SUPPLEMENTARY REGULATIONS ON TAX REDUCTION AND
EXEMPTION FOR ENTERPRISES IN SHENZHEN SPECIAL
ECONOMIC ZONE

(Issued on May 8, 1986 by the Shenzhen Municipal
People's Government)

 

SUBJECT: TAXATION

ISSUING-DEPT: SHENZHEN SPECIAL ECONOMIC ZONE

ISSUE-DATE: 05/08/1986

IMPLEMENT-DATE: 07/01/1986

LENGTH: 785 words

TEXT:

These additional Regulations on tax reduction and exemption for State enterprises, collective enterprises, joint SEZ 1 inland enterprises, enterprises in the Shenzhen Special Zone with sole foreign investment (hereinafter referred to as inland investment enterprises), as well as Sino-foreign joint equity and co-operative joint ventures and enterprises with sole foreign investment (hereinafter referred to as the enterprises with three forms of investment) in Shenzhen Special Zone are formulated in accordance with Document No. 61, issued in 1984 by the State Council and Document No. 109, issued in 1985 by the Ministry of Finance, and in combination with the actual conditions in Shenzhen Special Zone and following approval from the Ministry of Finance, in order to further promote the development of Special Zone open-style economy, to help attract foreign investment and association with inland China and to encourage more exports and the generation of more foreign exchange.

(1) Goods produced in the Special Zone by inland investment enterprises and sold within zone are exempt from Product Tax and Value Added Tax, with the exception of crude oil, processed oil, tobacco and wine which, according to tax law provisions, will be taxed at 50% of the Product Tax rate, and electric power and commodity housing (not including commodity housing which is part of the Municipal Government's construction plan and built with no aim for profit), which will have Product Tax levied according to the stipulated rate. All other products are exempt from Product Tax and Value Added Tax, with the exception of those for which there are separate stipulations.

(2) Where Special Zone products which have already enjoyed a reduction of or exemption from Product Tax, Value Added Tax or Consolidated Industrial and Commercial Tax are transported to inland areas, a supplementary payment of Product Tax, Value Added Tax or Consolidated Industrial and Commercial Tax shall be made based on the tax inclusive ex-factory price of the products, in accordance with tax law provisions. For the convenience of tax levying and administration, all products of enterprises intended for domestic sale are liable for tax on the total ex-factory production. If any products are sold within the Special Zone, the enterprise concerned may apply to the taxation organ for a tax rebate after examination and verification by the taxation organ.

(3) Exports from Special Zone enterprises with any of the three forms of investment will be exempt from Consolidated Industrial and Commercial Tax, with the exception of crude oil and processed oil.

(4) All operating income earned by Shenzhen-based foreign banks prior to 1995 will be exempt from Consolidated Industrial and Commercial Tax.

(5) Interest earned prior to 1995, by depositors from Hong Kong, Macao and abroad on deposits with Shenzhen-based foreign banks, will be exempt from Withholding Tax and Individual Income Tax.

(6) Interest earned by foreign banks and Hong Kong and Macao banks on loans made to Shenzhen-based foreign banks in accordance with the international interbank rates will be exempt from Withholding Tax.

(7) Interest on operating funds paid by branches of foreign banks in the Special Zone to their head office may be listed as an item of expenditure, but the head office shall pay Withholding Tax. In order to encourage the development of foreign banks in the Special Zone, interest paid by a branch to its head office may be exempt from Withholding Tax if the rate is not in excess of the interbank rate.

(8) Losses sustained by Special Zone inland investment enterprises in the previous year may be made up from the profit of the current year; should this be insufficient to meet the loss, the deficit may be made good in the following year, but the term may not exceed three years.

(9) After January 1, 1986, industrial enterprises with inland investment newly-established in the Special Zone, with an intended term of operation of over 10 years, may, following application by the enterprise to the Special Zone taxation organ and the obtainment of approval, enjoy an exemption from Income Tax in the first profit-making year and a 50% reduction of Income Tax in the second year.

(10) Prior to 1990, should the income from the export of products by an inland investment enterprise in the Special Zone account for over 50% of its total sales income for the year, a 50% reduction of Income Tax may be granted for that year, following approval by the Special Zone taxation organ.

(11) These Regulations will come into force on July 1, 1986 and the Shenzhen Municipal Taxation Bureau will be responsible for their interpretation.