On July 27, 2011, the Ministry of Finance, the General
Administration of Customs, and the State Administration of Taxation
issued The Notice on the Relevant Tax Policies for the
Implementation of the Strategy of Extensive Development of the
Western Regions, Cai Shui  No. 58 (the "Notice").
The Notice has extended certain tax incentives for another 10
years, from January 1, 2011 to December 31, 2020.
In 2000, China issued polices concerning the extensive
development of the Western Regions. As part of the policies, tax
incentives were given to investment in qualified industries in the
Western Regions from January 1, 2001 through December 31, 2010. In
2010, Chinese government decided to continue its policies to
encourage the development of the Western Regions. The Notice has
clarified the tax incentive policies for next 10 years.
Western Regions Defined
To qualify for the tax incentives, an enterprise must be set up
in the Western Regions. The Western Regions defined in the Notice
are the same areas provided in the old regulations, which include
Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shanxi, Gansu, Ningxia,
Qinghai, Xinjiang, Inner Mongolia, and Guangxi. The preferential
incentives for the Western Regions also apply to Xiangxi Tujia-Miao
Autonomous Prefecture in Hunan Province, Enshi Tujia-Miao
Autonomous Prefecture in Hubei Province, and Yanbian Korean
Autonomous Prefecture in Jilin Province.
Tax Incentives Extended
An enterprise investing in encouraged industries is exempt from
Customs Duty on the import of equipment for self-use within its
approved total investment.
A reduced Corporate Income Tax rate of 15 percent (a 10 percent
reduction from the regular rate) is applicable to enterprises set
up in the Western Regions with their main business in encouraged
industries. The encouraged industries are those listed in The
Catalog of Encouraged Industries in the Western Regions. To qualify
for the reduced tax rate, an enterprise must derive 70 percent or
more of its revenue from the business listed in the catalog.
Although the preferential tax rate is the same as that for the
first 10-year period, the industries may not be exactly same.
Previously, the encouraged industries were based on different
catalogs for domestic and foreign-invested enterprises. For
domestic enterprises, the catalog was The Catalog of Industries,
Products, and Technologies Whose Development Is Currently
Encouraged by the State; for foreign invested enterprises, they
were The Catalog of Industries for Guiding Foreign Investment and
the Catalog of Preferred Industries for Foreign Investment in the
Central and Western Region. Now, the qualification will be based on
the unified catalog to be issued by the government.
Under the old preferential policy effective for the period from
January 1, 2001 to December 31, 2010, an enterprise set up in the
Western Region with its main business in the transportation,
electricity, water resources, post, broadcasting, and television
industries can enjoy a two-year exemption and three-year 50 percent
reduction in the Corporate Income Tax rate from the first
profit-making year for foreign-invested enterprises and from the
first operating year for domestic enterprises. The Notice clarifies
that enterprises that were set up prior to January 1, 2011 and are
qualified for the tax incentives under the old preferential policy
can continue to enjoy the preferential treatment for the term as
prescribed under the old preferential policy.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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