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Order of China Securities Regulatory Commission
No. 37
The Administration Measures of Securities Issuance and Consignation, which were deliberated and adopted at the 189th chairman’s executive
meeting of China Securities Regulatory Committee Commission on September 11, 2006, are hereby promulgated and shall go into force
as of September 19, 2006.
Chairman of China Securities Regulatory Committee Commission, Shang Fulin
September 17, 2006
Administration Measures of Securities Issuance and Underwriting
Chapter I General Provisions
Article 1
In order to regulate securities issuance and underwriting and protecting the legitimate rights and interests of investors, the present
Measures are formulated under the Securities Law of the People’s Republic of China and the Company Law of the People’s Republic of
China.
Article 2
The present Measures apply to issuers who issue stocks or convertible corporate bonds (hereinafter collectively referred to as securities)
within the border territory of China, securities companies that underwrite securities within the border territory of China, and investors
who subscribe securities issued within the border territory of China.
Issuers, securities companies and investors who participate in the issuance of securities shall abide by other provisions concerning
securities issuance of China Securities Regulatory Commission (hereinafter referred to as CSRC) and the business rules of stock exchanges
and securities registration and clearing institutions. In underwriting securities, securities companies shall also abide by the related
provisions concerning sponsorship system, risk control system and inner control system of the CSRC.
Article 3
The securities service institutions and personnel that produce related documents for securities issuance shall rigidly fulfill the
statutory duties in light of generally recognized business standards and ethical norms of the securities industry, and shall be responsible
for the authenticity, accuracy and integrity of the issued documents.
Article 4
The CSRC shall supervise and manage the issuance and underwriting of securities in accordance with law.
Chapter II Inquiry and Price-Fixing
Article 5
As for the initial public offering of a stock, the issuing price of the stock shall be determined by making an inquiry to the specified
institutional investors (hereinafter referred to as inquiry objects).
Inquiry objects refer to the securities investment funds management companies, securities companies, trust and investment companies,
financial companies, insurance institutional companies, and qualified foreign institutional investors that meet the conditions prescribed
in the present Measures, and other institutional investors authorized and approved by the CSRC.
Article 6
Inquiry objects of pricing and the securities investment products under its management (hereinafter referred to as object of shares
rationing) shall be registered at Securities Association of China for record and be subject to the self-discipline management of
Securities Association of China
Article 7
Inquiry objects of pricing shall meet the conditions as follows:
(1)
It is established in light of law, and has not been imposed with any administrative penalty, supervising measure or criminal penalty
by the related supervising departments because of any significant violation of laws or regulations during the latest 12 months;
(2)
It may conduct stocks investment in accordance with law;
(3)
It has good credit record, and has necessary institutions and personnel for independently engaging in securities investment;
(4)
It has sound systems of inner risk evaluation and control which can be effectively executed, and the risk control indexes accord with
the related provision; and
(5)
Where it has been removed from the list of inquiry objects by Securities Association of China according to the provisions of the present
Measures, 12 months have lapsed since the date of removal.
Article 8
The following institutional investors, as inquiry objects, shall also satisfy the following conditions in addition to those provided
in Article 7 :
(1)
A securities company may conduct securities self-run business and securities assets management business upon approval;
(2)
A trust and investment company shall have been newly reregistered at the relevant supervising department for two or more years, its
registered capital shall not be lower than 400 million Yuan, and it shall have an active record of securities market investments
in the latest 12 months;
(3)
A financial company which has been established for 2 years or more with a registered capital not lower than 300 million Yuan and has
an active record of securities market investments in the latest 12 months; .
Article 9
A main consignee shall provide an investment value study report to the inquiry objects when making inquiries. Issuer, main consignee
or inquiry object shall never publicly disclose the content of an investment value study report in any form.
Article 10
An investment value study report shall be independently written and signed by the research personnel of a consignee, which shall
not provide an investment value study report written by an institution other than one of the underwriting syndicate. A consignee
that produces investment value study report shall establish perfect quality control system of investment value study report; the
personnel who write the report shall abide by the inner control system of securities companies.
Article 11
When writing an investment value study report, the following requirements shall be observed:
(1)
Independence, prudence and objectiveness;
(2)
The materials quoted shall be authentic, accurate, integrate and authoritative, and their sources shall be indicated;
(3)
The evaluation concerning the industry of the issuer shall be consistent and coherent;
(4)
There shall be no false record, misleading statement or momentous omission.
Article 12
An investment value study report shall make comprehensive analysis concerning the elements that affect the investment value of an
issuer, and shall at least contain the contents as follows:
(1)
The classification of the issuer’s industry, industrial policies, comparison between the issuer and the major competitors, and the
issuer’s status in the same industry;
(2)
Analysis concerning the issuer’s condition of operation and development prospect;
(3)
Analysis concerning the issuer’s capacity of making profits and their financial conditions;
(4)
Analysis concerning the issuer’s projects invested by raised funds;
(5)
Comparison between the investment value of the issuer and those that of the comparable listed companies in the same industry;
(6)
Macro economic trend, stock market trend and other elements that have important impact on the investment value of the issuer.
An investment value study report shall, on the basis of the above-mentioned analysis, anticipate the rational investment value of
an issuer’s stock by using the estimating methods recognized generally in the industry.
Article 13
An issuer and its main consignee shall make recommendations and inquiries to the inquiry objects after publishing the prospectus
of an initial public offering stock and the announcement on issuance, and shall make recommendations to the public investors via
internet.
Inquiry may be divided into initial inquiry and accumulated bidding inquiry. An issuer and its main consignee shall determine the
issuing price span through initial inquiry, and determine the issuing price within the price span through accumulated bidding inquiry.
Article 14
If an initially offered stock is listed on the board of small and medium-sized enterprises, the issuer and its main consignee may
determine the issuing price in light of the outcome of initial inquiry instead of further conducting accumulated bidding inquiry.
Article 15
an inquiry object may determine by itself whether or not to participate in the initial inquiry; if an inquiry object applies for
participating in the initial inquiry, the main consignee can not refuse without legitimate reasons. An inquiry object that does not
participate in the initial inquiry, or participates in the initial inquiry but doe not make effective quotation, shall not participate
in the accumulated bidding inquiry and offline rationing.
Article 16
After the end of initial inquiry, where the number of the publicly offered shares is smaller than 400 million and the inquiry objects
that provide effective quotations are less than 20, or the number of the publicly offered shares is larger than 400 million and the
inquiry objects that provide effective quotations are less than 50, the issuer and its main consignee may not determine the issuing
price and shall suspend the issuance.
Where an issuer and its main consignee resume the issuance after suspending it, they shall report to the CSRC in time.
Article 17
An inquiry object shall make reasonable quotation according to the principles of independence, objectiveness and sincerity, may not
negotiate on the quotation or lower or raise prices on purpose.
Article 18
The securities self-run account of a main consignee may not participate in the inquiry, offline rationing and online issuance of
the shares issued this time.
An inquiry object that has actual control relationship with the issuer or its main consignee may not participate in the inquiry and
offline rationing of the shares issued this time, but may participate in the online issuance.
Article 19
An issuer and its main consignee shall, after the issuing price span and the issuing price being determined, respectively report
them to the CSRC for record and make public announcements accordingly.
Article 20
An issuer and its main consignee may not mislead investors in the process of recommendation, or disturb the normal quotation or subscription
of any inquiry object, or disclose other information of the issuer expect such public information as prospectus; there shall not
be any false record, misleading statement or momentous omission in the recommendation materials.
Article 21
An inquiry object shall summarize the inquiry situation of the previous year within one month upon the end of that year, and make
explanations on whether it persistently accords with the conditions prescribed in the present Measures and whether it complies with
the requirements on inquiry objects as prescribed in the present Measures. The summary report shall be reported to Securities Association
of China for record.
Article 22
When issuing securities, a listed company may determine the issuing price by means of inquiry, or by negotiating with its main consignee.
The price-fixing of securities issued by a listed company shall be in accordance with the relevant provisions on securities issuance
of listed companies prescribed by the CSRC.
Chapter III Securities Offering
Article 23
Where the number of the initially offered shares is more than 400 million, shares may be rationed to strategic investors. The issuer
shall subscribe a ration agreement with strategic investors in advance and shall report to the CSRC for record.
An issuer and its main consignee shall disclose the standards for selecting strategic investors, the total amount of shares rationed
to strategic investors, the proportion taken of the shares issued this time, and time limit on holding shares, etc.
Article 24
A strategic investor may not participate in the initial inquiry and accumulated bidding inquiry of a stock of initially public offering,
and shall make a promise that the holding period of the shares rationed to it this time shall not be less than 12 months, The holding
period shall be calculated as of the date when the stock publicly offered this time is listed.
Article 25
An issuer and its main consignee shall ration shares to the inquiry objects that take part in the offline rationing. Where less than
400 million shares are offered publicly, the quantity for rationing shall not be more than 20% of the total amount of this issuance;
where 400 million or more shares are offered publicly, the quantity for rationing shall not be more than 50% of the total amount
of this issuance after deducting the amount rationed to strategic investors. An inquiry object shall make a promise that the holding
period of the shares obtained this time through offline rationing shall not be less than 3 months. The holding period shall be calculated
as of the date when the stock publicly offered this time is listed.
Where the shares issued this time are rationed to strategic investors, upon the completion of the issuance, the quantity of the shares
without any restriction on holding period shall not be less than 25% of the total amount of this issuance.
Article 26
The rationing objects of shares shall be limited to the following categories:
(1)
Securities investment funds raised upon approval;
(2)
National social security funds;
(3)
Securities self-run accounts of securities companies;
(4)
Aggregate asset management plans of securities companies established upon approval;
(5)
Securities self-run accounts of trust and investment companies;
(6)
Aggregate trust plans established by trust and investment companies which have performed reporting procedures to the relevant supervision
departments;
(7)
Securities self-run accounts of financial companies;
(8)
Approved securities investment accounts of insurance companies or insurance assets management companies;
(9)
Securities investment accounts managed by qualified foreign institutional investors;
(10)
Enterprise annuity funds that have been put on records at the relevant supervision departments;
(11)
Other products of securities investment approved by the CSRC.
Article 27
An inquiry object shall respectively appoint fund accounts and securities accounts for the objects of shares rationing under its
management, which shall be specially used for accumulated bidding inquiry and offline placement, and shall report the accounts appointed
to the CSRC, Securities Association of China and securities registration and clearing institutions for record.
Article 28
An object of shares rationing that participates in accumulated bidding inquiry and offline rationing shall pay the amount for subscription
in full amount, where only a securities account is appointed, the accumulated quantity of subscription shall not exceed the total
amount of shares rationed to inquiry objects this time.
Article 29
An issuer and its main consignee who determined the issuing price through accumulated bidding inquiry, where the aggregate quantity
of effective subscription with price above the issuing price is larger than the quantity of offline rationing, shall ration all the
effective subscription with price above the issuing price at the same proportion.
Where an issuing price is determined through initial inquiry, if the aggregate quantity of offline effective subscription is larger
than the quantity of offline rationing, all the effective subscription shall be rationed at the same proportion.
Article 30
A main consignee shall check the registration situation of inquiry objects and objects of shares rationing. An inquiry object that
falls under any of the following circumstances may not be rationed with shares:
(1)
It did not participate in the initial inquiry;
(2)
The name or account information of an inquiry object or object of shares rationing is inconsistent with those registered at Securities
Association of China;
(3)
It fails to offer a quotation within prescribed time limit or appropriate capital for subscription in full amount;
(4)
There is evidence which can prove the existence of such circumstances as violation of any law or regulation or violation of the principle
of good faith in the process of inquiry.
Article 31
An issuer and its main consignee shall conduct offline rationing of shares and online issuance at the same time.
Where the online issuing price is not yet determined, the investors taking part in the online issuance shall subscribe in accordance
with the upper limit of the price span; if the finally determined issuing price is lower than the upper limit of the price span,
the price difference shall be refunded to the investors.
An investor that takes part in online issuance shall observe the related provisions of securities exchanges and securities registration
and clearing institutions.
Article 32
Where initially public issuance of a stock reaches a certain scale, the issuer and its main consignee shall establish a claw-back
mechanism between offline rationing and online issuance, and adjust the proportion between the two in light of the situation of subscription.
Article 33
If there is any profit distribution plan or plan concerning the conversion of public accumulation funds into shares capital that
has not been handed in to the general meeting of shareholders for voting, or that has been voted and adopted by the general meeting
of shareholders but has not been actualized, the listed company shall issue securities after such plan is actualized. Before the
related plan is actualized, the main consignee may not underwrite the securities issued by the listed company.
Article 34
Where a listed company rations shares to the original shareholders (hereinafter referred to as rationing shares), it shall ration
shares to the shareholders registered at the book on the date of record at the same rationing ratio.
Article 35
Where a listed company publicly raises shares from unspecified objects (hereinafter referred to as additional issuance) or issues
convertible corporate bonds, the main consignee may classify the institutional investors that participate in offline rationing ,
and set different rationing ratios for different categories, while the institutional investors belonging to the same category shall
be rationed at the same ratio. The main consignee shall specify the standards of classification in the issuance announcement.
Where a main consignee fails to classify the institutional investors, it shall establish a claw-back mechanism between offline rationing
and online issuance, the rationing ratios of the two shall be the same with each other after the claw-back.
Article 36
Where a listed company issues additional stocks or convertible corporate bonds, it may ration all or part of shares by giving priority
to the original shareholders, the proportion of priority ration shall be disclosed in the issuance announcement.
Article 37
Where a listed company makes non-public issuance of securities, it shall conform to the related provisions on securities issuance
of listed companies prescribed by the CSRC in choosing the issuing objects and the issuing quantities.
Chapter IV Securities Consignation
Article 38
Before underwriting securities, a securities company shall report the issuing plan and the underwriting plan to the CSRC.
Article 39
A securities company that underwrites securities shall adopt the mode of exclusive sales or sales by proxy in light of provisions
of Article 28 of the Securities Law of the People’s Republic of China. A listed company that issues stocks non-publicly and does
not adopt the mode of self-distribution, or the mode of rationing, shall adopt the mode of sales by proxy.
Article 40
Where the mode of sales by proxy is adopted in the issuance of a stock, the disposal measures in case of issuance failure shall be
disclosed in the issuance announcement. If the issuance failed, the main consignee shall assist the issuer in refunding to the stock
subscribers in accordance with the issuing price adding the bank deposit interest of the same period.
Article 41
Where a securities issuance shall be underwritten by an underwriting syndicate in accordance with the provisions of laws and administrative
regulations, the consignees that compose the underwriting syndicate shall conclude an underwriting syndicate agreement, and the main
consignee shall be responsible to organize the underwriting work.
Where a securities issuance is mainly underwritten jointly by two or more securities companies, all securities companies that occupy
the position of main consignee shall bear the responsibilities of main underwriting together and fulfill the related obligations.
Where an underwriting syndicate is constituted with three or more consignees, a deputy-main consignee may be set to assist the main
consignee in organizing the underwriting activities.
Article 42
The member of an underwriting syndicate shall carry through underwriting activities in light of the provisions in the underwriting
syndicate agreement and the underwriting agreement, and may not conduct any false underwriting.
Article 43
The underwriting syndicate agreement and the underwriting agreement may be concluded after the issuing price is determined.
Article 44
The main consignee shall set up special departments or institutions to coordinate the companys departments of investment bank research,
marketing, etc, to complete such work as information disclosure, recommendation, book-keeping, price-fixing, shares rationing and
capital clearance, etc together.
Article 45
A securities company may not, in the process of underwriting, induce other people to subscribe shares by means of providing overdraft
or kickback or other illegitimate means recognized by the CSRC.
Article 46
A listed company, in arranging the suspension and resumption of listing related securities during the period of securities issuance,
shall observe the related rules of securities exchanges corporation.
The main consignee shall appropriate and pay the interests on funds deposited for the purchase of new securities in time according
to the related provisions.
Article 47
After the end of payment for subscription by investors, a main consignee shall employ an accounting firm with the qualification of
related securities business (hereinafter referred to as accounting firm) to examine and verify the capital for subscription and produce
a report on the verification of capital; where a stock of initial public offering is issued, it is necessary to further employ a
law firm to witness whether the acts of inquiry and rationing to strategic investors and inquiry objects are in line with laws, administrative
regulations and the provisions of the present Measures, and then produce special legal opinions.
Article 48
Where more than 400 million shares of initially public offering are issued, the issuer and its main consignee may adopt greenshoe,
the exercise of this power shall abide by the related provisions of the CSRC, securities exchanges and securities registration and
clearing institutions.
Article 49
Where a securities is publicly offered, the main consignee shall report the summary report of underwriting to the CSRC for record
within 10 days as of the date when the securities is listed so as to summarize and explain the basic situations during the issuance
period and the performance of the new shares after being listed, and shall provide documents as follows:
(1)
Separate edition of the prospectus;
(2)
Underwriting agreement and underwriting syndicate agreement;
(3)
Opinions of witness by the lawyer (only for the initially public offering);
(4)
Report on the verification of capital produced by the accounting firm; and
(5)
Other documents required by the CSRC.
Article 50
Where a listed company makes non-public issuance of a stock, the issuer and its main consignee shall hand in the following documents
to the CSRC upon the accomplishment of the issuance:
(1)
Statement on issuance situation;
(2)
Report made by the main consignee on the compliance of this issuing process and objects of subscription;
(3)
Opinions of witness concerning the compliance of this issuing process and objects of subscription presented by the lawyer of the issuer;
(4)
Report concerning the verification of capital produced by the accounting firm; (5) Other documents required by the CSRC.
Chapter V Information Disclosure
Article 51
An issuer and its main consignee shall, in the process of issuance, prepare the documents of information disclosure and perform the
obligation of information disclosure in light of the procedures, contents and formats stipulated by the CSRC.
Article 52
The information disclosed by an issuer and its main consignee in the process of issuance shall be authentic, precise, and integrate;
and there shall be no false record, misleading statement or momentous omission.
Article 53
An issuer and its main consignee shall publish the information disclosed in the process of issuance on at least one of the newspapers
and periodicals appointed by the CSRC; and shall, at the same time, publish such information on the internet website appointed by
the CSRC; and exhibit such information at the place appointed by the CSRC for public reference.
Article 54
The letter of intent publicized by an issuer shall conform to the prospectus in terms of contents and formats, except that the letter
of intent does not include the issuing price and the amount of capital to be raised, and shall have equal legal biding force of law
with the prospectus.
Article 55
An issuer and its main consignee shall publish the issuance announcement simultaneously when publishing the abstract of the letter
of intent or the prospectus, and shall make detailed explanation of the issuing plan.
Article 56
Where an issuer and its main consignee announce the issuing pricing and the price-earning ratio, the earnings per share shall be
calculated on the basis of the net profit of the previous year of the issuance audited by accounting firm before or after deducting
non-routine profits/losses, whichever is smaller, divided by the total capital of stocks.
The issuer that provides profit forecasting shall still complement the disclosure of the issuing earnings per share ratio based thereon.
The earnings per share shall be calculated on the basis of the forecasted net profit of the previous year of the issuance audited
by accounting firm before or after deducting non-routine profits/losses, whichever is smaller, divided by the total capital of stocks.
The issuer may also disclose such issuing price index as the net value per share ratio, which can reflect the features of the industry
where the issuer belongs.
Article 57
In case of rationing a stock of initially public offering to strategic investors, the issuer and its main consignee shall disclose
the name, subscription quantity, promised holding period and other information of each strategic investor in the announcement of
the results of offline rationing.
Article 58
After a listed company makes non-public issuance of new shares, it shall prepare and disclose the statement on issuing situation.
Article 59
Before the securities issued this time is listed, the issuer and its main consignee shall prepare the documents of information disclosure
and make announcement in light of the requirements of securities exchanges.
Chapter VI Supervision and Punishment
Article 60
Where any issuer, securities company, securities service institution or inquiry object violates any provision of the present Measures,
the CSRC may order it to rectify; as for the directly responsible person in charge and other persons directly responsible, the CSRC
may take such administrative supervision measures as supervised talks and determining them as inappropriate persons, and register
at the record of creditworthiness and publicize the names.
Article 61
Where any issuer, securities company, securities service institution, inquiry object or its directly responsible person in charge
violates any law, administrative regulation, or any provision of the present Measures, administrative penalties shall be imposed
thereupon in accordance with law when it is due; where it/he is suspected of being involved in any crime, it/he shall be transferred
to judicial authorities and its/his criminal liabilities shall be investigated.
Article 62
Where a securities company falls under any of the following circumstances, in addition to undertaking the legal responsibilities
stipulated in the Securities Law, it may not take part in the underwriting of securities within 36 months as of the date of being
confirmed by the CSRC:
(1)
Underwriting unapproved securities;
(2)
In the process of underwriting, making advertisements that are false or may mislead investors or conducting other activities of publicity
and recommendation; or inducing other people to purchase shares by illicit means; or
(3)
In the process of underwriting, there is false record, misleading statement or momentous omission in the disclosed information .
Article 63
Where a securities company falls under any of the circumstances as follows, in addition to undertaking the legal responsibilities
stipulated in the Securities Law, it may not take part in the underwriting of securities within 12 months as of the date of being
confirmed by the CSRC:
(1)
Leaking information on securities issuance in advance;
(2)
Canvassing underwriting business by means of unfair competition;
(3)
Failing to disclosing information as required in the process of underwriting;
(4)
The actual operation in the process of underwriting does not conform to the issuing plan submitted to the CSRC;
(5)
Writing or publishing the study report concerning investment value by violating the related provisions.
Article 64
Where an issuer and its main consignee provide, by violating the related provisions, any financial subsidy or compensation to the
investors that take part in subscription, the CSRC may order it to rectify; where the former circumstance is serious, it may give
admonition or impose fines.
Article 65
Where an inquiry object falls under any of the following circumstances, Securities Association of China shall remove it from the
list of inquiry
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Circular of the State Administration of Taxation on Printing and Distributing the Text of the Arrangements between the Mainland of
China and the Hong Kong Special Administrative Region on Avoiding Double Taxation and Getting Prepared for the Implementation thereof
Guo Shui Han [2006] No. 884
The state taxation bureaus and local taxation bureaus of each province, autonomous region, municipality directly under the Central
Government and city specifically designated in the state plan, and all the departments within the State Administration of Taxation,
The Arrangements between the Mainland of China and the Hong Kong Special Administrative Region concerning Avoiding Double Taxation
on Income and Preventing Tax Dodging & Tax Evasion was officially signed in Hong Kong on August 21, 2006. The present arrangements
shall not go into effect and be executed until both sides have completed their respective legal procedures as required. The text
of the present arrangements is hereby printed and distributed to you, please get ready for the implementation.
Appendix: Arrangements between the Mainland of China and the Hong Kong Special Administrative Region concerning Avoiding Double Taxation
on Income and Preventing Tax Dodging & Tax Evasion
State Administration of Taxation
September 27, 2006
Appendix:
Arrangements between the Mainland of China and the Hong Kong Special Administrative Region concerning Avoiding Double Taxation on
Income and Preventing Tax Dodging & Tax Evasion
In order to avoid double taxation on income and prevent tax dodging & tax evasion , the Mainland of China and the Hong Kong Special
Administrative Region reach the following agreements:
Article 1
Persons Covered
The present arrangements is applicable to the persons who are residents of either or both sides.
Article 2
Taxes Covered
1.
The present Agreements are applicable to all the taxes imposed by either of the two sides or by the local authorities thereof, regardless
of the manner in which they are levied.
2.
The taxes on all incomes or any income, including the taxes on the proceeds arising from the transfer of chattels or estates as well
as the taxes on the capital increment, shall be regarded as taxes on incomes.
3.
The active tax categories to which the present Arrangements shall be applied are:
(1)
In the Mainland:
(a) The personal income tax;
(b) The foreign-invested enterprises and foreign enterprises income tax.
(2)
In Hong Kong
(a) Profits tax;
(b) Salaries tax;
(c) Property tax.
No matter whether or not the taxes are levied in light of personal income.
4.
The present arrangements shall also apply to the same or substantially similar taxes that are levied after the date of signing the
present arrangements as an addition or replacement to the active tax categories and apply to any other tax which is to be levied
in the future but falls within the scope which is referred to in paragraphs 1 or 2 of this Article. The competent authorities of
both sides shall notify each other of any substantial alterations made in their respective tax laws in an appropriate time after
such alterations are made.
5.
The existing taxes and the taxes which are to be levied after the signing of the Arrangements, hereafter shall be named as “Mainland
taxes” or “Hong Kong taxes” respectively.
Article 3
General Definitions
1.
In the present Arrangements, except for otherwise explained in the context :
(1)
The terms “one side” and “the other side”, depending on the context, refer to the Mainland of China and the Hong Kong Special Administrative
Region;
(2)
The term “taxes” ,depending on the context, refers to the Mainland taxes or Hong Kong Special Administrative Region tax ;
(3)
The term “person” includes individuals, corporations, affiances, partnerships and other groups;
(4)
The term “company” refers to any body corporate or any entity which is regarded as a body corporate for tax purposes;
(5)
The term “enterprise” shall be applied to all forms of business activities;
(6)
The terms “enterprise of one side” and “enterprise of the other side” respectively refer to an enterprise carried on by a resident
of one side and an enterprise carried on by a resident of the other side;
(7)
The term “ocean shipping, air parcel and land transport” refer to transportations operated by an enterprise of one side in ships,
aircrafts or land transport vehicles, , excluding the transportations operated in ships, aircrafts or land transport vehicles only
between places in the other side;
(8)
The term “competent authority” refers to the State Administration of Taxation or its authorized representatives in the Mainland of
China, and refers to the Commissioner of Revenue of the Hong Kong Special Administrative Region or his authorized representatives
or any person or institution which is authorized to execute the functions or similar functions that may be executed by the Commissioner
of Revenue at the present time in the Hong Kong Special Administrative Region,;
(9)
The term “business operation” includes professional services and other independent activities.
2.
In the present Arrangements, the “Mainland taxes” or “Hong Kong Special Administrative region tax” do not include any fines or interest
levied by either of the two sides under any tax law as mentioned in Article 2 .
3.
With regard to the implementation of the present arrangements by one side, any term which has not been defined herein shall, except
for otherwise explained in the context, have the meaning which it has under the laws of that side on the taxes to which the present
arrangements applies. The definition of a relevant term in taxation laws shall be preferential to the definition of the same term
in other laws.
Article 4
Residents
1.
In the present arrangements, the term “resident of one side” shall have the following definitions:
(1)
In the Mainland, it refers to any person who, in accordance with Mainland law, due to his domicile, residence, headquarters location,
or place of actual management institution or other similar standards, have obligations to pay taxes in the mainland. However, this
term does not include the persons who are obligatory to pay tax in the Mainland only due to the income rooting in the Mainland.
(2)
In the Hong Kong Special Administrative Region, it refers to
(a)Persons who ordinarily reside in the Hong Kong Special Administrative Region;
(b)Persons who stay in the Hong Kong Special Administrative Region for over 180 days within a taxable year or stay for over 300 days
within two consecutive taxable years (one of which is a taxable year concerned);
(c)For the incorporation of companies established in the Hong Kong Special Administrative Region or established outside the Hong Kong
Special Administrative Region but usually managed or controlled therein;
(d)Other persons which are formed according to the law of the Hong Kong Special Administrative Region, or other persons which are
formed outside the Hong Kong Special Administrative Region but which are managed or controlled therein.
2.
Due to the provisions of Paragraph 1, as for an individual who is a resident of both sides, his identity shall be confirmed according
to the following rules:
(1)
He shall be considered as a resident of the side in which he has a permanent domicile available to him; if he has a permanent domicile
available to him in each of two sides, he shall be considered as a resident of the side which has a more closely personal and economic
relations with him(the side where his important interest center is located) ;
(2)
If the side where his important interest center locates cannot be determined, or if he does not have a permanent home available to
him in either side, he shall be considered as a resident of the side in which he has a customary abode;
(3)
If he has a customary abode in either side or in neither of them, the competent authorities of both sides shall settle the issue through
negotiations.
3.
Due to the provisions of Paragraph 1 of this Article, a person, except an individual, who is a resident of both sides, shall be considered
as a resident of the side where its actual management institution is located.
Article 5
Permanent Institutions
1.
In the present Arrangements, the term “permanent establishment” means a fixed place of business through which the business of an enterprise
is wholly or partially conducted.
2.
The term “permanent establishment” particularly includes:
(1)
Management sites;
(2)
Branches;
(3)
The offices;
(4)
Factories;
(5)
Workshops; and
(6)
The mine, oil or gas wells, quarry or other places for exploitation of natural resources.
3.
The term “permanent institutions” also includes:
(1)
Building site, construction, assembly or installation project, or the supervisory and administrative activities related, but only
limiting to the sites, projects or activities which last for more than 6 months;
(2)
The services, including advisory services, provided by an enterprise of one side directly or through employees or other employed personnel
for the aforesaid item or related items in the other side, only limiting to the periods for such activities which continually or
accumulatively exceed 6 months in any 12 months.
4.
Notwithstanding the aforementioned provisions of this article, the term “permanent establishment” shall not include:
(1)
The use of facilities specialized for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
(2)
The inventory of goods or merchandise belonging to the enterprise specialized for the purpose of storage, display or delivery;
(3)
The inventory of goods or merchandise belonging to the enterprise specialized for the purpose of processing by another enterprise;
(4)
The fixed place of business established specialized for the purpose of purchasing goods or merchandise or of collecting information
for the enterprise;
(5)
The fixed place of business established specialized for the purpose of conducting other preparatory or assistant activities for the
enterprise;
(6)
The fixed place of business established specialized for the purpose of combining the activities listed in Items (1) to (5) of this
Paragraph if such combination shall fall into all the activities of the fixed place of business with a preparatory or auxiliary nature.
5.
Notwithstanding the provisions of Paragraphs 1 and 2, when a person (in addition to the independent agents to whom the provisions
of Paragraph 6 shall be applicable ) conducts activities in one side representing an enterprise of the other side , and regular exercises
the authority to conclude contracts on behalf of the enterprise, that enterprise shall be considered to have a permanent establishment
in the first-mentioned side as regards the activities that the person conducts for the enterprise, unless the activities of such
person are limited to those mentioned in Paragraph 4 ,according to which, that the fixed place of business shall not be considered
as permanent institution.
6.
An enterprise of one side shall not be considered to have a permanent establishment in the other side merely because it operates its
business in the other side through a broker, general commission agent or any other independent agent. However, if all or nearly all
of the agent’s activities are carried out on behalf of the enterprise, he shall not be considered as an independent agent as referred
to in this Paragraph.
7.
The fact that a company which is a resident of one side controls or controlled, a company which is a resident of the other side, or
which operates business in the other side (whether through a permanent establishment or not), shall not itself render either company
a permanent establishment of the other side.
Article 6
Income from Estate
1.
Income derived by a resident of one side from estate (including income from agriculture or forestry) situated in the other side may
be taxed in the other side.
2.
The term “estate” shall have the meaning it has under the law of the side in which the property in question is situated. The term
shall, in any case, include the property attached to the estate, livestock and equipment used in agriculture and forestry, the rights
to which the general legal provisions related to real estates are applicable, usufruct of estate, as well as the rights to acquire
non-fixed or fixed income due to exploiting or being enpost_titled to exploit mineral resources and other natural resources of Ships and
aircrafts shall not be regarded as estate.
3.
The provisions of Paragraph 1 shall apply to the income obtained from the direct using, leasing of estate or any other form of using
the estate.
4.
The provisions of Paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise.
Article 7
Business Profits
1.
The profits of an enterprise of one side shall be taxable only in that side with the exception of the enterprise conducting its business
in another side through a permanent establishment situated therein. If the enterprise conducting its business in the other side through
a permanent establishment situated therein, the profits of the enterprise may be taxed in the other side, but only limited to those
attributable to that permanent establishment.
2.
In addition to the application of the provisions of Paragraph 3 of this article, where an enterprise of one side conducting its business
in the other side through a permanent establishment situated therein, the permanent establishment shall be regarded as an independent
subordinate enterprise engaging in the same or similar activities under the same or similar circumstances. Such permanent establishment
shall be treated differently and separately as an independent establishment from the enterprise. Under the aforesaid circumstances,
the profits of this permanent establishment that may be obtained shall belong to the permanent establishment itself in each side.
3.
When determining the profits of a permanent institution, it should be allowed to deduct the expenses incurred in the business of the
permanent establishment, including the executive and general administrative costs, regardless of whether they occur in the side in
which the permanent institution is situated or in any other place. However, no such deduction shall be allowed as regards the royalties,
remunerations or other similar funds paid by the permanent institutions to the general institution of the enterprise and any other
offices of the said enterprise, commission for concrete service or management as provided, as well as the interest paid for the loans
(expect with the expenses actually arising from the reimbursement ) , except banking enterprises., Similarly, no consideration may
be taken, in determining the profits of a permanent establishment, for the royalties, remunerations or other similar funds paid by
the permanent institutions to the general institution of the enterprise and any other offices of the said enterprise, commission
for concrete service or management as provided, as well as the interests obtained due to the loans to the general institution or
any other offices of the said enterprise (expect with respect to the reimbursement of actual expenses), except banking enterprises.
4.
If one is accustomed to decide the profits of the permanent institution by means of a certain percentage of their overall profits
allocated to the respective units or any other methods as provided by laws, the provisions in Paragraph 2 herein shall not preclude
that side from determining the profits to be taxed by this method of profit distribution. However, the result of adopting the method
of profit distribution shall be consistent with the principles prescribed in this Article.
5.
No profits may be attributed to a permanent establishment because of mere purchase by that permanent establishment of goods or commodities
for the enterprise.
6.
For the purpose of the aforementioned Paragraphs, the profits belonging to the permanent establishment shall be determined by the
same method each year in addition to appropriate and sufficient reasons for alterations.
7.
If the profits include the income items that are provided separately in other articles of the present arrangements, the provisions
of other articles shall not be affected by the provisions of this Article.
Article 8
Ocean Shipping, Air Parcel and Land Transport
1.
Revenues and profits from the operation of ocean Shipping, air parcel and land transport by ships, aircrafts or land transport vehicles
made by an enterprise of one side in the other side shall be tax-free (in the Mainland, Including sales tax) .
2.
The provisions of paragraph 1 of this Article shall also apply to revenues and profits derived from the profits from the operations
under partnership, joint ventures or participation in an international operating agency, It is merely limited to the revenues and
profits obtained in light of the proportion of shares held in the aforementioned operations.
Article 9
Associated Enterprises
1.
When
(1)
an enterprise of one side participates directly or indirectly participates in the management control or capital of another enterprise,
or
(2)
a same person directly or indirectly participates in the management, control or capital of an enterprise of one side and an enterprise
of the other side;
In any case of the above, the commercial or financial relations between the two enterprises is different from the relationship between
independent enterprises, so long as the profits which would, but as those conditions, the profits have been achieved by either enterprise,
may be included in the profits of that enterprise and be taxed accordingly.
2.
When one side involves the profits of an enterprise of the other side in the profits of an enterprise of its side (the said part of
profits should have been obtained by an enterprise of the said side in the light of two independent enterprises under the same circumstance)
and levies on it , then the other side shall make appropriate adjustment to the amount of the tax charged therein on those profits,
where the other side making appropriate adjustment. In determining the above adjustment, the other provisions of the present Arrangements
shall be paid attention to, if necessary, the administrative authorities of the two sides shall consult each other.
Article 10
Dividends
1.
Dividends paid by a resident company of one side to a resident of the other side may be taxed in that other side.
2.
However, these dividends may also be taxed in the side of which the company paying the dividends is a resident and in accordance with
the laws of that side, however, if the dividend is the beneficial owner of the other residents, the tax so levied shall not exceed:
(1)
5% of the total dividends if the beneficial owner directly holds at least 25% of the shares by the company to pay the dividends;
(2)
10% of the total dividends in other cases.
The administrative authorities of both sides shall consult to determine the method for the execution of the restrictive tax rate.
This Paragraph shall not affect the corporate profits tax levied on the profits used to pay dividends of the said corporate.
3.
The term “dividends” as used in this Article means the income from shares or other rights of participating in the profits of non-creditor
relationship, and the income from other corporate rights that are regarded the same taxation treatment as the income from the shares
by the laws of the side of which the company making the profit distribution is a resident.
4.
The provisions of Paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of one side, conducted
business in the other side of which the company paying the dividends is a resident, through a permanent establishment situated in
that other side and if the shares for which the dividends are paid are effectively associated with such permanent establishment.
Under such circumstances, the provisions of Article 7 shall be applied.
5.
Where a company which is a resident of one side obtained profits or income from the other side, that other side may not impose any
tax on the dividends paid by the company, even if the dividends paid or the undistributed profits consist in whole or in part of
profits or income arising in the other side, with the exception of the dividends are paid to a resident of that other side or the
shares held or other corporate rights as regards which the dividends are paid are effectively connected with a permanent establishment
situated therein.
Article 11
Interest
1.
Interest occurred in one side and paid to a resident of the other side may be taxed in that other side.
2.
However, these interests may also be taxed in the side in which it arises and in accordance with the laws of that other side, however,
if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 7 percent of the total interest. The
competent authorities of both sides shall consult to determine the method for the execution of the restrictive tax rate.
3.
Notwithstanding the provisions of Paragraph 2 of this Article , the interest, which occurred in one side and is obtained by an institution
acknowledged by the government of the other side or by the competent authorities of both sides, shall be tax-free in that side.
4.
The term “interest” as mentioned in this Article means income from a variety of claims, no matter whether they have guaranty or the
right to share the debtor’s profits; especially, income from government bonds, bonds or credit bonds, including their premiums or
bonus. Penalty paid for postponing shall not be considered as interest as prescribed in this Article.
5.
The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of one side, conduct
business in the other side in which the interest occurred, through a permanent establishment situated in that other side and if the
debt-claim as regards which the interest is paid is effectively associated with such permanent establishment. Under such circumstances,
the provisions of Article 7 shall apply.
6.
Interest shall be considered to arise in one side when the payer is the government of that side itself, a local authority or a resident
of that side. Where, however, the person paying the interest, no matter he/it is the government or local authority of one side, or
a resident of one side has in one side a permanent establishment in association with which the indebtedness on which the interest
is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be considered to arise
in the side in which the permanent establishment is situated.
7.
Where, because of the special relationship between the payer and the beneficial owner or between both of them and other people, the
amount of the interest, having regard to the debt-claim for which it is paid, beyond the amount which would have been agreed upon
by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the
last-mentioned amount. Under this circumstance, the excess payments shall remain taxable in accordance with the laws of each side,
other provisions of the present arrangements should be paid proper attention to.
Article 12
Royalties
1.
Royalties occurred in one side and paid to a resident of the other side may be taxed in that other side.
2.
However, these royalties may also be taxed in the side in which they arise in light of the laws of that side, but if the recipient
is the beneficial owner of the royalties, the tax so charged shall not exceed 7 percent of the gross amount of the royalties. The
competent authorities of both sides shall consult to determine the method for the implementation of the limited tax rate.
3.
The term “royalties” as mentioned in this Article means the varieties of funds paid as a reward for the use of, or the right to use,
any copyright of literature, art or science work (including cinematographic films, or films or tapes for radio or television broadcasting),
any patent, trademark, design or model, blueprint, secret formula or secret proceedings to pay the reward money, or the use or the
right to use any industrial, commercial, scientific equipment or information related to industrial, commercial or scientific experiences.
4.
The provisions of Paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of one side, conducts
business in the other side in which the royalties arise through a permanent establishment situated in that other side and if the
right or property as regards which the royalties are paid is effectively associated with such permanent establishment. Under such
circumstance, the provisions of Article 7 shall be applied.
5.
The royalties shall be considered as arising in one side when the payer is the government, a local authority or a resident of that
side. Where, however, the person paying the royalties, no matter he/it is the government or local authority of one side, or a resident
of one side, has in one side a permanent establishment in association with which the obligation to pay the royalty fees was incurred,
and such royalties are borne by such permanent establishment, then such royalties shall be considered to arise in the side in which
the permanent establishment is situated.
6.
Where, because of the special relationship between the payer and the beneficial owner or between both of them and other people, the
amount of the royalties, regarding the use, right or information for which they are paid, which results in the payment of royalty
payments in excess of the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship,
the provisions of this Article shall apply only to the amount mentioned. Under this circumstance, the excess payments shall remain
taxable in light of the law of both sides, but the other provisions of the present arrangements shall be paid proper attention to.
Article 13
Property Proceeds
1.
Proceeds derived by a resident of one side from the transfer of estate referred to in Article 6 and situated in the other side may
be taxed in that other side.
2.
Proceeds from the transfer of chattel of business property part of a permanent establishment which an enterprise of one side has in
the other side, including such gains from the permanent establishment transfer (either solely or accompanying the entire enterprise),
may be taxed in that other side.
3.
Proceeds derived by the transfer of ships, airplanes or vehicles engaging in ocean shipping, air parcel or land transport or proceeds
derived from the transfer of chattel belonging to the operation of such ships, airplanes or land transport vehicles shall be taxable
only in that side.
4.
Proceeds from the transfer of shares of the shares of a company whose major property consists directly or indirectly of estate situated
in one side may be taxed therein.
5.
Proceeds from the transfer of shares other than those referred to in Paragraph 4 equivalent to at least 25 percent in a company which
is a resident of one side may be taxed in that side.
6.
Proceeds derived from the transfer of property other than property referred to in paragraphs 1 through 5 may be taxed in the only
side in which the transferor is a resident.
Article 14
Employment Income
1.
In addition to the application of Articles 15, Articles 17, Articles 18, Articles 19 and Articles 20 of the provisions, the salaries,
wages and other similar remuneration derived by a resident of one side due to an employment shall be taxable only in that sideexcept
the activities are pursued in the other side. If the activities are pursued in the other side, such remuneration as is derived therefrom
may be taxed in that other side.
2.
Notwithstanding the provisions of Paragraph 1 of this article, the remuneration derived by a resident of one side as regards an employment
exercised in the other side shall be taxable only in the first-mentioned side if the following three conditions are satisfied at
the same time:
(1)
The recipient is present in the other side for a total of less than 183 days consecutively within any 12 months after the beginning
or end of the taxable year concerned;
(2)
the remuneration is not paid by or on behalf of the employer by an employer who is not a resident of the other side;
(3)
the remuneration is not assumed by a permanent establishment which the employer has in the other side.
3.
Notwithstanding the aforesaid provisions of this Article, remunerations derived from an employment activity exercised in ships ,airplanes
or vehicles engaging in ocean shipping, air parcel or land transport operated by an enterprise of one side shall be taxable only
in that side.
Article 15
Director’s Fees
Director’s fees and other similar payments obtained by a resident
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