Preferential treatment for income tax.

1.The income tax rate for foreign-funded enterprises is 15%.

2.Foreign-funded enterprises scheduled to operate for a period of more than 10 years may be exempted from income tax for the first two profit-making years and allowed a 50% reduction of income tax from the third to the fifth years. For the foreign-invested productive enterprises, whose export value of the year accounts to more than 70% of the total output of the year, the income tax rate shall be 10% following the expiration of the period for exemption and reductions. If the foreign-invested enterprise is still confirmed as technologically advanced one following the expiration of the period for exemption and reductions, the income tax rate shall be 10% for another 3 years.

3.Service enterprises, scheduled to operate for a period of more than 10 years with investment of more than USD 5 million, may be exempted from income tax in the first year and allowed a 50% reduction of income tax in the second and third years, upon approval of an applications.

4.Foreign-funded enterprises may, upon approval, be exempted from income tax for the first two profit-making years and allowed a 50% reduction of income tax from the third to the fifth years:

a.Science and technology development, geological survey and industrial information consulting, which are directly serving to production and scheduled to operate for a period of more than 10 years.

b.Repairing and serving for production equipment and precision instrument.

c.Transportation (excepting passenger transportation).

5.The foreign-funded enterprises of encouraging projects, which either own newly-registered capital up to 60 million US dollars or over after adding investment or own newly-registered capital up to over 15 millon US dollars after adding investment and reach or exceed 50% of the original registered capital, the profits made by the added-investment projects not belonging to the original contract can be calculated separately and enjoy the reduction or exempt of enterprise income taxation for a fixed period stipulated in ltem land of Art.8 of income tax laws of foreign-funded enterprises and foreign-enterprises in People's Republic of China.

6.Foreign investor of foreign-invested enterprise, who reinvests its share of profit obtained from the enterprise in the same enterprise or in other foreign-invested enterprise for a period not less than five years, upon approval, may receive a refund of 40% of the income tax already paid on the reinvested portion. In case the reinvestment is put in export-oriented or technologically advanced enterprise, all the income tax payment on the reinvested portion shall be refunded.

7.Foreign investors that remit abroad the profits derived from enterprise may be exempted from the income tax on the remit sum.

8.In case that within the total amount of investment of the encouraging items, the foreign-funded enterprise purchase Chinese equipment listed as duty-free ones, the value-added tax on the equipment may be refunded and offset to income tax may be done in accordance with the relative provisions.

Preferential tax exemption for self-use production equipment import

1.If the projects are listed as encouraged one in the "Catalogue of Industries of Foreign Investment", jointly promulgated by the State Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation, the foreign-funded enterprise may be exempted from import duties and value-added tax at import links on the self-use equipment within the total amount of the investment, excepting the items listed in the "Catalogue of taxable commodities for foreign-funded projects".

2.From the date of 1st Oct. 2002, for the imported equipments of permited items of the foreign-funded projects for producing direct exports stipulated in "Guiding catalogue of industries invested by foreign-funded enterprises", the import tax and the import value-added tax should be levied according to the tax regulations. From the date when the projects start production, the joint checking group composed by the Ministry of Foreign Trade and Economic Cooperation and other administrative departments will check up the direct export of the products for a period of 5 years. After checking and confirming the conditions, 20% of the levied tax will be refunded every year and all the levied tax will be refunded within 5 years.

3.Four kinds of registered foreign-funded enterprises (encouraged foreign-funded enterprises, foreign-funded research center, advanced technology-style and export-style enterprises) engaging in technology innovation, importing the self-used equipments and assorted technology, spare parts, components which cannot be made at home or the functions cannot meet the needs of the work with the fund beyond the investment (including the reserved fund, development fund, depreciation and the tax-paid profits) can enjoy the duty-free of duty-reduction preferential policies.

4.Import duties exemption for the self-use equipment of projects using foreign government loan or international financial organization loan and the non-priced equipment provided by the foreign reference to import duties exemption for equipment importing of foreign-funded projects. The enterprises may be exempted from import duties and items listed in the "Catalogue of taxable commodities for foreign-funded projects".

Other preferential policy

1.Foreign-funded enterprises, engaging in processing with supplied material or assembling with supplied components, shall be exempted from value-added tax and consumer tax on the import goods for assembling to export and the processing expenses.

2.Export refund policy will be given to the import products of compensation trade projects, on which the value-added tax has been collected in the production link. Export refund formalities shall be gone without the collection notice of foreign exchanges from exports.

3.Until 2010, after value-added tax levying at rate of 17% on the software products, which were produced and sold by general value-added tax payer, the portion that excesses 3% of the practical burden of value-added tax shall be refunded. The refunded tax shall be used by the enterprises to research and develop software products and enlarge production, and should not be listed as taxable income of the enterprises.

4.Until 2010, after value-added tax levying at rate of 17% on the integrated circuit products (including monocrystalline silicon chip), which were produced and sold by general value-added tax payer, the portion that excesses 6% of the practical burden of value-added tax shall be refunded. The refunded tax shall be used by the enterprises to research and develop software products and enlarge production, and should not be listed as taxable income of the enterprises.

5.Foreign-funded productive enterprises, which satisfy the following conditions, may engage in purchasing and exporting of commodities administrated with quota or with specific registration:

a.The yearly export value is more than USD 10 million;

b.In the two years before the application, the enterprises do not have conducts in violation of the law and decrees on taxation, foreign exchange control,export control and inport control.

c.The enterprises possess professional personnel engaging in international trade.

6.It is permitted that foreign-funded research and development center may import and sell at small amount the new and hi-tech products,made by its parent company, in order to make market test for the products developed by the center.

7.The foreign-funded enterprises in concordance with the conditions can apply to issue Share A and Share B.

8.The control on business scope and ratio of products sold in China to products sold out of China shall be loosened. Excepting raw material import administrated by State with quota and license, foreign-funded enterprises engaging in project listed as encouraged one or permitted one, may set-up himself the ratio of products sale in China to products sale out of China .The same enterprise may engage similar and related varieties. If the practical investment is more than US$30 millions, it is permitted to set up investment corporation or comprehensive development corporation.

9.It is permitted for China-funded commerce banks to accept the guaranty made by the foreign shareholders when the foreign-funded enterprises apply for band loan. It is permitted for foreign-funded enterprises to apply for band loan from the nominated China-funded banks with foreign exchange business on the condition of foreign exchange impawn. All the fund in foreign exchange of the foreign-funded enterprises can be made for impawn. For the RMB loan with the guaranty of foreign exchange, it is permitted for the financing organs outside China or foreign-funded financing organs in China to offer credit guaranty.The register procedure of the items of foreign exchange impawn and foreign exchange guaranty and the special restriction of the credit grade of foreign-funded banks to offer foreign exchange guaranty have been cancelled.

Preferential treatment in land using, water consumption and power consumption

1.For the new industrial projects using the exproriated land for industry purpose in Shantou urban, the land cost shall be collected after signature of the contract land-use right transfer. The land cost for general industrial projects is 50% of the average of current cost of the land cost for industrial projects.The price is RMB173,000 yuan per mu (one hectare equals to 15 mu) in Class A area. RMB159,000 yuan per mu in Class B area. RMB 125,000 yuan per mu in Class C area, The land cost for new and hi-tech projects,confirmed by adimnistration departments of Shantou, is 40% of the average of current cost of the land cost for industrial projects.

2.For the items with the fixed assets investment of workshops, equipment and land below (or being) 300 million RMB, the undeveloped land is remised at the price of 50 thousand RMB per Chinese mu and the developed land is remised at the price of 100 thousand RMB per Chinese mu. For the above-mentioned items between 1 and 2 billion RMB, the undeveloped land is remised at the price of 30 thousand RMB per Chinese mu and the developed land is remised at the price of 60 thousand RMB pre Chinese mu. For the above-mentioned items above (or being) 2 billion RMB, the land is remised at zero land-value.

3.Enterprises may lease land for industrial project. In accordance with the regulations, The enterprises may fix up contract with land administration department and pay land-use rent yearly. The administration department shall, in accordance to the regulation, issue the "House-Ownership Certificate" for the building on the land. The certificate may be used for mortgage loan.

4.The enterprises engaging in new industrial projects shall be exempted from the charge for newly power-supply-load subsidy to power supply unit. The enterprises, which are removed to new location or increasing production capacity, shall exempted from power-supply-load subsidy to removed to new location or increasing production capacity, shall exempted from power-consumption-increasing-fee. The enterprises engaging in new industrial projects shall be exempted from the charge for newly water-supply-load.

Foreign Exchange Control

Upon business requirement and approval by the Administration of Foreign Exchange Control, foreign-invested enterprises may open foreign exchange special account and foreign exchange settlement account with the bank, located in the registration place and designated by the administration of foreign exchange control. The foreign exchange on capital account may be retained without settlement. A part of the foreign exchange on current account may be retained. Upon business requirement, foreign-invested enterprises may settle and sell the foreign exchange to the designated bank for ordinary business expenses.
The net profits of the foreign-invested enterprises after tax-paying, the legitimate net earnings from wages and other legitimate income of the foreign staff and workers after tax-paying may be remitted abroad upon application to the foreign exchange deposit bank according to the relevant regulations.

Enterprises Management

Foreign-invested enterprises have full decision-making right in the management.

Foreign investors have the right to manage enterprises in international advanced scientific way. Within the scope of business that has been approved they have the right to work out their own production and operation plans, arrange production and sales, raise and use funds, purchase production materials, and set up offices and define personnel amount.

Products Sale

Foreign-invested enterprises may export their products directly or by agency in accordance with the regulations of the State.

For the products that require and export license,application for the license shall be made every six month upon the approval from the concerned organization of the State and according to the annual export schedule of the enterprise.

Upon application and approval, the domestic-sell ratio could be decided by foreign-invested enterprises in project listed as encouraged and permitted one on conditions that their imported raw materials are not subject to quota and license administration.

Administration of Commodities Import and Export

For import of self-use materials, raw materials and subsidiary materials and export of self-produced products, the foreign-funded enterprises in Longhu District may make application for Customs releasing, upon the approval of the foreign investment administration organizations of Longhu District.

Administration of Employees

Foreign-funded enterprises in Longhu Disrict have the decision-making right in management of employees, they may define the number of employees, and recruit staff and workers on the principle that city and town first and countryside second, local first and transient second, Guangdong Province first and other provinces second. The enterprises shall go through the relevant procedure with the local labor administration department.

It shall carry out the labor contract system for the staff and workers recruited by the foreign funded enterprises. The foreign-funded enterprises shall sign labor contract with staff and workers to define the right and duty of both parties in writing. The effectiveness of the labor contract is subject to the approval of the labor administration department. It shall implement the social labor insurance system in accordance with the regulations promulgated by Shantou Municipal Government.

Foreign-invested enterprises may define themselves the form and standard of wages, awards and punishments, allowances and examination system.

Administration of Land-use

Land in Longhu District belongs to the State. Foreign investors who want to get land for factory building may apply to the state land administration department of Longhu District for the transfer of land-use right. The property right of the building built by the foreign investors on the land, whose use-right has been bought by the foreign investors, may be transferred or used in raising mortgage during the use period in accordance with relevant regulations.

The term of land-use for industrial purpose in Longhu District is 50 years, and the term of land-use for dwelling is 70 years. Upon application and approval, the contract may be extended after its expiration.

Investment Protection

All property, personal security, legal profits of the foreign investor, and the normal operation of foreign-funded enterprises in Longhu District shall be protected by Chinese laws.

In case of that foreign-invested enterprises have to terminate their business in advance for reasons, the application shall be submitted to the organization concerned. After clearing the debts, their assets may be transferred and their capital may be remitted out of China.

Disputes arising from the execution of the contract shall be settled through negotiation on the principles of equality and mutual benefit. In the event that no settlement can be reached, the disputes may be settled through mediation or arbitration by a Chinese arbitration agency or through arbitration by international arbitration agency agreed upon by the parties of the venture.

Foreigh-invested enterprises may apply to the People's Insurance Company of China or other insurance companies approved for such kinds of insurance coverage as are needed.

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