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Favorable Policies

I. Policies for Foreign-invested enterprises

1. Foreign-invested manufacturing enterprises located in Caohejing Hi-tech Park can enjoy the income tax rate of 15%.

Foreign-invested manufacturing enterprises planning to operate for over ten years, shall, starting from the first profit making year, exempt from corporate income tax for the first two years and levied at half amount of corporate income tax for the following three years (“2 years’ Exemption and 3 years’ Reduction” of tax holidays for short).

Any export-oriented Foreign-invested enterprise shall, after its expiration of exemption or reduction stated in the Tax Law, be further reduced from 15% to 10% on income Tax rate, provided that at least 70% of its annual products have been exported.

Any advanced technology enterprise set up by foreign investment enterprise may be levied at the reduced rate of 50 percent of income tax for a period of another three years following the expiration of the period for tax exemption and reduction.

If the rate after 50% reduction is less than 10%, 10% will be applied.

2. When foreign investors remit abroad profits realized by them, the amount remitted shall be exempted from income tax.

Re-investment with profits gained from the Foreign-invested Enterprise to increase its registered capital or to set up a new enterprise planning to operate for at least five years, can apply and be refunded 40% of the corporate income tax of the reinvestment amount, under the approval of tax bureau.

Re-investment with profits gained from the Foreign-invested Enterprise in enterprise that employs advanced technologies or export-oriented enterprise planning to operate for at least five years, can apply and be refunded all of the corporate income tax of the reinvestment amount, under the approval of tax bureau.

3. Where an Foreign-invested Enterprise’s annual R&D expenses have increased by 10% or more over the previous year, and the 50% of the said R&D exceeds the amount of its annual taxable income, only the overlapped amount shall be deducted, while the excess amount is disallowed deduction in that year and the year that comes after.

4. Policies of Import Duties and VAT.

a. For previously established foreign-invested enterprises which belong to Encouraged Category or previously Limited Category II and for advanced technological companies, companies with exported products, as well as foreign investment research and development center, tariff and import value-added tax are exempted when: import self-use equipment and its accessories and spare parts (including imported along with equipment or imported alone) that can not be produced in China or the performance cannot meet the requirement within the enterprise’s approved business scope.

b. For projects that transfer technology and are listed in the category of being encouraged or in the limitation B category of "Guide for Foreign- invested Industry", the self-used equipment within the total investment will be exempted from customs duty and import value added tax, except for those listed in the "Non Duty Free Imported Articles of Foreign- invested Projects."

c. For research develop center established by overseas investment, equipment for private use and its accessories and spare parts (including imported along with equipment or imported alone) that can not be produced in China or the performance cannot meet the requirement. can exempt from customs duties and import value added tax within the total investment.

d. For foreign-invested enterprises, foreign-invested develop centers and foreign companies which import advanced technology belonging to State Hi-tech products Category, the software fee paid abroad according to the contract can exempt from customs duties and import value added tax.

II Policies for Software companies

1. Software companies are entitled to preferential company income tax treatments. Upon proper accreditation as being software companies, beginning from the first year of profit-making, newly-established software companies will be exempted from any company income tax for two years, and then will be exempted 50% of company income tax for the succeeding 3 years.

2. As for software products developed, manufactured by general tax-payers of value-added taxes, the 17% legal rate of value-added tax is applicable before 2010. The actual paid value-added taxes exceeding 3% of the company’s gross revenue will be refundable to the company upon completion of tax collection. The tax-paying company is entitled to use this refunded amount in the R & D of software products and the enlargement of re-production.

3. As for imported software products, which have been localized (translated, reformed, etc.) and sold by general tax-payers of value-added taxes, the 17% legal rate of value-added tax is applicable before 2010. The actual paid value-added taxes exceeding 3% of the company’s gross revenue will be refundable to the company upon completion of tax collection.

4. For imported equipment and imported technology (including software) that are imported alongside with the equipment according to the equipment purchase contract, as long as these equipment and technology are used by software companies, customs tax and import value-added tax will be totally exempted, except for those items that are listed into “Categories of Imported Commodities Used for Foreign-Invested Projects Denying Any Tax Exemption” and “Categories of Imported Commodities Used for Chinese-Invested Projects Denying Any Tax Exemption”.

5. The staffs’ salaries and training expenses of software companies are allowed to deduct from the calculation of the company’s taxable income according to the actually incurred amounts before income tax payment.

6. At the registration with the Administration Bureau of Industry and Commerce for the legal establishment of a software company, technological achievements, technological secrets and patents can be assessed for a certain value and be treated as investment into the new company.
The shares can be granted to the inventor or contributor.
In accordance to the “Technological Achievements Transformation Promoting Act”, profits gained from the transformation of technological achievements of past 3 to 5 years can be converted into shares of a software company.
Technological secrets and patents brought from outside a software company can be converted into shares of the company.

III Policies for Shanghai Hi-tech Enterprises

1. For newly established hi-tech enterprise recognized by the Shanghai Municipal Hi-tech Recognition Office, ever since the date of its being recognized, the enterprise can enjoy the income tax rate of 15%.

2. For hi-tech enterprise with its export turnover exceeding 70% of its total turnover of the same year, the income tax rate is reduced to 10%.

3. Newly established hi-tech enterprise will enjoy two years income tax holiday upon proper accreditation since making profit.

IV Policies for returned scholars

1. Under the approval of Shanghai foreign investment commission, tax bureau. Enterprises established by overseas Returned Students can enjoy the preferential policies applied to foreign-invested enterprises.

2. Conditions for overseas Returned Students to establish enterprises are loosened. Overseas Returned Students could directly register for foreign-funded enterprises with foreign passport or permanent residence license. The registered capitals of consulting or service enterprise could be as low as 12000 US dollars. The registered capitals of manufacturing enterprise could be as low as 62000 US dollars.

Policies for the enterprises in innovation center

1. Enterprises located in Innovation Center of Caohejing Hi-tech Park can enjoy the preferential policies applied to technological companies in Caohejing Hi-tech Park and Xuhui District.

2. Newly established enterprises or projects registered and located in incubators of the region can enjoy the corresponding preferential policies supporting science & technology industry formulated by the municipal and district governments.

3.Eligible incubatees can enjoy refund of science & technology promoting funds of district government at a particular level within 3 years.