Circular on Terminating Tax Refund Policies on Purchase of Domestically-Manufactured Equipment by Foreign-Invested Enterprises

Cai Shui [2008] No. 176

Finance departments (bureaus) and state administration of taxation of provinces, autonomous regions, municipalities directly under the Central Government, separately planning cities, and the Finance Bureau of Xinjiang Production and Construction Corp.:

To coordinate with the reform of the national VAT transformation and regulate the tax regime, and upon approval by the State Council, the implementation of VAT refund policies on purchase of domestically-manufactured equipment by foreign-invested enterprises shall be terminated, and the relevant issues are hereby notified as follows:

I As of 1 January 2009, the policies on full refund of VAT for purchase of domestically-manufactured equipment by foreign-invested enterprises within the total investment shall be terminated. Abolished at the same time are the following documents and clauses:

 (I) Circular of the State Administration of Taxation on Printing and Distributing the Trial Measures of Administration for Tax Rebates on Purchase of Domestically-Manufactured Equipment by Foreign-Invested Enterprises (Guo Shui Fa [1997] No. 171);

 (II) Article 1 of the Circular of the Ministry of Finance and the State Administration of Taxation on Several Specific Issues concerning the Tax Refund (Exemption) on Exported Goods (Cai Shui [2004] No. 116);

 (III) Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting the Scope of Tax Refund Policies for Purchase of Home-Made Equipment for Foreign-invested Projects (Cai Shui [2006] No. 61);

 (IV) Circular of the State Administration of Taxation and the National Development and Reform Commission on Printing and Distributing the Trial Implementation Measures on Tax Refund Administration for Purchase of Home-Made Equipment for Foreign-invested Projects (Guo Shui Fa [2006] No. 111), and

 (V) Circular of the State Administration of Taxation on Tax Refund for Purchase of Domestically-Manufactured Equipment by Construction Enterprises Entrusted by Foreign-invested Enterprises by Contract of Labour and Materials (Guo Shui Han [2007] No. 637).

II For the purpose of guaranteeing the steady transformation of policy adjustment, with respect to the domestically-manufactured equipment purchased by foreign-invested enterprises before June 30, 2009 (inclusive, the same below), if the verification information of special invoices of VAT has been checked free of error, the former provisions for VAT refund policies may apply at discretion provided the following requirements are met:

 (I) Letter of Confirmation of Foreign-invested Projects Conforming to State Industrial Policies was obtained prior to November 9, 2008 and filing had been done with the competent tax authority prior to December 31, 2008;

 (II) Domestically-manufactured equipment has been actually purchased with special invoices of VAT and tax refund has been reported to the competent tax authority prior to June 30, 2009, and

 (III) The purchased domestically-manufactured equipment has bee listed in the List of Purchased Home-Made Equipment for Projects.

III The VAT amount for purchase of domestically-manufactured equipment by foreign-invested enterprises that have enjoyed the VAT refund policy shall not be set off against VAT on sales as input of VAT.

IV The domestically-manufactured equipment purchased by foreign-invested enterprises that have enjoyed VAT refund policy shall be supervised and administered by the competent tax authorities, with the supervision period of five years, during which if the enterprises are transformed to domestic-funded ones or such situations as transfer and gift of ownership of equipment as well as leasing and reinvestment occur, the refunded tax shall be made up to the competent tax refund authorities with made-up tax calculated by the following formula:

The made-up tax = net value of domestically-manufactured equipment × the applicable tax rate

Net value of domestically-manufactured equipment refers to the net value of equipment calculated after the accrual of depreciation by the enterprises according to financial accounting systems.

Ministry of Finance

State Administration of Taxation

December 25, 2008