——Circular of the State Council on Adjustment of Tax Policies of Imported Equipment (GuoFa [1997] No. 37)
For purposes of further expanding foreign capital utilization, introducing advanced technologies and equipments from abroad, promoting adjustments in industries structures and technological advancement and maintaining the sustained, rapid and healthy development of the national economy, the State Council has decided that as of January 1, 1998, tariffs and import-linked value-added tax shall be exempted within the prescribed scope with respect to imported equipments of domestic investment projects and foreign business investment projects the development of which is encouraged by the state. The relevant questions are hereby notified as follows:
I. Scope of Tariff Exemption for Imported Equipments
(1) Equipment imported for own use within the total amount of investment of foreign investment projects which involve technology transfer and which are in the encouraged category or Group B under the restricted category of the Industrial Guidance Catalog for Foreign Investment shall enjoy exemption from tariff and import-stage value-added tax, provided that such items are not among commodities listed in the Catalog of Imported Commodities under Foreign Investment Projects not Entitled to Tariff Exemption.
Equipment imported for own use of foreign government loans and international financial organization loans projects, as well as imported processing trade equipment provided by foreign investors free of charge, shall be treated in the same manner, i.e. items which are not among commodities listed in the Catalog of Imported Commodities not Entitled for Tariff Exemption for Projects with Foreign Investment shall be exempted from tariff and import-stage value-added tax.
(2) Equipment imported for own use within the total amount of investment of domestic investment projects which are in the Current Catalog of Key Industries, Products and Technologies the Development of Which is Encouraged by the State, shall enjoy exemption from tariff and import- stage value-added tax, provided that such items are not among commodities listed in the Catalog of Imported Commodities not Entitled for Tariff Exemption for Projects with Foreign Investment.
(3) Tariffs and import process value-added tax shall likewise be exempted with respect to technologies and matching components and parts imported along with the equipment in accordance with the contracts for projects in line with the aforesaid provisions.
(4) Tax reduction and exemption for imported equipment outside the aforesaid prescribed scope shall be decided upon by the State Council.
II. Administration of Tax Exemption for Imported Equipment
(1) Existing relevant provisions of the state shall still be observed in terms of examination and approval authority and procedures for feasibility study of investment projects. Above-ceiling projects shall be subject to examination and approval by the State Planning Commission or the State Economic and Trade Commission respectively. Below-ceiling projects shall be subject to examination and approval of people's governments at the provincial level, the departments concerned under the State Council, people's governments of municipalities separately listed on the State plan and enterprise groups undergoing experiment by the state authorized by the State Council. However, foreign business investment projects shall be subject to examination and approval in pursuance of the Interim Provisions for Direction Guidance for Foreign Business Investment. In making official replies to feasibility studies, the examination and approval authorities shall issue a letter of confirmation in uniform format for projects in line with the encouragement category and the restricted B category of the Industrial Guidance Catalog for Foreign Investment (Appendix 1), or the Current Catalog of Key Industries, Products and Technologies the Development of Which is Encouraged by the State (Appendix 2), or projects utilizing foreign government loans and loans of international financial institutions. For below-ceiling projects, the letter of confirmation shall be submitted along with the feasibility study according to the nature of investment in the project to the State Planning Commission or the State Economic and Trade Commission respectively for the record. Units violating the provisions of examination and approval shall be dealt with seriously.
(2) A project entity shall complete the formalities for import duty exemption at the competent custom office on the strength of the letter of confirmation issued by the examination and approval authority of the project feasibility study, among them foreign business investment projects must also go through the formalities on the strength of approval documents for the establishment of enterprises of the departments of foreign economic relations and trade and the business licenses issued by the departments of industry and commerce administration. Entities of processing trade shall go through the formalities of import duty exemption for the import of equipment provided by foreign businesses without evaluation on the strength of the approved contract for processing trade. The customs office shall carry out examination and verification in accordance with those formalities and with reference to the Catalog of Commodities not Eligible for Tax Exemption.
(3) The General Administration of Customs shall provide uniform coding, establish a database, strengthen auditing, enforce stringent supervision and control over projects approved for tax exemption and actively cooperate with the departments concerned in conducting successful verification.
(4) All units concerned should pay attention to the simplification of operations links and examination and approval procedures, accelerate the speed of examination and approval so as to ensure the implementation of this major policy of tax exemption and render it effective.
III. Tax Exemption for Import Equipment for Carried-over Projects
(1) For import equipment for technological transformation projects approved in accordance with the prescribed procedures of the state prior to March 31, 1996, import duty and import link value-added tax shall be exempted as of January 1, 1998 according to the scope of tax reduction and exemption for equipment previously approved. The project units shall go through the formalities of tax exemption at the competent customs office on the strength of the original approval documents.
(2) For import equipment for foreign business investment projects and domestic investment projects the establishment of which was approved in accordance with the prescribed procedures of the state between April 1, 1996 and December 31, 1997, as well as the import equipment for projects utilizing foreign government loans and loans of international financial institutions, the import duty and import link value-added tax shall be exempted as of January 1, 1998 with the exception of the import commodities not eligible for tax exemption expressly provided under this Provision. The project units shall go through the formalities of tax exemption at the competent customs office on the strength of the original approval documents.
——Circular on Continuing the Implementation of Tax Policies for the Purchase of Equipment by Research and Development Institutions (CaiShui [2011] No. 88)
The finance departments (bureaus) and commerce administrations, offices of the State Administration of Taxation of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the State plan, Guangdong Branch of the General Administration of Customs, and all customs directly thereunder and the finance bureaus of Xinjiang Production and Construction Corps,
For the purposes of encouraging scientific research and technological development and promoting scientific and technological progress, foreign-invested research and development centers' import of scientific and technological development articles may continue to be exempted from import duties and import VAT and consumption tax (hereinafter referred to as import tax) and VAT may continue to be refunded in full amount to Chinese-funded research and development institutions and foreign-invested research and development centers for their purchase of domestic equipment. Relevant issues are hereby set out as follows:
I. Foreign-invested R&D centers may be exempt from import tax in accordance with the Interim Provisions on the Exemption of Import Tax on the Articles Used for Scientific and Technological Development (Order No. 44 of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation) and the Decision on Amending the Interim Provisions on the Exemption of Import Tax on the Articles Used for Scientific and Technological Development and the Provisions on the Exemption of Import Tax on the Articles Used for Scientific Research and Teaching (Order No. 63 of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation). Foreign-invested R&D centers shall respectively meet the following conditions according to the date of their establishment:
(1) A foreign-invested R&D center established on or before September 30, 2009 shall concurrently satisfy the following conditions:
1. Standards for research and development expenses: (1) If a foreign-invested R&D center is an independent legal person, its total investment shall be USD 5 million at least; and if it is an internal department or a branch of a company without independent legal person status, its total investment in research and development shall be USD 5 million at least; and (2) the enterprise’s annual research and development expenses shall be RMB 10 million at least.
2. There shall be at least 90 full-time staff members engaged in research and experimental development.
3. The cumulated original value of the equipment purchased since its establishment shall be RMB 10 million at least.
(2) A foreign-invested R&D center established on or after October 1, 2009 shall concurrently satisfy the following conditions:
1. Standards for research and development expenses: If it is an independent legal person, its total investment shall be USD 8 million at least; if it is an internal department or a branch of a company without independent legal person status, its total investment in research and development shall be USD 8 million at least.
2. There shall be at least 150 full-time staff members engaged in research and experimental development.
3. The cumulated original value of the equipment purchased since its establishment shall be RMB 20 million at least.
A foreign-invested R&D center must be subject to the eligibility examination and approval by the commerce department jointly with the relevant departments under the aforesaid conditions. Refer to Appendix 1 for specific measures for examination and approval.
II. Chinese-funded R&D institutions and foreign-invested R&D centers to which the policies on refunding the value-added tax in full amount for the purchase of domestic equipment apply shall include:
1. Scientific research and technological development institutions as prescribed in the Interim Provisions on the Exemption of Import Tax on the Articles Used for Scientific and Technological Development (Order No. 44 of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation).
2. Scientific research institutions, colleges and universities as prescribed in the Provisions on the Exemption of Import Tax on the Articles Used for Scientific Research and Teaching (Order No. 45 of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation).
3. Foreign-invested R&D centers satisfying the conditions as set forth in Article 1 of this Circular.
Specific measures for the administration of tax refunds shall be separately formulated by the State Administration of Taxation in conjunction with the Ministry of Finance.
III. The relevant terms of this Circular shall have the following meaning:
1. The term “total investment” as mentioned in this Circular means the amount indicated in the approval document for the establishment of foreign-invested enterprises.
2. The term “total investment in research and development” as mentioned in this Circular means the assets contributed by a foreign-invested enterprise exclusively for establishing and building an R&D center, including assets which are to be contributed and assets for which purchase contracts have been concluded (a list of assets that have been purchased and a list of purchase contracts on assets to be purchased shall be submitted).
3. The term “annual sum of research and development expenditures” as mentioned in this Circular means the annual average amount of research and development expenditures within the past two fiscal years. If the foreign-invested R&D center has been formed for less than two full fiscal years, the amount may be calculated according to the actual expenditures incurred in any consecutive 12 month period since its establishment. Cash and physical assets shall account for at least 60% thereof.
4. The term “full-time persons engaged in research and experimental development” as mentioned in this Circular means scientific and technological professionals who engage in basic research, application research and experimental development on a full-time basis in the enterprises, including personnel directly participating in the aforesaid three types of activities, full-time scientific and technological management personnel and personnel directly providing documents, supplies and equipment for research projects. Any of the above-mentioned personnel must conclude a one-year or longer employment contract with the foreign-invested R&D center or the foreign-invested enterprise which the center belongs to. The number of full-time persons engaged in research and experimental development shall be the number as of the day prior to the date of application made by the foreign-invested R&D center.
5. The term “equipment” as mentioned in this Circular means the laboratory equipment, devices and appliances that provide necessary conditions for scientific research, teaching and scientific and technological development. When calculating the original value of equipment purchased on a cumulative basis, the original value of both imported and domestic equipment shall be included, including equipment for which a purchase contract has been concluded and which is to be delivered within that year (a list of purchase contracts and the corresponding delivery terms shall be submitted). The above-mentioned equipment shall be in the List of Equipment for Scientific and Technological Development, Scientific Research and Teaching (Refer to Appendix 2). For any discrepancy in the scope of domestic equipment, the competent tax authority shall report it to the State Administration of Taxation level by level for verification upon consultation with the Ministry of Finance.
IV. The tax policies as prescribed in this Circular shall be implemented from January 1, 2011 to December 31st, 2015, specifically, from the first day of the month after the Chinese-funded R&D institution and the foreign-invested R&D center obtains the qualification. The Circular of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation on Tax Policies for the Purchase of Equipment by Research and Development Institutions ([2009] No. 115 of the Ministry of Finance) and the Circular of the Ministry of Commerce, the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation on Issuing the Measures for the Examination and Approval of Foreign-invested Research and Development Centers’ Eligibility for Tax Exemption or Refund in the Purchase of Equipment ([2010] No. 93 of the Ministry of Commerce) shall be abolished concurrently.
Where taxes have been paid for the articles used for scientific and technological development imported by a foreign-invested R&D center established during the period from January 1st, 2011 to November 1st, 2011 from the first day of the month after the center obtains the qualification to November 1st, 2011, the center may apply to the customs for a tax refund in accordance with the relevant provisions of the customs.
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