of Taxation on How to Deal with the Income Tax on the Government Subsides Acquired by Foreign-funded
Enterprises and Foreign Enterprises

Guo Shui Han [2007] No. 408

State Taxation Bureau of Gansu Province:

We have received your Request for Instructions on Whether Netzsch (Lanzhou) Pumps Co., Ltd. Should Pay Enterprise Income Tax on Its
Income from Government Subsidies (Gan Guo Shui Fa [2006] No. 146). We hereby render a reply as follows:

The various forms of monetary assets or non-monetary assets gratuitously acquired from the government (hereinafter referred to as
government subsidies) by the agencies and offices set up by foreign-funded enterprises and foreign enterprises inside China (hereinafter
referred to as enterprises) shall be dealt with respectively in light of the following circumstances:

(1)

Subject to the laws, regulations and the provisions of the State Council, if the government subsides acquired by the enterprises are
exempted from enterprise income tax, such government subsides acquired by the enterprises shall be taken as investments, that is
to say, the assets of government subsides as accepted shall be assessed and may be depreciated or amortized in light of the taxation
treatments for investment assets, and the value of such government subsides are not calculated into the amount of taxable incomes
of the enterprises.

(2)

Unless it is under the circumstance as prescribed in Item (1) of this Article, if the government subsides acquired by the enterprises
satisfies any of the following conditions, they may not be calculated into current losses and profits of the enterprises, but the
assets purchased or formed by the said government subsides shall be estimated, depreciated or amortized after deduction of the amount
of government subsides:

(a)

The assets from government subsidies are the non-current assets an enterprise owns for a long time; or

(b)

An enterprise has acquired government subsidies in the form of current assets, but it has used or must use such subsidies for purchase,
construction or improvement of non-current assets in accordance with the requirements for government subsidies.

(3)

Where the government subsidies acquired by an enterprise do not fall into the circumstances as provided in items (1) or (2) of this
Article, the amount of government subsidies shall be calculated into the current losses and profits of the enterprise, and the enterprise
income tax shall be paid by the enterprise.

Where the taxation treatment is dealt with in accordance with the present Reply, and the tax repayment or refund is involved, it shall
be dealt with under the Law of the People’s Republic of China on the Administration of Tax Collection and the detailed rules for
the implementation thereof.

The State Administration of Taxation

April 5, 2007

The State Administration of Taxation
2007-04-05

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IMPLEMENTING REGULATIONS FOR THE LAW OF THE PEOPLE’S REPUBLIC OF CHINA ON INSPECTION OF IMPORT AND EXPORT COMMODITY

CIRCULAR OF THE MINISTRY OF COMMERCE, THE MINISTRY OF FINANCE, THE STATE ADMINISTRATION OF TAXATION, THE STATE ADMINISTRATION FOR...

CIRCULAR OF THE NATIONAL DEVELOPMENT AND REFORM COMMISSION ON COOPERATING WITH FINANCE ADMINISTRATIVE DEPARTMENTS TO DO WELL IN THE IMPLEMENTATION OF PREFERENTIAL TAX POLICIES FOR STARTUP INVESTMENT ENTERPRISES

OFFICIAL REPLY OF THE STATE ADMINISTRATION OF TAXATION ON HOW TO DEAL WITH THE INCOME TAX ON THE GOVERNMENT SUBSIDES ACQUIRED BY FOREIGN-FUNDED ENTERPRISES AND FOREIGN ENTERPRISES

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