Wuhan Investment Policies

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Wuhan Government Investment Incentives

WUHAN GOVERNMENT INVESTMENT INCENTIVES Government Agencies Overview

Wuhan is the capital of China’s Hubei Province. It is the seventh largest city in the country, and the largest in central China. The Yangtze River and its longest tributary, Hanshui River, cross in Wuhan and divide the city into three parts, Wuchang, Hankou, and Hanyang. The city is known as the Thoroughfare to Nine Provinces due to its very central location and role as a transportation hub, with Shanghai to the east, Chongqing to the west, Guangzhou to the south, and Beijing to the north. Wuhan is the largest inland port in the country, and it is also the gateway to the Three Gorges Project, which will dam up the Yangtze to create hydroelectric power facilities, due to be completed in 2009. Targeted industries in Wuhan are opti-electronic information, automobile and steel production, biological engineering and pharmaceuticals, and environmental protection. The main economic development zones are the Wuhan China Optics Valley located in the Wuhan East Lake High-Tech Development Zone, the Wuhan Wujiashan Technology Development Zone (which specializes in the food and bioengineering industries), and the Wuhan Economic and Technological Development Zone (which specializes in high-tech and automobile industries). Wuhan is also the site of China’s first environmental industrial park, concentrating on desulfuration technology and equipment. The Wuhan Foreign Investment Office is the primary government agency promoting foreign direct investment in Wuhan. Each development zone is individually administered by a Development Zone Administration Committee. The central government has made policies encouraging investment in both the software and integrated circuit industries. Integrated circuit manufacturers must set up an IC process with an investment of over RMB 8 billion, or with line width less than 0.25 microns, in order to be entitled to the IC industry incentives described below. New guidelines were approved by the central government of China in mid-2002 for investments in the financial and service sectors. The government has advised in October of 2002 that the guidelines will not be available in English until 2003.

Incentives

1a. Full Exemption from 30% Corporate Income Taxes, 20% Withholding Tax, and 3% Local Corporate Income Taxes

  • Permanent corporate income tax holiday: available to foreign financial institutions for interest on loans to the Chinese government and to China’s National Bank; available for profits derived from royalties on technologies deemed to be advanced
  • Five-year corporate income tax holiday: available for the first five profitable years of Sino-foreign joint ventures in energy, transportation, and infrastructure with an operating term of at least 15 years; available for the first five profitable years of approved integrated circuit manufacturers with an operating term of at least 15 years
  • Two-year corporate income tax holiday: available for the first two profitable years of investment for high-technology industries located in Wuhan’s development zones; available for the first two profitable years of approved integrated circuit and software enterprises
  • Exemption from 20% standard withholding tax: available for foreign investors』 gains secured by the right to share profits by proportion of investment, stock rights, or other non-creditor rights business; for interest on loans by international financial institutions to the Chinese government and China’s National Bank; for interest at preferential rates on loans to China’s National Bank by foreign banks; for gains from chartered rights and use fees acquired by providing special approved technology for scientific research, energy exploitation, and transportation development
  • Exemption from 3% Local Corporate Income Tax: available for all investments which qualify for federal corporate income tax exemptions or reductions

1b. Concessionary Tax Rates

  • Six-year 7.5% tax rate: available for profitable years six through eleven of high-technology industries located in Wuhan’s development zones
  • Five-year 7.5% tax rate: available for profitable years six through ten of approved integrated circuit manufacturers with an operating term of at least 15 years; available for years 6 through 10 of infrastructure construction projects
  • One-year 10% tax rate, renewable: available in Wuhan’s development zones for profitable years after the tax holiday and reduced rate have expired, for companies exporting more than 40% of total production in any given year; available in the development zones for profitable years after the tax holiday and reduced rate have expired, for companies exporting more than 70% of total production in any given year
  • Continuous 10% tax rate: available for profits derived from royalties on technical knowledge from scientific research, exploitation of energy resources, development of the communications industry, agricultural, forestry, and animal husbandry production; available to software companies deemed to be key enterprises by the state, regardless of their location, when other preferential tax rates no longer apply
  • Continuous 15% tax rate: available for investments in manufacturing located outside of the special zones for companies engaged in high-technology projects, energy, communications, and port construction, or having a value of more than US$30 million with a long investment payback period; available for high-technology investments in the development zones after the initial tax holiday and reduction periods expire; available for approved integrated circuit manufacturers, regardless of location, that do not qualify for other preferential tax rates
  • Continuous 24% tax rate: available for foreign investments in manufacturing not listed above, having an operating term of over 10 years

2. Income Tax Deductions, Allowances and Credits

  • Income tax losses can offset the following year’s gains; carry forward of any unused portion is permitted for up to five additional consecutive years
  • Accelerated depreciation is available for software, and for machinery and equipment of approved manufacturers of integrated circuits
  • Software and approved integrated circuit enterprises may be eligible for a tax deduction of 50% of research and development expenses incurred during a single year, provide those expenses exceed the previous year’s R&D expenses by not less than 10%
  • Foreign investors reinvesting their share of profits in the same investments or in new businesses that employ advanced technologies, with an operating term of at least five years, may receive a refund of 100% of the income tax already levied on the reinvested amount
  • Foreign investors reinvesting their share of profits in the same investments or in new businesses not employing advanced technologies, with an operating term of at least five years, may receive a refund of 40% of the income tax already levied on the reinvested amount

3. Non-Income Taxes

  • Exemptions from VAT: available for imported goods used in the processing of export products; available to approved integrated circuit manufacturers and software enterprises for the import of raw materials for production and consumption goods for their own use, and for the import of technology and special equipment necessary to production
  • Rebate of a portion of the 17% VAT paid by approved integrated circuit manufacturers: the amount of VAT in excess of 6% charged to integrated circuit manufacturers for the sale of IC products may be rebated until the end of 2010, provided the differential is used for research and development or expanded production of IC products; the rebated amount may be treated as tax-exempt income for income tax purposes
  • Rebate of a portion of the 17% VAT paid by software manufacturers: the amount of VAT in excess of 3% charged to software manufacturers for the sale of software products may be rebated until the end of 2010, provided the differential is used for research and development or expanded production of software products; the rebated amount may be treated as tax-exempt income for income tax purposes

4. Personal Taxes No incentives currently available

5. Tariffs and Duties

  • Exemptions from VAT: available for goods produced in Special Economic Zones (SEZ’s) for export; available for imported machinery and equipment needed for an SEZ enterprise’s own use in the manufacturing of products for export; available to approved integrated circuit manufacturers and software enterprises for the import of raw materials for production and consumption goods for their own use, and for the import of technology and special equipment necessary to production; available to approved integrated circuit manufacturers and software enterprises for the import of raw materials for production and consumption goods for their own use, and for the import of technology and special equipment necessary to production
  • Rebate of a portion of the 17% VAT paid by approved integrated circuit manufacturers: the amount of VAT in excess of 6% charged to integrated circuit manufacturers for the sale of IC products may be rebated until the end of 2010, provided the differential is used for research and development or expanded production of IC products; the rebated amount may be treated as tax-exempt income for income tax purposes
  • Rebate of a portion of the 17% VAT paid by software manufacturers: the amount of VAT in excess of 3% charged to software manufacturers for the sale of software products may be rebated until the end of 2010, provided the differential is used for research and development or expanded production of software products; the rebated amount may be treated as tax-exempt income for income tax purposes

6. Training

No incentives currently available

7. Visas and Work Permits

  • Employees engaged in major high-technology projects, and employees and senior managers of large-scale investments may receive multiple-entrance visas
  • Employees engaged in major high-technology projects, and employees and senior managers of large-scale investments may receive residency permits of a duration lasting from 3 to 5 years

8. Land, Buildings and Infrastructure

  • Large projects, and those deemed important to the Wuhan government, may receive preferential land or real estate pricing on a case-by-case basis

9. Financial Assistance/Loans/Equity

No incentives currently available

10. Eligibility

Foreign investment in Wuhan is classified into four categories: Encouraged, Permitted, Restricted, and Prohibited. Projects falling into each of these categories except Permitted are listed in the Catalogue for the Guidance of Foreign Investment Industries. Since China’s entry into the WTO, various sectors formerly closed to FDI, such as railway and insurance, are in the process of being opened up. In March of 2002, new rules were announced regarding the four categories. Foreign investment projects that meet the criteria for Encouraged investment will be subject to less stringent legal and administrative requirements, with details of these still to be announced. Foreign-invested projects that meet the new criteria for Permitted investment will be automatically upgraded to Encouraged status if they produce goods for export. Foreign companies seeking to establish an Equity Joint Venture or Contractual Joint Venture should have their proposals submitted to the relevant government agency by their Chinese partner. Foreign companies planning to establish a Wholly Foreign Owned Enterprise should make direct application for approval. Disclaimer In the preparation of this document, effort has been made to offer current, clear, and accurate information in a consistent and readable format. The reader should understand that the information is intended to afford general guidelines only. Specific details may have restrictions, may have been changed, or may be subject to additional approvals. This publication is distributed with the understanding that PacTac Advisors Inc. is not responsible for the result of any actions taken on the basis of information in this publication, nor for any errors or omissions contained herein. PacTac Advisors Inc. is not attempting through this document to render legal, accounting, or tax advice. In making any decisions related to this material, individuals reading this document should consult with their own professional staffs and professional advisors for their input concerning all specific matters. This document and the information contained in it should be used only for research purposes, with all information further verified from the appropriate sources.