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Xi'an, located in the West China, enjoys the preferential policies promulgated by Chinese government for the West China Development in addition to the national preferential policies for foreign investment. Meanwhile, the local government, too, has issued and implemented some peculiar preferential policies to attract foreign investment.
I.Tax Policies
(I) Enterprise Income Tax
1.FIE's corporate income tax rate is 25 percent. FIEs which are production-based enterprises in Xi'an City and comply with the requirements of national encouraged projects can enjoy the tax rate of 15 percent in 2001-2010. (West Development Programme under the State Council) "Since January 1, 2008, those enterprises which originally enjoyed the lower tax rate will gradually enjoy the statutory tax rate within five years after new tax law is carried out, of which: enterprises which enjoy the tax rate of 15 percent enjoyed 18 percent in 2008, 20 percent in 2009, 22 percent in 2010, 24 percent in 2011, and 25 percent in 2012". (From Notice of the State Council on the Implementation of Transitional Preferential Policies under Enterprise Income Tax (State Issuance [2007] No.39).
2.Production-driven based FIEs, started by the investors whose operating period exceeds ten years, can enjoy an exemption from income tax for two consecutive years since the first profit-making year, and a preferential half income tax rate for sequential three years. Those which have already enjoyed a preferential rate of 15 percent will pay income tax at a rate of 10 percent from the third year defined as above. FIEs can compensate for a loss suffered in a year with the profit of next year. If it's not sufficient, the profits of successive years can be used until the fifth year. "Since January 1, 2008, the enterprises which originally enjoyed "two-exemption and three-halve" and "five-exemption and five-halve" preferential tax polices will continue to enjoy the original tax laws, administrative rules & regulations as well as preferential measures until the term expires after new tax law is carried out. However, those who have not yet made profits or enjoyed tax concession shall be calculated from 2008" (from State Issuance [2007] No.39).
3.As for newly-founded enterprises concerning communication, power, water conservancy, postal service, and broadcasting & TV industries whose business income accounts for more than 70 percent of gross revenue, after the corporate application and approval of tax authorities, domestically-invested enterprises can be exempt from corporate income tax in the first two years since the formal operation, and deducted by half for next three years; FIEs whose operation period exceeds ten years, from the profit-making year, may be exempt from corporate income tax in the first two years since the formal operation, and deducted by half for next three years. As for production-based FIEs, the proportion of main business revenue shall be implemented in accordance with Notice of the State Administration of Taxation on Matters Relating to the Entitlement of Tax Incentives to Foreign-Invested Enterprises Engaged in Both Production and Non-production Businesses (State Tax Issuance [1994] No.209).
4.Hi-tech enterprises that the State needs to support specially may enjoy the tax rate of 15 percent; small-size enterprises which comply with relevant conditions may enjoy the tax rate of 20 percent.
5.R&D expenses for the development of new technologies, new products and new crafts which have not formed intangible assets or been included into the current losses, in accordance with the provisions of factually deduction, shall be deducted at 50 percent of R&D expenses; those who have formed intangible assets shall be amortized at 150 percent of cost of intangible assets. Wages paid for resettlement of disables and other personnel encouraged by the State, in accordance with actual deduction, shall be deducted at 100 percent of wages paid to disables. (Implementation Rules for New Tax Laws)
6. Startup investment enterprises which are engaged in startup investments that the State needs to specially support and encourage (namely, startup investment enterprises which have adopted equity investment to invest the unlisted small and medium-sized hi-tech enterprises for more than two years) may be deducted the income tax after the shareholding right of 70 percent investments reaches two years; if the income tax that year is insufficient to be deducted, it can be deducted in future tax years.
7.If fixed assets need to be depreciated quickly due to technological progress and other reasons, it may shorten depreciation period or take the accelerated depreciation method.
8.As for enterprises which have comprehensively utilized the resources and conformed to national industrial policies, the income from products can be deducted while calculating the taxable income. Namely, enterprises which have taken the materials specified in Preferential Catalog for Corporate Income Tax on the Integrated Utilization of Resource as primary raw materials and produced national non-restricted and prohibited products in line with national and trade standards, the income can be deducted at 90 percent.
9.As for investments which are used to purchase special equipments such as environmental protection, energy and water conservation, and safe production, namely, enterprises which purchase and actually use these special equipments specified in Preferential Catalog for Corporate Income Tax on Environmental Protection Equipments, Preferential Catalog for Corporate Income Tax on Energy and Water Conservation Equipments and Preferential Catalog for Corporate Income Tax on Safe Production Equipments,
10 percent of investments in these special equipments can be exempt and deducted from the tax payable that year; if the income tax is insufficient, it can be exempt and deducted in the future five years. 10.Services outsourcing enterprises recognized as technically advanced service enterprises may enjoy the corporate income tax rate of 15 percent from January 1, 2009 to December 31, 2013. The occurred employees' training expenditure, if no more than 8 percent of the total enterprise payroll, shall be deducted from the actual amount before duty of corporate income tax; if not, the exceeding part can be deducted in later tax years. The income of their offshore service outsourcing business shall be exempt from business tax. (Shaan. Gov. Issuance [2009] No.72)
11. R&D expenses that the service outsourcing enterprises spend to develop new technologies, new products, and new techniques, shall be deducted when calculating taxable income. Those which have not formed intangible assets, in accordance with the provisions of factually deduction, shall be deducted at 50 percent of R&D expenses; those which have formed intangible assets shall be amortized at 150 percent of cost of intangible assets. For inhabitant enterprises in the software and service outsourcing enterprises, the income of technology transfer below 5 million yuan, within one tax year, shall be exempt from the corporate income tax; the part over RMB 5 million Yuan shall be deducted by half the tax. (Shaan. Gov. Issuance [2009] No.72)
12. Newly established service outsourcing enterprises shall be rewarded with certain prize if the enterprises have more than US$ one million of registered capital and run ITO and KPO businesses and recruit over 50 employees within one year, or if they run BPO business and investment projects recruiting over 150 employees within one year. (Shaan. Gov. Issuance [2009] No.72)
(II) Tariff
13. FIEs which comply with national policies for tax reduction and exemption and export their products may be exempt from export duties and VAT.
14. FIEs which import raw materials, supplies, components and packaging materials due to production of exported products shall be exempt from import duties.
15. Both foreign-funded projects, as the State encouraged classifications listed in the Catalog of Foreign Investment Industries Guide or those in the Catalog of Foreign-funded Prestige Industries in the Middle and the Western China, and the domestic-invested ones, listed in the Catalog of the Industrial Structure Adjustment Guide, are exempt from the tariff and import linkage tax on the imported self-used equipment within their total investments except on those listed in the Catalog of Imports Non Tax-exempt for Foreign-funded Projects and the Catalog of Imports Non Tax-exempt for Domestic-invested Projects.
16. For the purpose of technical innovation (including the Catalog of Foreign-funded Prestige Industries in the Middle and the Western China), the State encouraged FIEs, foreign-invested R&D centers, and advanced technical or exporting FIEs, all of which have been established, can, according to related stipulations, enjoy an exemption from the import duty and import linkage tax on the imported self-used equipment and necessary technology, accessories and spares, which, due to the domestic incapability of manufacturing or satisfying the performance needed, are purchased with their own reserves beyond the total investments in the approved range of production and operation.
17. For the advanced technologies listed in Catalogue of the National Hi-tech Products imported by the FIEs, software fee to be paid to abroad will be exempt from import duty.
II. Foreign Exchange Control
18. FIEs can, with their business licenses, open a foreign exchange account in banks and other financial organizations, which can manage foreign currencies banking with the approval of the foreign exchange control authorities. They may also open accounts outside China for the sake of business with the approval of the municipal foreign exchange control authorities. According to the practical needs, FIEs can choose whether to settle or sell the foreign currency. All their legal incomes in foreign exchange can be kept as the foreign check and entirely deposited into their accounts.
19. FIEs can pay in foreign exchange for the imported equipment and materials, needed in production and operation, with related contracts, rules and valid import permits ratified by the related authorities. FIEs can remit the required expenses or funds for operation to their overseas branches or agencies with approval of the foreign exchange control authorities.
III. Land Use
20. To encourage greening and grassing on deserted mountains and wastelands, where forests and grass are growable. Those, who turn hillside farmland into forests and grasslands, afforest or grass on deserted mountains and wastelands, or manage those forests and grasslands, will be given the land use right and ownership of the forests and grasslands. Any organization or individual, who implement ecological construction, for example, greening and grassing, on legally transferred State-owned undeveloped lands such as deserted mountains and wastelands, can enjoy an exemption from or deduction of land transfer fee, enjoying constant land use right for 50 years. For the lands, which are paid with the investments stipulated in the contracts and satisfy the demand of ecological construction, the land use right can be legally transferred, leased, or mortgaged. The term of validity of land use right can be applied for extension after expiration.
21. The transferee of land use rights who have paid all fees pursuant to the contract can handle the land registration formalities and then obtain State-owned land use certificates. 22. FIEs can acquire land use right by converting the rural collective-owned lands into capital as shares. The lands may enter the real estate market once the necessary purchasing formalities are completed.
