REGULATIONS OF LIAONING PROVINCIAL PEOPLE'S GOVERNMENT FOR THE ENCOURAGEMENT OF FOREIGN INVESTMENT

REGULATIONS OF LIAONING PROVINCIAL PEOPLE'S
GOVERNMENT FOR THE ENCOURAGEMENT
OF FOREIGN INVESTMENT

(Promulgated 17 October 1986 by the Liaoning
Provincial People's Government)

SUBJECT: ENTERPRISES WITH FOREIGN INVESTMENT

ISSUING-DEPT: LIAONING PROVINCE

ISSUE-DATE: 10/17/1986

IMPLEMENT-DATE: 10/17/1986

LENGTH: 2706 words

TEXT:

These Regulations are formulated to implement the State Council Regulations concerning Encouragement of Foreign Investment, to improve further the investment environment of Liaoning Province and to attract foreign companies, enterprises and other economic organisations or individuals to the Province to invest in and operate Sino-foreign joint equity enterprises, Sino-foreign co-operative enterprises and sole foreign investment enterprises (hereinafter referred to as foreign investment enterprises).

(1) Foreign investors shall be encouraged to invest their funds in projects which introduce advanced technology, generate or save foreign exchange through the promotion of exports or are infrastructure projects in such areas energy resources, communications and port construction.0 Incentives shall not be granted to projects manufacturing non-exportable products or products with an already excessive or almost saturated domestic production capacity, or to projects which rely on assembling imported parts or which export products requiring an export licence.

(2) Implementation of Preferential Tax Concessions

(i) A Sino-foreign joint equity enterprise with a period of operation of ten years or more shall be exempt from income tax payments for the first five profit-making years and tax shall be levied at one-half of the prevailing tax rate from the sixth to the eighth year, as long as the enterprise is one of the following.

(a) a knowledge-intensive or technologically advanced production enterprise;

(b) an exporting enterprise;

(d) an infrastructure project involved in such areas as the development of energy resources and communications;

(e) an enterprise engaged in agriculture, forestry, animal husbandry or agriculture; or

(f) a Sino-foreign joint equity enterprise established in an autonomous county, a border county (or district) or an underdeveloped county within the Province.

(ii) Preferential tax concessions for Sino-foreign co-operative enterprises and sole foreign investment enterprises;

(a) A Sino-foreign co-operative enterprise or sole foreign investment enterprise engaged in agriculture, forestry, animal husbandry or deep-level coal mining, with a period of operation of ten years or more shall be exempt from local income tax payments for the first profit-making year and shall be levied at one-half of the prevailing tax rate for the second and third year, subject to the tax authority approving an application from the enterprise.

(b) A Sino-foreign co-operative enterprise or an industrial enterprise with sole foreign investment, with a total annual revenue of one million yuan or less shall be taxed at one-half of the prevailing local income tax rate.

(iii) Any enterprise eligible for a reduction of or exemption from enterprise income tax shall, at the same time, be entitled to a reduction of or exemption from local income tax.

(iv) If a foreign investment enterprise sells its products domestically and has difficulty paying taxes in accordance with regulations during its initial period of operations or has difficulty paying taxes for any other reason, it may apply for a reduction of or exemption from Consolidated Industrial and Commercial Tax for a fixed period.

(v) In addition to those eligible for a reduction of or exemption from income tax as provided by the law, a foreign company, enterprise or economic organisation that has no establishment in China and that receives royalties for the provision of proprietary technology for use in China, may, if the technology is advanced and the terms are favourable, apply for a reduction of or exemption from income tax.

(vi) Instead of foreign exchange, a foreign investment enterprise may pay its taxed using the RMB income generated by its production and business operations.

(vii) A foreign investment enterprise may, subject to approval by the Provincial tax authorities, accelerate the depreciation of its fixed assets if:

(a) it is a Sino-foreign joint equity enterprise or a Sino-foreign co-operative joint enterprise with a contract duration that is shorter than the depreciation period for fixed assets as stipulated by Tax Law provisions, and on the termination of the contract duration its assets revert to ownership by the Chinese party to the enterprise.

(b) its equipment is exposed to intense acid or alkaline corrosion or its factory buildings and other buildings are subject vibration throughout the year; or

(c) its machinery or equipment is operated continuously throughout the year for the purpose of increasing the rate of efficiency and intensity of use of such machinery or equipment.

(3) Positive Assistance to Foreign Investment Enterprises to Resolve Problems of Foreign Exchange Imbalance

(i) A foreign investment enterprise shall endeavour to balance its foreign exchange income and expenditure by itself.0 An exporting enterprise of technologically advanced enterprise which temporarily faces genuine difficulties in balancing its foreign exchange funds may, through the jurisdictional framework of the Chinese party, apply to the local government which shall assist the enterprise to resolve the imbalance through adjustment as far as it is able.

(ii) In order to balance its foreign exchange income and expenditure, a foreign investment enterprise may, subject to approval by the Provicial Commission of Foreign Economic Relations and Trade, carry out comprehensive compensation by using the sales channels of its foreign party to promote the sale of commodities that are not subject to the monopoly control of any State foreign trade corporation, or to export quotas, or commodities which do not require an export licence from the Ministry of Foreign Economic Relations and Trade.

(iii) Provided the fulfilment of State export plans is ensured, any of the various municipalities and provincially administered departments may, through an authorised foreign trade corporation, entrust the foreign party to a joint enterprise with the export of some of its products. The portion of foreign exchange retained by the locality which is derived from this form of export, other then the portion paid to the supplying unit, shall be used by the local government specifically to make arrangements resolve the foreign exchange imbalances of foreign investment enterprises.

(iv) Where the Province needs to import products that are already manufactured by a foreign investment enterprise through batch processing, and the product performance and quality of these products is equal to the standard of equivalent products imported from abroad and the price and terms of delivery meet the relevant requirements, the various foreign trade corporations and industrial trading companies shall give priority to placing orders with this foreign investment enterprise. Payment may be made fully or partly in foreign exchange. Two thirds of the amount of foreign exchange thus saved shall go to the end-user unit and one third to the foreign trade corporation or industrial trading company involved. The Provincial Commission of Foreign Economic Relations and Trade shall draft a list of import substitute commodities and shall exercise control in accordance with this list.

(4) Supply of Goods and Materials to Foreign Investment Enterprises

(i) Goods and materials, such as steel, cement, timber, petroleum and petroleum products, non-ferrous metals and petrol, required by a foreign investment enterprise for the construction and production operations of a project for which a contract has been signed, shall be assured priority supply by the Provicial and various Municipal Commodity Departments at terms which apply to local State-run enterprises, provided these items are listed in the enterprise's feasibility study and approval has been issued by the relevant department in accordance with the stipulated procedures. Supply of goods and materials to a foreign investment enterprise for use in a project for which a contract is to be signed in the future shall be handled in accordance with the measures stipulated in the enterprise's approved feasibility study.

(ii) Goods and materials required by a foreign investment enterprise for construction and production operations which are not included in its plan shall be purchased by the enterprise itself within the terms of contract to be signed between the supplier and the buyer.

(iii) Priority supply of water, electricity, telecommunications equipment and other facilities that are required by a foreign investment enterprise for construction and production operations shall be assured in accordance with the quantity determined by the approved feasibility study or in accordance with actual needs.

(iv) Where a foreign investment enterprise is engaged by a relevant department to manufacture certain products, a contract shall be signed by both parties to ensure the supply of all necessary raw materials and other requirements.

(v) The Province and those Municipalities with numerous foreign investment enterprises shall establish Commodity Supply Companies for Foreign Investment Enterprises in order to facilitate the supply of commodities and services to foreign investment enterprises.

(5) Reduction of State Use Fees

(i) Site use fees for exporting enterprises and technologically advanced enterprises established by foreign investors shall be reduced. Apart from the two Municipalities of Shenyang and Dalian, where site use fees are charged in accordance with their own scales of charges, site use fees for other areas of Liaoning Province shall be charged at an annual rate of from 5 to 20 yuan per square metre. When site use fees are contributed as equity investment, the scale of changes may be calculated at an annual rate of not more than 5 yuan per square contributed metre.

(ii) A foreign investment enterprise engaged in agriculture, forestry or animal husbandry shall be exempt from site use fees for the first two years of operation and shall pay site use fees at one-half the prevailing rate for the third to the fifth years.

(iii) Site use fees for a development type foreign investment enterprise which uses a large area of land shall be levied at a low rate in accordance with the principle of preferential treatment.

(6) On the premise of the self-reliance of equity contributors to an enterprise, the Chinese party shall explore all avenues to obtain finance for the amount of share capital required for the establishment of a foreign investment enterprise. Banks shall actively provide financing. Each year the Province and the Municipalities shall, in accordance with their own financial capacity, lay aside a portion of their funds to be lent through banks to Chinese parties of joint enterprises for use as share capital.

(7) The number of employees required by a foreign investment enterprise and the total wage bill shall be determined by the Board of Directors of the enterprise.0 As application for approval is not necessary, the recruitment plan of a foreign investment enterprise needs only to be filed with the relevant labour and personnel department. Banks shall not exercise supervision over the wage funds of a foreign investment enterprise. An employee's wages shall be determined by the employee and the general manager within the labour contract signed by the two parties. Employees required by an enterprise shall in general be recruited locally, except for those from the existing enterprise of the Chinese party whose priority recruitment is stipulated in the contract. Technical and managerial personnel may be recruited from outside the local region, and may also be recruited from abroad.

The Provincial and Municipal level labour departments and insurance departments shall establish corresponding organs to provide labour and insurance services to foreign investment enterprises.

(8) No department may indiscriminately or excessively demand that a foreign investment enterprise bear labour, financial or material apportionment, unless it is explictly stated in the written provisions of the State Council, Liaoning Provicial People's Government or Municipal People's Government provisions approved by the Provinicial Government (Shenyang and Dalian Municipalities formulate their own provisions). A foreign investment enterprise has the right to refuse any unreasonable apportionment and foreign economic relations and trade departments shall supervise and investigate such matters.

(9) Foreign investment enterprises shall be permitted to regulate among themselves their own RMB funds for use as working capital and production expansion funds.

(10) An application for confirmation of an enterprise as an exporting enterprise or a technologically advanced enterprise shall be examined in accordance with the provisions of the contract and the actual fulfilment of the contract by the local Municipal Commission of Foreign Economic Relations and Trade (or Office or Bureau) where the enterprise is located, in conjunction with the relevant departments, and comments on the examination shall be submitted to the Provincial Commission of Foreign Economic Relation and Trade which, in turn, shall discuss the application for confirmation with the relevant departments and issue a certificate to the applicant enterprise so as to enable it to enjoy the various favourable terms as stipulated in these Regulations.

(11) Serious attention shall be given to effective co-ordination work in order to aid the fulfilment of joint enterprise contracts. Where problems preventing the fulfilment of a contract or bad management arise, owing to an unclear definition of the responsibilities of the two parties, prompt assistance shall be given to help clarify the respective responsibilities and to urge the parties to fulfil the contract. Efforts shall be made to resolve problems arising from the responsibility of the Chinese party as quickly as possible. Where non-fulfilment of the contract is owing to the responsibility of the foreign party, the foreign party shall be urged to discharge its responsibilities. Where the two parties are genuinely unable to carry out investment or operations despite efforts from both sides, proper arrangements shall be made and the contract shall be terminated as soon as possible in accordance with the relevant legal procedures. In future all cases shall be carried out in accordance with the relevant State laws.

(12) In order to simplify procedures, increase work efficiency and strengthen organisation and co-ordination work for foreign investment enterprises, it has been decided to establish the Liaoning Provincial Leading Group for the Utilisation of Foreign Investment, together with an office under it. The office shall be established within the Provincial Commission of Foreign Economic Relations and Trade and the various relevant departments shall work together to provide comprehensive services for foreign investors. Details of the outcome of an application for approval to establish a foreign investment enterprise shall be issued within 30 days of receipt of all relevant documents.

(13) With the exception of those Articles in these Regulations which expressly state that they apply only to exporting or technologically advanced enterprises, these Regulations shall apply to all foreign investment.

These Regulations apply from their date of implementation to any foreign investment enterprise which obtained approval for establishment before the implementation of these Regulations and which qualify for the preferential terms of these Regulations.

Any joint enterprise, co-operative enterprise or sole foreign investment enterprise in Liaoning Province, invested in and operated by a company, enterprise, other economic organisation or individual from Hong Kong or Taiwan shall be administered with reference to these Regulations.

(14) These Regulations shall take effect from the date of promulgation and the Liaoning Provincial Commission for Foreign Economic Relations and Trade shall be responsible for their interpretation.