Foreign Investment Manufacturing Enterprise
China has attracted many investors to register foreign-invested manufacturing enterprises inside the country owing to its huge consumer market and well-developed manufacturing industry. Through this kind of enterprises, overseas investors can manufacture, sell, and import and export products in China, and swiftly expand their business coverage by virtue of the mature manufacturing techniques, well-found industrial chain and logistics network of China. Moreover, in order to simplify the enterprise registration process, Chinese government has implemented the subscription system for registered capitals, cancelled the stipulation of provision of bank credit certificates by investors, and converted the system of approval for establishment into filing system, which have greatly reduced cost and time for registration.
- No specified requirement (except specific industry)
Scope of Business
- Production of products within the scope of business
- Distribution (of self-products)
- Import/export (of ancillary products produced by the enterprise)
Required Information and Documents
- Investor's qualification certificate of entity, or natural person's ID card
- Directors, supervisors and mangers' appointment documents and ID cards
- Legal representative's appointment document and ID card
- The certificate for right of use or the contract for lease of premise of the proposed store to be opened
- Import/export product catalog
- Lease contract or certificate of title
- Documents or certificates for earlier setup examination and approval
- Approval on fire safety and environmental protection
Taxes Involved in Operation of Foreign Investment Producer Enterprises
Value Added Tax
- General Value Added Tax Payers pay VAT at 13% or 17%
- Small-scale Value Added Tax Payers pay VAT at 3%
General Value Added Tax Payers of Producer Enterprises refer to producer enterprises with annual sales value exceeding RMB 500,000 and with established financial system, while producer enterprises failing to meet these requirements are small-scale Value Added Tax Payers.
Corporate Income Tax
- Tax rate is generally 25%
- High-tech enterprises are subject to tax rate of 15%
- Small-scale and small profit companies are subject to tax rate of 20%
- Criteria for a small-scale and small profit company: a company that cannot engage in business restricted and prohibited by the PRC government and its annual taxable profit does not exceed RMB300,000, with staff less than 100 and total assets not exceeding RMB30 million.
- High-tech enterprises are defined as the resident enterprises that specialise in research & development (R&D) and transition of technological achievements within the scope prescribed by Fields of High and New Technology Eligible for Primary Support of the State, possess independent intellectual property right, and practice operating activities accordingly. Such high-tech enterprises shall have been registered for more than one year.
Tax Preferences for Foreign Investment Producer Enterprise
Import Tax Preferences
- The self-purpose equipment imported together with the technology and parts and components and spare parts imported by contract for production of the products within the List of High-tech Products of the State by a foreign investment producer enterprise shall be exempt from tariff and value-added tax on importation, except for the goods set out in the List of Import Commodities by Domestic Investment Projects Not to Be Exempt from Tax.
- The advanced technologies introduced as set out in the List of High-tech Products of the State and any software fees paid to overseas parties under contract by a foreign investment producer enterprise shall be exempt from tariff and value-added tax on importation.
- The foreign investment producer enterprise, foreign investment research & development centre, technologically advanced and export-oriented enterprise with foreign investment, categorised as "encouraged" and “restricted B”, which are already established, shall be entitled to free import duty and value-added tax on the self-purpose equipment and supporting technology, fittings and spare parts to be imported within their originally approved scope of production and business, which cannot be produced at all or in a manner of satisfactory to the demands in mainland China, in the process of their technological transformation.
- The research & development centre established by the foreign capital investment enterprise, shall be entitled to free import duty and value-added tax, in accordance with the relevant provisions, on the self-purpose equipment and supporting technology, fittings and spare parts to be imported within the aggregate investment, which cannot be produced at all or in a manner of satisfactory to the demands in mainland China.
Export Tax Preferences
The foreign investment producer enterprise shall be entitled to "Exemption, Credit and Tax Rebate" of taxation or "Collection First and Refund Later" on the self-managed export, or export on consignment, of its self-produced goods. "Exemption" from taxation means exemption from the value-added tax on exportation and sales of the enterprise.
- "Exemption" from taxation means exemption from the value-added tax on exportation and sales of the enterprise.
- "Credit" tax means the enterprise can credit its value-added tax creditable on the purchase of domestic raw materials against its value-added tax payable on domestic sales of goods.
- "Tax Rebate" means the refund of the remainder, after crediting, of the value-added tax creditable on purchase in excess of the value-added tax payable, in the current month.
- "Collection First and Refund Later" means the exported goods shall be subject to taxation at the rate of taxation first and refund of tax, at the rate of refund on exported goods.
Value-added Tax Preferences
- An enterprise may be entitled to a refund of value-added tax, in full, for its purchase of domestic manufactured equipment within the aggregate investment, if the equipment falls under the Tax-free Categories.
- For sales of self-developed and self-produced computer software products (i.e. such storage mediums containing computer procedures and related documents as floppies, hard disc drives, optical disc), the value-added tax should be levied at the statutory rate of 17% and the portion of value-added tax levied at the effective rate over 6% can enjoy the “immediate refund upon payment” policy.
- Production and sales of specified products such as self-produced agricultural products, products specified for the disabled, etc. shall be entitled to free value-added tax.
Income Tax Preferences
- For the tax refund to a software producer enterprise enjoying the value-added tax policy of immediate refund upon payment, if it is used in the research and development of software products and in the expansion of reproduction, it shall not be regarded as taxable income for corporate income tax, and not be subject to the corporate income tax.
- A newly established software producer enterprise may, upon determination, be entitled to the preference of exemption for the first two years and half rate reduction for the subsequent three years, commencing from the first profitable year, for the purpose of corporate income tax.
- If a key software producer enterprise included in the national plan does not enjoy the preferential treatment of tax exemption in the current year, it shall be subject to the corporate income tax at the reduced rate of 10%.
- The actual amount of the employee training expenses of a software producer enterprise may be deducted in the calculation of the amount of taxable income.
- For the software purchased, if it meets the conditions for being recognized as a fixed asset or intangible asset, it may be calculated as fixed asset or intangible asset, and upon approval of the competent tax authority, its depreciation or amortisation period may be shortened properly, with a minimum of two years.
- An integrated circuit design enterprise shall be regarded as a software enterprise and hence covered by the relevant corporate income tax policies enjoyed by the aforesaid software enterprises.
- The depreciation period for the productive equipment of an integrated circuit producer enterprise, upon approval of the competent tax authority, may be shortened properly, with a minimum of three years.
- An integrated circuit producer enterprise, which has an investment of more than RMB 8 billion or which produces integrated circuits with lines of less than 0.25 um in width, shall be entitled to a reduced rate of 15% for the purpose of corporate income tax. If its business period lasts for over 15 years, it may be entitled to the preference of exemption for the first five years and half rate reduction for the subsequent five years, commencing from the first profitable year, for the purpose of corporate income tax.
- A producer enterprise, which produces integrated circuit products with lines of less than 0.8 um (inclusive) may, upon determination, be entitled to the preference of exemption for the first two years and half rate reduction for the subsequent three years, commencing from the first profitable year, for the purpose of corporate income tax.