The preferential tax policies for enterprises with foreign investment (hereinafter referred to as EFI) include the following main items: preferential enterprise income tax rate, enterprise income tax reduction or exemption and import tariff and value added tax(VAT) exemption of imported equipment.
1. Preferential Enterprise Income Tax Policies
1.1 Preferential enterprise income tax rate
The income tax rate is 33 percent on usual for the EFIs in Hubei province. The preferential income tax was practiced in the following regions and industries.
A 15 percent enterprise income tax rate shall apply to the EFIs engaged in production and business operation or of a production nature:
- Located in the state-level Economic and Technological Development Zones and New and High Technology Industry Development Zones;
- Centering on infrastructure fields such as power, energy, transportation and communication, harbor and port, dock and wharf and other projects.
The 24 percent preferential income tax rate is applicable to: the production-natured EFIs in Wuhan, Huangshi and Yichang municipality.
The enterprises engaged in production and business operation or of a production nature include:
a. Technology-intensive or knowledge-intensive projects;
b. Energy industry(petroleum and natural gas exploitation not included);
c. Metallurgical, chemical and building materials industries;
d. Textile, packaging and other light industries;
e. Medical apparatus and instruments and pharmaceutical industries;
f. Agriculture, forestry, husbandry, fishery and water conservancy industries;
g. Construction industry;
h. Transportation and communication industry;
i. Service industry as science and technology development, geological prospecting, industrial information consulting and precision instruments maintenance and repair industries;
j. Other industries agreed by Ministry of Finance or State Administration of Taxation
1.2 Enterprise income tax reduction or exemption
Any EFI engaged in production or of a production nature intended to conduct business in China for at least 10 years shall, from its first profit making year, be entitled to two-year's income tax exemption adjoining three-year's 50 percent reduction.
Any EFI engaged in advanced technology intended to conduct business in China for at least 10 years shall, from its first profit making year, be entitled to two-year's income tax exemption adjoining six-year's 50 percent reduction, with the reduced tax rate not less than 10 percent.
Any Chinese foreign equity joint ventures undertaking port or dock construction with an operation period exceeding 15 years shall, from the first year of its making profits, be exempted from enterprise income tax for five consecutive years adjoining another six to ten years of 50 percent reduction.
1.3 Further enterprise income tax reduction or exemption
Any export-oriented EFI shall, after its expiration of exemption or reduction, be entitled to a further 50percent reduction on Enterprise Income Tax, provided that at least 70percent of its annual products have been exported. The reduced tax rate shall not below 10 percent.
Any EFI that belongs to the encouragement category and situated in Hubei province, shall be entitled a 50 percent reduction on Enterprise Income Tax, provided that at least 70percent of its annual products have been exported. The reduced tax rate shall not below 10 percent.
For those EFIs engaging in agriculture, forestry and husbandry shall, after its expiration of exemption or reduction, be entitled to a further ten-year's 15-30 percent reduction on Enterprise Income Tax, if approved by the State Administration of Taxation.
1.4 Further local income tax reduction or exemption
In Hubei province, after the expiration of the preferential local income tax: the export-oriented and advanced technology-oriented EFIs shall be entitled to nine years local income tax exemption；
the foreign enterprises invested in the infrastructure and basic industries as power and energy, transportation and communication, raw materials, development-oriented agriculture and social causes and the Sino-foreign joint ventures, Sino-foreign cooperatives and wholly foreign owned enterprises through utilizing and reforming the existing corporations shall be entitled to six-year's local income tax exemption.
Other foreign invested enterprises shall be exempted from local income tax for three years.
They can apply for further exemption once the exemption of local income taxes has expired.