1. Favorable Policy for Foreign-funded R&D Centers

(1) Favorable Contents

① Self-use equipment and supporting technologies, accessories and reserve parts (excluding commodities, watercrafts, airplanes, special vehicle and construction machines prescribed in the List of Imported Commodities not Subject to Tax Exemption for Foreign-funded Projects), limited to the lab not forming production scale or pilot scale, shall be exempted from import duty and import linkage tax.

② Self-use equipment and supporting technologies, accessories and reserve parts meeting the precondition imported within the approved business scope in accordance with provisions of the Circular of the General Administration Customs on Import Taxation Policy for Further Encouraging Foreign Investment [ShuShui [1999] No.791] during the course of technical reform by its own fund shall be exempted from import duty and import linkage tax.

③ Incomes from transferring self-developed technology shall be exempted from the business tax.

④ For the technical development expenses increasing by over 10% (10% included) from the previous year, approved by the taxation authority, the taxable incomes of the year can be deducted by 50% of the actual technical development expenses.

⑤ Other state favorable policies.

(2) Forms and Business Scope

① A research with foreign investment and development centre may take the form of a Sino-foreign equity joint venture, a Sino-foreign contractual joint venture or a wholly foreign-owned enterprise established by foreign investors in accordance with the law (including foreign-funded holding companies). They may also take the form of a separate department or a branch company within an enterprise with foreign investment.

② Such a centre should be an institution where research and development and experimentation (including intermediate experimentation or research and development) are conducted in the field of natural sciences and related technology. The content of research and development includes fundamental research, applied research, high-tech research and research for the purpose of social welfare, excluding those projects prohibited in the Guideline Catalogue of Foreign Investment Industries. The centre is not allowed to conduct any technology trading activities not related to the technological result of its research and development, or any production activities other than intermediate experiments. The centre may transfer results of its technological research and development. It may also conduct co-operative research and development with Chinese research institutions either under a management contract or a co-operation contract. A training centre is not included in the category of research and development.

(3) Establishing Conditions

① Having clearly-defined research and development field and specific research and development projects, fixed business location, machinery and equipment as well as other conditions necessary for conducting research and development, and an investment of no less than 2,000,000 USD for research and development.

② Having professional managerial and technical personnel, 80% or above of which should be technical staff with an educational background on the undergraduate or higher level directly involved in research and development.

(4) Establishing Procedure

① A research with foreign investment and development centre which takes the form of an equity or contractual joint venture or a wholly-owned foreign enterprise should be subject to the approval of competent authorities on the provincial level.

②Establishment of a research and development centre within an enterprise with foreign investment (including investment companies):

1) The establishment of a branch company or a separate department of research and development should be subject to the approval of competent approving authorities in charge of the establishment of enterprises with foreign investment. However, if the enterprise with foreign investment is within Category A of the Catalogue of Restricted Foreign Investment Industries, the approval should be granted by the competent authority on the provincial level (or shall be accepted according to the subsequent paragraph for record).

2) If the enterprise with foreign investment is already in existence and its business scope includes research or development, materials for the establishment of a separate department of research and development centre should be submitted retroactively to the original approving authority for record; if its business scope does not include research and development, the establishment of a separate department of research and development necessitates the revision of its contract and the articles of association and their submission to the original approving authority for approval. Such research and development department should also meet the conditions prescribed in Article 2.

③ The following items should be included in the application submitted to the approving authority:

1) Orientation, scope, principal objectives and plan for the implementation of research and development;

2) Location, personnel and other related technological requirements;

3) Sources, uses and amount of fund and relevant budgetary reports;

4) List of equipment and related technology, spare parts, research samples and chemical reagents imported for its own specific use within the total investment or with its own capital;

5) Introduction about the advanced nature of the project and about the ownership of research and development results.

 (5) Miscellaneous provisions

 (1) The research with foreign investment and development centre should conduct its activities in accordance with the law and its investment should not be used for purposes other than research and development.

 (2) The research with foreign investment and development centre taking the form of a branch company or a separate department within enterprise foreign investment should maintain a separate financial budget and a separate business account.

 (3) The investment for a research and development centre taking the form of a branch company or a separate department by an enterprise with foreign investment within Category A of the Catalogue of the Restricted Foreign Investment Industries should not exceed 50% of its total investment.

 (4) The research with foreign investment and development centre is required to submit to its approving authority its annual report on its research and development activities by March 31 of each year.

2. Encourage foreigners to invest the technical development and innovation of corporation and extended the domestic purchase

(1) Favorable contents

In accordance with the Circular of the State Council on the Adjustment of Tax Policies on Imported Equipment (Guo Fa (1997) No.37), import duty and import linkage tax can be exempted from the establish encouraged and restricted B-type foreign-funded corporation, Foreign-funded R&D centers, advanced technical and exporting Foreign-funded corporation (hereinafter called the five-type corporation) in importing the self-use equipment and supporting technology, accessories and spare parts for their technical reform within the approved production and business scope, which can not be produced or met by domestic corporations.

(2) Conditions and requirements

① The capital shall be the self-owned capitals beyond the total investment of the five corporations (including the reserve funds, development funds, after-depreciation and tax profits, the same below);

② Use for imported commodities: Within in the formerly approved business and production scope, the commodities shall be used for updating or maintaining the former equipment (excluding set equipment and production line);

③ Scope for imported commodities: the equipment (excluding commodities prescribed in the List of Imported Commodities not Subject to Tax Exemption for Foreign-funded Projects), which China cannot produce or meet the requirements in performance, as well as the supporting technology, accessories and spare parts (including imported with equipment or alone).

 (3) Transaction procedure

① Issuance of the import certificate: Certificate for the Foreign-funded Corporation to Import Updated Equipment, technology and spare parts issued by concerned department.

② Transacting the certificate of tax exemption: Local customs of the place of corporations shall issue the exemption certificate after inspecting the imported commodities meeting the above-mentioned provisions, with the import certificate, contract and import license certificate, etc handed over by corporation. 

3. Other favorable policies for Foreign-funded corporations

For other favorable policies for the Foreign-funded corporation (including encouraging policies on the business tax, value-added tax and income tax, for Foreign-funded corporations on financial supports and management service, and for investment corporations), please refer to the Related Policies on Further Encouraging Foreign Investment (Beijing Jingmao Zizi [2000] No.183).