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Preferential Treatment concerning Local Income Tax

Production-oriented EFIs with an operation period over ten years shall be exempted from the local income tax for five years beginning from the first profit-making year and subject to the local income tax at a halved rate in the following five years. EFIs located in Beijing New Technology Industry Development Experimental Zone ("Experimental Zone") and holding Certificates for New Technology Enterprises, and those located in the Parks of the Experimental Zone authorized by the Beijing Municipal Government and holding Certificates for High/New Technology Enterprises, are entitled to the exemption from the local income tax. EFIs, if recognized by the municipal authorities as export-oriented enterprises or advanced technology enterprises and holding certificates of such status, shall be exempted from the local income tax.

Where Chinese-foreign contractual joint ventures and foreign-capital enterprises are subject to the enterprise income tax at the originally applicable rate according the laws, the local income tax shall be also calculated at the originally applicable rate of 10 per cent.

In the light of the Tax Laws and its implementation rules, the income tax payable by an enterprise on a consolidated basis or on its own covers both the enterprise income tax and local income tax.

Reduction in or exemption from the local income tax should be applied according to the regulations stipulated by the government of the province, autonomous region or centrally administered municipality where the head office of the enterprise or the business organization responsible for tax filings is located.

According to the Tax Laws and other regulations, non-production-oriented enterprises founded before Jun. 30th, 1991, shall be exempted from both the enterprise income tax and local income tax in two years beginning from the first profit-making year and pay both taxes at a halved rate in the following three years.

The regional offices set up in Beijing by multinational companies shall be exempted from the local income tax. The said regional offices are defined as those investment companies responsible for businesses in a certain region under the Letter of Authorization issued by the head offices of foreign multinationals and exercising independent accounting.