Value Added Tax (VAT) Preferential Policies for Foreign Invested enterprises

1.  Preferential policies for software industry

a. VAT general taxpayers selling software developed by themselves shall pay VAT at the rate of 13%. However, if the actual VAT burden is more than 3% of the sales, the surplus amount of VAT shall be refunded at the time of payment.

b. VAT general taxpayers selling imported software after localization, the localized software sold could enjoy the VAT pay-as-you-go policy, pay VAT at the rate of 13% and get the amount exceeding 3% VAT refunded. Localization refers to redesign, improvement, conversion, etc. of the imported software. The pure Chinese characterization is not included.

2.  Exemption of VAT for Foreign Invested enterprises involved in processing with supplied materials

Foreign invested enterprises engaging in the business of processing with supplied materials, and entrusting other foreign invested enterprises or Chinese domestic-invested enterprises to process, shall apply with the competent tax authorities for the Certificate of Tax Exemption for Processing Enterprises. The entrusted enterprises could then enjoy the exemption of the VAT on the Processing fee by providing such certificate. After the processed products are exported and the customs verification and cancellation procedures are completed, the foreign invested enterprises shall go to the competent tax bureau for VAT exemption verification procedures for the export of processed products.

3.  Exemption of VAT for import

Starting from January 1, 1998, within the stipulated conditions, VAT for import of equipment shall be exempted, provided that such equipment is to be used for domestic and foreign investment projects under the encouraged catalogue stipulated by the Decree No 37 of the State Council in 1997.

4.  Refund of VAT for export

a. When directly exporting or exporting through agent the products of their own, VAT general taxpayers of the foreign invested enterprises shall get their refund of VAT by systems of "prepayment and refund after export" or "exemption, credit and fund".

b. Foreign invested enterprises established before December 31, 1993, originally enjoying an exemption of VAT when directly exporting or exporting through agent the products of their own, shall change to get their refund through the system of "prepayment and refund after export".

c. Refund of VAT shall be applied to the export of equipment, raw materials and parts for the overseas processing projects. The refund rate will be as per the general provisions of the country.