G.F. 326
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CONFIDENTIAL R
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(b) Taxation system
14.
Apart from those which are granted preferential
treatment (see paragraphs 15 and 17 below), equity joint
ventures and contractual joint ventures with the status of a legal entity have to pay a national income tax
equivalent to 30% of their profits. In addition, there is
a local surtax which is equivalent to 10% of the income
tax. In other words, the effective profits tax rate is
33%.
15.
For contractual joint ventures which do not
possess the status of a legal entity, the Chinese partner
and the foreign partner each pays its own income tax on the profits received. The income tax rate is progressive,
ranging from 20% to 40% of the profits received. In
addition, there is a local surtax, levied at 10% of the
income tax.
16.
Preferential treatment is given to all joint ventures established in the special economic zones, to
industrial joint ventures set up in the economic and technological development districts in the open cities,
and to joint ventures introducing advanced technology.
For all these, the income tax rate is reduced to half of
the normal rate, i.e. 15%.
17.
All types of joint ventures enjoy a tax holiday
of two years.
For the following three years, they are only required to pay 50% of the normal tax liability.
If
a joint venture experiences a loss, it will be granted a carry-over deduction for up to five years.
18.
Foreign partners of joint ventures (except those without a legal entity) are levied an additional withholding tax of 10% on any income remitted overseas.
But joint ventures in the special economic zones and
CONFIDENTIAL # 3