RULES FOR THE IMPLEMENTATION OF THE INCOME TAX LAW OF THE PEOPLE’S REPUBLIC OF CHINA ON ENTERPRISES WITH FOREIGN INVESTMENT AND FOREIGN ENTERPRISES

The State Council

Rules for the Implementation of the Income Tax Law of the People’s Republic of China on Enterprises with Foreign Investment and Foreign
Enterprises

Decree [1991] No.85 of the State Council

June 30, 1991

Chapter I General Provisions

Article 1

These Rules are formulated in accordance with the provisions of Article 29 of the Income Tax Law of the People’s Republic of China
on Enterprises with Foreign Investment and Foreign Enterprises (hereinafter referred to as the “Tax Law”).

Article 2

“Income from production and business operations” mentioned in Article 1 , paragraph 1 and paragraph 2 of the Tax Law means income
from production and business operations in manufacturing, mining, communications and transportation, construction and installation,
agriculture, forestry, animal husbandry, fishery, water conservation, commerce, finance, service industries, exploration and exploitation,
and in other trades.

“Income from other sources” mentioned in Article 1 , paragraph 1 and paragraph 2 of the Tax Law means profits (dividends), interest,
rents, income from the transfer of property, income from the provision or transfer of patents, proprietary technology, income from
trademark rights and copyrights as well as other nonbusiness income.

Article 3

“Enterprises with foreign investment” mentioned in Article 2 , paragraph 1 of the Tax Law and “foreign companies, enterprises and
other economic organizations which have establishments or places in China and engage in production or business operations” mentioned
in Article 2 , paragraph 2 of the Tax Law are, unless otherwise especially specified, generally all referred to as “enterprises”
in these Rules.

“Establishments or places” mentioned in Article 2 , paragraph 2 of the Tax Law refers to management organizations, business organizations,
administrative organizations and places for factories and the exploitation of natural resources, places for contracting of construction,
installation, assembly, and exploration work, places for the provision of labor services, and business agents.

Article 4

“Business agents” mentioned in Article 3 , paragraph 2 of these Rules means companies, enterprises and other economic organizations
or individuals entrusted by foreign enterprises to engage as agents in any of the following:

(1)

representing principals on a regular basis in the arranging of purchases and signing of purchase contracts and the purchasing of commodities
on commission;

(2)

entering into agency agreements or contracts with principals, storing on a regular basis products or commodities owned by principals,
and delivering on behalf of principals such products or commodities to other parties; and

(3)

having authority to represent principals on a regular basis in signing of sales contracts or in accepting of purchase orders.

Article 5

“Head office” mentioned in Article 3 of the Tax Law refers to the central organization which is established in China by an enterprise
with foreign investment as a legal person pursuant to the laws of China and which is responsible for the management, operations and
control over such enterprise.

Income from production and business operations and other income derived by the branches within or outside China of an enterprise with
foreign investment shall be consolidated by the head office for purposes of the payment of income tax.

Article 6

“Income derived from sources inside China” mentioned in Article 3 of the Tax Law refers to:

(1)

income from production and business operations derived by enterprises with foreign investment and foreign enterprises which have establishments
or places in China, as well as profits (dividends), interest, rents, royalties and other income arising within or outside China actually
connected with establishments or sites established in China by enterprises with foreign investment or foreign enterprises;

(2)

the following income received by foreign enterprises which have no establishments or sites in China:

(a)

profits (dividends) earned by enterprises in China;

(b)

interest derived within China such as on deposits or loans, interest on bonds, interest on payments made provisionally for others,
and deferred payments;

(c)

rentals on property leased to and used by lessees in China;

(d)

royalties such as those received from the provision of patents, proprietary technology, trademarks and copyrights for use in China;

(e)

gains from the transfer of property, such as houses, buildings, structures and attached facilities located in China and from the assignment
of land use rights within China;

(f)

other income derived from China and stipulated by the Ministry of Finance to be subject to tax.

Article 7

In respect of Chinese-foreign contractual joint ventures that do not constitute legal persons, each partner thereto may separately
compute and pay income tax in accordance with the relevant tax laws and regulations of the State; income tax may, upon approval by
the local tax authorities of an application submitted by such enterprises, be computed and paid on a consolidated basis in accordance
with the provisions of the Tax Law.

Article 8

“Tax year” mentioned in Article 4 of the Tax Law begins on January 1 and ends on December 31 under the Gregorian Calendar.

Foreign enterprises that have difficulty computing taxable income in accordance with the tax year stipulated in the Tax Law may, upon
approval by the local tax authorities of an application submitted by such enterprises, use their own 12month fiscal year as the tax
year.

Enterprises commencing business operations in the middle of a tax year or actually operating for a period of less than 12 months in
any tax year due to such factors as merger or shutdown shall use the actual period of operations as the tax year.

Enterprises that undergo liquidation shall use the period of liquidation as the tax year.

Article 9

“The competent authority for tax affairs under the State Council” mentioned in Article 8 , paragraph 3 and Article 19 , paragraph
3, subparagraph (4) of the Tax Law and Article 72 of these Rules refers to the Ministry of Finance and the State Tax Bureau.

Chapter II Computation of Taxable Income

Article 10

“The formula for the computation of taxable income” mentioned in Article 4 of the Tax Law is as follows:

(1)

Manufacturing:

(a)

taxable income = (profit on sales) + (profit from other operations) + (non-business income) – (non-business expenses);

(b)

profit on sales = (net sales) – (cost of products sold) – (taxes on sales) – [ (selling expenses) + (administrative expenses) + (finance
expenses) ];

(c)

net sales = (gross sales) – [ (sales returns) + (sales discounts and allowances) ];

(d)

cost of products sold = (cost of products manufactured for the period) + (inventory of finished products at the beginning of the period)
– (inventory of finished products at the end of the period);

(e)

cost of products manufactured for the period = (manufacturing costs for the period) + (inventory of semifinished products and products
in process at the beginning of the period) – (inventory of semi-finished products and products in process at the end of the period);

(f)

manufacturing costs for the period = (direct materials consumed in production for the period) + (direct labour) + (manufacturing expenses).

(2)

Commerce:

(a)

taxable income = (profit on sales) + (profit from other operations) + (non-business income) – (non-business expenses);

(b)

profit on sales = (net sales) – (cost of sales) – (taxes on sales) – [ (selling expenses) + (administrative expenses) + (finance expenses)
];

(c)

net sales = (gross sales) – [ (sales returns) + (sales discounts and allowances) ];

(d)

cost of sales = (inventory of merchandise at the beginning of the period) + { (purchase of merchandise during the period) – [ (purchase
returns) + (purchase discounts and allowances) ] + (purchasing expenses) } – (inventory of merchandise at the end of the period).

(3)

Service trades:

(a)

taxable income = (net business income) + (non-operating income) – (non-operating expenses);

(b)

net business income = (gross business income) – [ (taxes on business income) + (operating expenses) + (administrative expenses) +
(finance expenses) ].

(4)

Other lines of business:Computations shall be made with reference to the above formulas.

Article 11

The computation of taxable income of an enterprise shall, in principle, be on an accrual basis.

The following income from business operations of an enterprise may be determined by stages and used as the basis for the computation
of taxable income:

(1)

Where products or commodities are sold by instalment payment methods, income from sales may be recognized according to the invoice
date of the products or commodities to be delivered; income from sales may also be recognized according to the date of payment to
be made by the buyer as agreed upon in the contract;

(2)

Where construction, installation and assembly projects, and provision of labour services extend beyond one year, income may be recognized
according to the progress of the project or the amount of work completed;

(3)

Where the processing or manufacturing of heavy machinery, equipments and ships for other enterprises extends beyond one year, income
may be recognized according to the progress of the project or amount of work completed.

Article 12

Where Chinese-foreign contractual joint ventures operate on the basis of product sharing, the partners thereto shall be deemed to
receive income at the time of the division of the products; the amount of income shall be computed according to the price sold to
third party or with reference to prevailing market prices.

Where foreign enterprises are engaged in the cooperative exploration of petroleum resources, the partners thereto shall be deemed
to receive income at the time of the division of the crude oil; the amount of income shall be computed according to a price which
is adjusted periodically with reference to the international market prices of crude oil of similar quality.

Article 13

In respect of income obtained by enterprises in the form of non-monetary assets or rights and interests, such income shall be computed
or appraised with reference to prevailing market prices.

Article 14

“Exchange rate quoted by the State exchange control authorities” mentioned in Article 21 of the Tax Law refers to the buying rate
quoted by the State Administration of Exchange Control.

Article 15

In respect of income obtained by enterprises in foreign currency, upon payment of income tax in quarterly instalments in accordance
with the provisions of Article 15 of the Tax Law, taxable income shall be computed by converting the income into Renminbi according
to the exchange rate quotation on the last day of the quarter. At the time of final settlement following the end of the year, no
recomputation and reconversion need be made in respect of income in a foreign currency for which tax has already been paid on a quarterly
basis; only that portion of the foreign currency income of the entire year for which tax has not been paid shall, in respect of the
computation of taxable income, be converted into Renminbi according to the exchange rate quotation on the last day of the tax year.

Article 16

Where an enterprise is unable to provide complete and accurate certificates of costs and expenses and is unable to correctly compute
taxable income, the local tax authorities shall determine the rate of profit and compute taxable income with reference to the profit
level of other enterprises in the same or similar trade. Where an enterprise is unable to provide complete and accurate certificates
of revenues and is unable to report income correctly, the local tax authorities shall appraise and determine taxable income by the
use of such methods as cost (expense) plus reasonable profits.

When the tax authorities appraise and determine profit rates or revenues in accordance with the provisions of the preceding paragraph,
and where other treatment is provided by the laws, regulations and rules, such other treatment shall be applicable.

Article 17

Foreign air transportation and ocean shipping enterprises engaged in international transport business shall use 5% of the gross revenues
from passenger and cargo transport and shipping services arising within China as taxable income.

Article 18

Where an enterprise with foreign investment invests in another enterprise within China, the profits (dividends) so obtained from the
enterprise receiving such investment may be excluded from taxable income of the enterprise; however, expenses and losses incurred
in such abovementioned investments shall not be deducted from taxable income of the enterprise.

Article 19

Unless otherwise stipulated by the State, the following items shall not be itemized as costs, expenses or losses in the computation
of taxable income:

(1)

expenses in connection with the acquisition or construction of fixed assets;

(2)

expenses in connection with the transfer or development of intangible assets;

(3)

interest on capital;

(4)

various income tax payments;

(5)

fines for illegal business operations and losses due to the confiscation of property;

(6)

surcharges and fines for overdue payment of taxes;

(7)

the portion of losses due to natural disasters or accidents for which there has been compensation;

(8)

donations and contributions other than those used in China for public welfare or relief purposes;

(9)

royalties paid to the head office;

(10)

other expenses not related to production or business operations.

Article 20

Reasonable administrative expenses paid by a foreign enterprise with an establishment or site in China to the head office in connection
with production or business operations of the establishment or site shall be permitted to be itemized as expenses following agreement
by the local tax authorities after an examination and verification of documents of proof issued by the head office in respect of
the scope of the administrative expenses, total amounts, the basis and methods of allocation, which shall be provided together with
an accompanying verification report of a certified public accountant.

Administrative expenses in connection with production and business operations shall be allocated reasonably between enterprises with
foreign investment and their branches.

Article 21

Reasonable interest payments incurred on loans in connection with production and business operations shall be permitted to be itemized
as expenses following agreement by the local tax authorities after an examination and verification of documents of proof, which shall
be provided by the enterprises in respect of the loans and interest payments.

Interest paid on loans used by enterprises for the purchase or construction of fixed assets or the transfer or development of intangible
assets prior to the assets being put into use shall be included in the original value of the assets.

“Reasonable interest” mentioned in the first paragraph of this Article refers to interest computed at a rate not higher than normal
commercial lending rates.

Article 22

Entertainment expenses incurred by enterprises in connection with production and business operations shall, when supported by authentic
records or invoices and vouchers, be permitted to be itemized as expenses subject to the following limits:

(1)

Where annual net sales are 15 million yuan (RMB) or less, not to exceed 0.5% of net sales; for that portion of annual net sales that
exceeds 15 million yuan (RMB), not to exceed 0.3% of that portion of net sales.

(2)

Where annual gross business income is 5 million yuan (RMB) or less, not to exceed 1% of annual gross business income; for that portion
of annual gross business income that exceeds 5 million yuan (RMB), not to exceed 0.5% of that portion of annual gross business income.

Article 23

Exchange gains or losses incurred by enterprises during preconstruction or during production and business operations shall, except
as otherwise provided by the State, be appropriately itemized as gains or losses for that respective period.

Article 24

Salaries and wages, and benefits and allowances paid by enterprises to employees shall be permitted to be itemized as expenses following
agreement by the local tax authorities after an examination and verification of the submission of wage scales and supporting documents
and relevant materials.

Foreign social security premiums paid by enterprises to employees working in China shall not be itemized as expenses.

Article 25

Enterprises engaged in such businesses as credit and leasing operations may, on the basis of actual requirements and following approval
by the local tax authorities of a report thereon, provide year-by-year bad debt provisions, the amount of which shall not exceed
3% of the amount of the year-end loan balances (not including inter-bank loans) or the amount of accounts receivable, bills receivable
and other such receivables, to be deducted from taxable income of that year.

The portion of the actual bad debt losses incurred by an enterprise which exceeds the bad debt provisions of the preceding year may
be itemized as a loss in the current year; the portion less than the bad debt provisions of the previous year shall be included in
taxable income of the current year.

Bad debt losses mentioned in the preceding paragraph shall be subject to approval after examination and verification by the local
tax authorities.

Article 26

“Bad debt losses” mentioned in Article 25 , paragraph 2 of these Rules refers to the following accounts receivable:

(1)

due to the bankruptcy of the debtor, collection is still not possible after the use of the bankruptcy assets for settlement;

(2)

due to the death of the debtor, collection is still not possible after the use of the estate for repayment;

(3)

due to the failure of the debtor to fulfil repayment obligations for over two years, collection is still not possible.

Article 27

Accounts receivable already itemized as bad debt losses which are recovered in full or in part by an enterprise in a subsequent year
shall be included in taxable income of the year of recovery.

Article 28

Foreign enterprises with establishments or places in China may, except as otherwise provided by the State, deduct as expenses foreign
income tax, which has been paid on profits (dividends), interest, rents, royalties and other income received from outside China and
actually connected with such establishments or places.

Article 29

“Net assets or remaining property” mentioned in Article 18 of the Tax Law means the amount of all assets or property following deduction
of various liabilities and losses upon the liquidation of an enterprise.

Chapter III Tax Treatment for Assets

Article 30

“Fixed assets of enterprises” means houses, buildings and structures, machinery, mechanical apparatus, means of transport and other
such equipment, appliances and tools related to production and business operations with a useful life of one year or more. Items
not in the nature of major equipment which are used for production or business operations and which have a unit value of 2000 yuan
(RMB) or less, or with a useful life of two years or less may be itemized as expenses on the basis of actual consumption.

Article 31

The valuation of fixed assets shall be based on original cost.

The original cost of purchased fixed assets shall be the purchase price plus transportation expenses, installation expenses and other
related expenses incurred prior to the use of the assets.

The original cost of fixed assets manufactured or constructed by an enterprise itself shall be the actual expenses incurred in their
manufacture or construction.

The original cost of fixed assets treated as investments shall, giving consideration to the degree of wear and tear of the fixed assets,
be such reasonable price as is specified in the contract, or a price appraised with reference to the relevant market price plus the
relevant expenses incurred prior to the use thereof.

Article 32

Depreciation of fixed assets of an enterprise shall be computed commencing with the month following the month in which they are first
put into use. The computation of depreciation shall cease in the month following the month in which the fixed assets cease to be
used.

All investments made during the development stage by enterprises engaged in the exploitation of oil resources shall, taking the oil
(gas) field as a unit, be aggregated and treated as capital expenditures; the computation of depreciation shall begin in the month
following the month in which the oil (gas) field commences commercial production.

Article 33

In respect of the computation of depreciation of fixed assets, the salvage value shall first be estimated and deducted from the original
cost of the assets. The salvage value shall not be less than 10% of the original value; any request for retaining a lower salvage
value or not salvage value must be approved by the local tax authorities.

Article 34

Depreciation of fixed assets shall be computed using the straight-line method. Where it is necessary to use any other method of depreciation,
an application may be filed by an enterprise which, following examination and verification by the local tax authorities, shall be
reported level-by-level to the State Tax Bureau for approval.

Article 35

The computation of the minimum useful life in respect of the depreciation of fixed assets is as follows:

(1)

for houses and buildings: 20 years;

(2)

for railway rolling stock, ships, machinery, mechanical apparatus, and other production equipment: 10 years;

(3)

for electronic equipment and means of transport other than railway rolling stock and ships, as well as as such fixtures, tools and
furnishings related to production and business operations: 5 years.

Article 36

Depreciation of fixed assets in the nature of investments during the development stage and subsequent stages of an enterprise engaged
in the exploitation of oil resources may be computed on a consolidated basis without retaining salvage value; the period of depreciation
shall not be less than six years.

Article 37

“Houses and buildings” mentioned in Article 35 , subparagraph (1) of these Rules means houses, buildings and attached structures used
for production and business operations, and living quarters and welfare facilities for employees, the scope of which is as follows:

— houses, including factory buildings, business premises, office buildings, warehouses, residential buildings, canteens, and other
such buildings;

— buildings, including towers, ponds, troughs, wells, racks, sheds (not including temporary, simply constructed structures such as
work sheds and vehicle sheds), fields, roads, bridges, platforms, piers, docks, culverts, gas stations as well as pipes, smokestacks,
and enclosing walls that are detached from buildings, machinery and equipment;

Facilities attached to buildings and structures mean auxiliary facilities that are inseparable from buildings and structures and for
which no separate value is computed, including, for example, building and structure ventilation and drainage systems, oil pipelines,
communication and power lines, elevators and sanitation equipment.

Article 38

The scope of railway rolling stock, ships, machinery, mechanical apparatus and other production equipment mentioned in Article 35
, subparagraph (2) of these Rules is as follows:

— “railway rolling stock” includes various types of locomotives, passenger coaches, freight cars, as well as auxiliary facilities
on rolling stock for which no separate value is computed;

— “ships” includes various types of motor ships as well as auxiliary facilities on ships for which no separate value is computed;

— “machinery, mechanical apparatus and other production equipment” includes various types of machinery, mechanical apparatus, machinery
units, production lines, as well as auxiliary equipment such as various types of power, transport and conduction equipment.

Article 39

The scope of electronic equipment, means of transport other than railway rolling stock and ships mentioned in Article 35 , subparagraph
(3) of these Rules is as follows:

— “electronic equipment” means equipment comprising mainly integrated circuits, transistors, electron tubes and other electronic
components whose primary functions are to bring into use the application of electronic technology (including software), including
computers as well as computer controlled robots, and digital control or program control systems.

— “means of transport other than railway rolling stock and ships” includes airplanes, automobiles, trams, tractors, motor bikes (boats),
motorized sailboats, sailboats, and other means of transport.

Article 40

Where, for special reasons, it is necessary to shorten the useful life of fixed assets, an application may be submitted by an enterprise
to the local tax authorities which following examination and verification shall be reported level-by-level to the State Tax Bureau
for approval.

Fixed assets which for special reasons as mentioned in the preceding paragraph require the useful life to be shortened include:

(1)

machinery and equipment subject to strong corrosion by acid or alkali and factory buildings and structures subject to constant shaking
and vibration;

(2)

machinery and equipment operated continually year-round for the purpose of raising the utilization rate or increasing the intensity
of use;

(3)

fixed assets of a Chinese-foreign contractual joint venture having a period of cooperation shorter than the useful life specified
in Article 35 of these Rules and which will be left with the Chinese party upon termination of the cooperation.

Article 41

Enterprises which acquire used fixed assets having a remaining useful life shorter than the useful life specified in Article 35 of
these Rules may, following agreement by the local tax authorities after examination and verification of certifying documents so submitted,
compute depreciation according to the remaining useful life.

Article 42

Where expenditures incur during the course of the use of fixed assets due to increased value caused by expansion, replacement, reconstruction
and technical innovation of fixed assets, the original value of fixed assets shall be increased; where the period of use of fixed
assets can be extended, the useful life shall be appropriately extended and the computation of depreciation adjusted accordingly.

Article 43

No further depreciation shall be allowed in respect of fixed assets which can be continued to be used after having been fully depreciated.

Article 44

The balance of proceeds from the transfer or disposal of fixed assets by an enterprise shall, after deduction of the undepreciated
amount or the salvage value and handling fees, be entered into the profit and loss account for the current year.

Article 45

Depreciation of fixed assets received as gifts by enterprises may be computed on the basis of reasonable valuation.

Article 46

Patents, proprietary technology, trademarks, copyrights, land-use rights and other intangible assets of enterprises shall be appraised
on the basis of the original value.

For alienated intangible assets, the original value shall be the actual amount paid based on a reasonable price.

For self-developed intangible assets, the original value shall be the actual amount of expenditure incurred in the course of development.

For intangible assets used as investment, the original value shall be such reasonable price as is stipulated in the agreement or contract.

Article 47

The amortization of intangible assets shall be computed using the straight-line method.

Intangible assets transferred or assigned or used as investments, where the useful life is stipulated in the agreement or contract,
may be amortized over the period of that useful life; the amortization period in respect of intangible assets for which no useful
life has been stipulated or which have been developed internally shall not be less than ten years.

Article 48

Reasonable exploration expenses incurred by enterprises engaged in the exploitation of petroleum resources may be amortized against
income from oil (gas) fields that have already commenced commercial production. The amortization period shall not be less than one
year.

Where operation of a contract field owned by a foreign oil company is terminated due to failure to find commercially viable oil (gas),
and where ownership of the contract for the exploitation of petroleum (gas) resources is not continued and management organizations
or offices for carrying on operations for the exploitation of petroleum (gas) resources are no longer maintained in China, reasonable
exploration expenses already incurred in respect of the terminated contract field shall, upon examination and confirmation and the
issuance of certification by the tax authorities, be permitted to be amortized against production income of a newly owned contract
field when the new contract for cooperative exploitation of oil (gas) resources is signed within ten years from the date of the termination
of the old contract.

Article 49

Expenses incurred by enterprises during the period of organization shall be amortized beginning with the month following the month
in which production and business operations commence; the period of amortization shall not be less than five years.

The period of organization mentioned in the preceding paragraph means the period from the date of approval of the organization of
the enterprise to the date of commencement of production and business operations (including trial production and trial business operations).

Article 50

Inventories of merchandise, finished products, goods in process, semi-finished products, raw materials, and other such materials of
enterprises shall be valued at cost.

Article 51

Enterprises may choose one of the following such methods: first-in, first-out; moving average; weighted average or last-in, first-out
as the method of computing actual costs in respect of the delivery or receipt and use of goods in stock.

Once a method of valuation has been adopted for use, no change shall be made thereto. Where a change in the method of valuation is
indeed necessary, the matter shall be reported to the local tax authorities for approval prior to the commencement of the next tax
year.

Chapter IV Business Dealings Between Associated Ente

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