(Promulgated by the Ministry of Finance of the People’s Republic of China on December 13, 1982)



ISSUE-DATE: 12/13/1982

IMPLEMENT-DATE: 01/01/1983


In accordance with the provisions of Article 11 of the Income Tax Law of the People’s Republic of China Concerning Foreign Enterprises and Article 27 of the rules for its implementation, foreign companies, enterprises and other economic organizations that have no establishments in China and that receive royalties for the provision of proprietary technology for use in China shall pay an income tax of 20 per cent (a withholding tax). In order better to carry out the state’s policy of importing technology and encourage foreign companies, enterprises and other economic organizations to provide China with new technology, new techniques and advanced scientific and technological achievements, preferential treatment will be given to royalties for proprietary technology in the form of income tax reductions or exemptions. The concrete provisions are as follows:

(1) The following types of royalties for proprietary technology (here as elsewhere below, including the fees for blueprints and information, technical service fees and personnel training fees related to a transfer of the right to use proprietary technology) may be subjected to income tax at the reduced rate of 10 per cent and, when the technology is advanced and the conditions preferential, may be exempted from income tax.

(a) Royalties received for the provision of proprietary technology to develop farming, forestry, fishery and animal husbandry, including: proprietary technology provided to improve soil and grasslands, develop barren hill areas and fully utilize natural conditions; proprietary technology for new animal and plant species and for the production of highly effective and low-toxic pesticides; proprietary technology such as that provided to advance the scientific control of the farming, forestry, fishery and animal husbandry production, to preserve the ecological balance and to strengthen the ability to control and resist natural calamities.

(b) Royalties received for the provision to Chinese side of proprietary technology to conduct scientific research and scientific experimentation by Chinese science academies, institutions of higher learning and other scientific research units or for the purposes of conducting scientific research in cooperation with Chinese scientific research units.

(c) Royalties received for the provision of proprietary technology for China’s key construction projects to develop energy and expand communications and transportation.

(d) Royalties received for the provision of proprietary technology with respect to energy conservation and the prevention and control of environmental pollution.

(e) Royalties for the provision of the following types of proprietary technology in order to develop China’s important technological fields:

(i) Production technology for major and advanced mechanical and electrical equipment;

(ii) Nuclear technology;

(iii) Production technology for large-scale integrated circuits;

(iv) Production technology for photoelectric integrated circuit, microwave semi-conductors and microwave integrated circuits and technology for manufacturing microwave electronic tubes;

(v) Manufacturing technology for ultra-high speed electronic computers and micro processors;

(vi) Photo conductor communications technology;

(vii) Technology for long-distance, ultra-high voltage direct current power transmission; and

(viii) Technology for the liquification, gasification and comprehensive utilization of coal.

(2) The following types of income that do not involve the transfer of the right to use proprietary technology shall not be subjected to the withholding tax (but income tax shall be calculated and levied on an enterprise or unit that engages in profitable business and has an establishment or site to engage in subcontracting operations and provide services):

(a) Service fees received for the provision of consulting services such as those with respect to reforming China’s development projects or the existing production technology of Chinese enterprises, improving operations management, the selection of technology, feasibility analysis of investment projects and the selection of design and bid proposals.

(b) Technical instruction fees, personnel training fees and fees for books and reference materials and blueprints and information received in connection with holding business and technical seminars on such topics as enterprise management and application of production technology for Chinese educational institutions, scientific research units and other enterprises or institutions.

(c) Technical assistance fees received for rendering technical assistance with respect to Chinese enterprises’ existing equipment or products, based on the specific technical objectives raised by Chinese side concerning such aspects as performance, efficiency and quality, as well as reliability and durability, and for carrying out new designs, adjustments or trial production with respect to sections or spare parts and components that need improvement, provided they satisfy the technical objectives set forth in the contract.

(d) Technical service fees, design fees and relevant fees for blueprints and information received in connection with technical instruction provided for construction sites and the manufacture, installation and assembly of equipment, designs for construction projects and technological process designs, as well as for quality inspection, data analysis and the like.

(3) In all cases where royalties paid for proprietary technology to import technology may be given preferential treatment in the form of tax reductions in accordance with Article (1) of these Provisions, the opinions of the departments concerned that approved the technology import project, together with the relevant documents and information, shall, in advance, be sent to the local tax authorities for examination and determination. In those cases involving advanced technology and preferential conditions that require tax exemption, the tax bureau of the province, municipality or autonomous region shall meet with the relevant department to examine the case and put forward their opinions for submission to the Ministry of Finance for approval. If the case has not been examined and approved, the importing unit may not of its own accord make a determination as to tax reduction or tax exemption. In order to facilitate tax administration, a copy of all contracts for the import of technology signed with foreigners shall be sent to the local tax authorities for reference.

(4) These Provisions shall be implemented from January 1, 1983. Where past provisions and these Provisions are in conflict, these Provisions shall in all cases be implemented. With respect to contracts that were signed, approved and came into effect before these Provisions came into effect, any contract that has already been subjected to taxation, tax reduction or tax exemption in accordance with the provisions then in effect shall not be handled in any different manner during the effective term of the contract (not including extensions of the contract term).