Taxation: preferential taxation policies

Technical developing cost offsets taxable income

For foreign-invested enterprises whose technical developing costs increase by 10 percent or more compared to the last year, 50 percent of the actual value of total cost will offset the taxable income in the current year.

Exemption and reduction of withholding income tax

Profits gained by foreign investors from foreign-invested enterprises must be exempted from the income tax.

Foreign investors can enjoy a 10 percent reduced rate for withholding income tax on the income sourcing from interests, license fees and other aspects of Dalian City.

The preferential treatment of withholding income tax reduction and exemption after approval by the municipal government could be granted to the enterprises where preferential treatment is granted to capitals and equipment, and advanced technology is transferred.

* Preferential policy of VAT

Expand the scope of offset for VAT and allow the offset for fixed assets input VAT 

According to the provisions of VAT Law of the People's Republic of China, the VAT contained in machinery and equipment can not be offset, so enterprises must pay a high VAT. In order to revitalize the northeast's industrial base, the country grants special treatment to industrial enterprises in northeast China: the VAT contained in the machinery and equipment newly purchased by the enterprises engaged in equipment manufacturing, petrochemical engineering, metallurgy, shipbuilding, automobile manufacturing and agricultural product processing could be offset according to the relevant provisions.

VAT exemption, offset and refund for export goods 

In respect to export sales, all export goods produced by foreign-invested enterprises must be exempted from VAT. Input VAT of the raw materials offsets the VAT payable of the goods to be sold in the domestic market. If the amount of input VAT is bigger than the VAT payable, the excess is refundable. All export goods self-produced by foreign-invested enterprises must be exempted from the consumption tax.

VAT exemption for sales of self-produced agricultural products

Sales of agricultural products produced by foreign-invested enterprises engaged in crop production, livestock breeding, forestry, animal husbandry or aquaculture are exempted from VAT. Policy of refunding upon payment of VAT for software products. 

As for recognized software manufacturing enterprises as general VAT payers selling autonomously developed software products, the policy of refunding upon payment of VAT is carried out for the part with the actual VAT burden over three percent after VAT is imposed by the legal rate of 17 percent. 

VAT exemption for feedstuff

Sales of feedstuff are exempted from VAT. 

Comprehensive utilization of resources 

If coal refuses, stone coal and pulverized coal account for not less than 30 percent of the raw material used by an enterprise, the material is exempted from VAT. 

New-type wall materials

VAT of some new-type wall materials is levied at a 50 percent reduced tax rate. 

* Preferential Tax Policy in Dalian 

Unique Location Advantage 

Dalian is not only the earliest coastal area opening to the outside world, but also the Northeast Old Industrial Base, enjoying numbers of preferential tax policies. Its prominent location is superior to any other area. 

As a coastal opening city, Dalian enjoys a preferential policy regarding income tax. The income tax rate for foreign-invested productive enterprises in the Development Zone is 15 percent, and for businesses in other regions (except Changhai County) it is 24 percent, with tax relief executed regularly. Enterprises gain universal benefits. The actual income tax rate imposed on foreign-invested enterprises in Dalian in the year 2003 was only 10.01 percent, which was lower than thirds of the legal level and far below the national average (14.21 percent) as well. 

As a Northeast Old Industrial Base, Dalian enjoys an expanded scope offset for VAT, and also a favorable policy on accelerated depreciation for fixed assets and intangible assets. In particular, the policy on the expanded scope of offset for VAT, as a special strategy produced by the state to revitalize the northeast old industrial base, will significantly reduce the enterprises' VAT burdens. Accelerated depreciation allows the enterprises to pay the duty later, which brings substantial benefits and convenience in cash to the enterprises. 

Integration of both these two preferential tax policies makes the other regions fall far behind Dalian in terms of location. 

Wider and longer-term preferential policy of local income tax 

Local income tax must be determined to levy by the provincial government as stipulated by the Tax Law. All foreign-invested enterprises in Dalian are allowed from the first year of profit to be exempted from this tax for seven years. Enterprises involved in projects encouraged by Dalian Municipal Government must be exempted from local income tax for another three years. This preferential strength is enticing nationwide. 

Industrial parks of various types and functions 

Dalian has created a full set of industrial parks, including Eco-Tech Development Zone, High-Tech Industrial Zone, Free Trade Zone, Export Processing Zone, Tourist Resorts and Bonded Logistics Park. Enterprises enjoy reduction and exemption of income tax and also convenience in importing and exporting cargo. 

All categories of favorable tax policies are executed under the relevant laws.

Various foregoing tax preferences are given by the state pursuant to applicable laws or stipulated by Dalian Municipal Government in accordance with laws within the scope authorized by the state. Competent authorities must not exceed their specified authority to relieve the taxes and must implement administration, impose taxes, deduct the taxes according to the law, meanwhile it must also keep the policy stable.

(This English version is only for reference. To learn more, please refer to the authoritative Chinese version.)