China Clarifies Duty Exemption Policy for Foreign Investment in Encouraged Industries

February 9, 2021 Posted by China Briefing Written by Zoey Zhang Reading Time: 3 minutes

Following the roll-out of the 2020 Edition of the Catalogue of Industries for Encouraging Foreign Investment last December, China’s customs authority recently clarified the duty exemption policy related to equipment, technology, accessories, and spare parts imported for self-use purpose during the implementation of the encouraged catalogue.

On January 26, 2021, the General Administration of Customs (GAC) released the Announcement on Issues concerning the Implementation of the Catalogue of Industries for Encouraging Foreign Investment (2020 Edition) (GAC Announcement [2021] No.9).

According to the announcement, starting January 27, 2021, for foreign-invested projects as defined in the Catalogue of Industries for Encouraging Foreign Investment (“FI Encouraged Catalogue”), the self-use equipment imported within the project’s total investment as well as the technology, supporting parts, and spare parts imported together with the equipment according to the contract, can be exempted from the customs duties. However, these imports will still be subject to the import value-added tax (VAT).

If there is any foreign good listed in the Catalogue of Imported Goods for Foreign Investment Projects Not Exempted from the Duties and the Catalogue of Imported Major Technical Equipment and Products Not Exempted from the Duties – the imported goods will not be eligible for duty exemption.

Application process

The GAC Announcement [2021] No.9 has clarified that although the duty exemption policy took effect from January 27, 2021, foreign-invested projects approved, verified, or record filed before January 27 are still eligible for application.

We Can Provide Advisory on Customs, Tariffs, and Applicability of FTAs

Application materials that need to be prepared and submitted by foreign enterprises can be found in the following table.

To be noted, although the policy is retrospective – for foreign projects falling within the scope of the 2020 Edition but not within the scope of the 2019 Edition of the FI Encouraged Catalogue, customs duties already paid are not refundable.

Other preferential policies

In addition to the duty exemption on imported equipment and parts, encouraged foreign-investment projects can also enjoy the following favorable policies:

Access to preferential land prices and looser regulation of land uses– land can be preferentially supplied for encouraged foreign-funded projects with intensive land use. The land transfer reserve price can be determined at 70 percent of the national minimum price for the transfer of industrial land, which yet shall be no less than that of the local land.
Lowered corporate income tax (CIT)– for FIEs in encouraged industries in China’s central, western, and northeastern regions or encouraged industries in Hainan FTP, that meet the requirements, the CIT rate can be reduced to 15 percent.

Preparing for the application

Interested foreign investors are advised to evaluate whether your investment project falls within the scope of the industries listed in the FI Encouraged Catalogue (2020 Edition). Here we provide the full catalogue in English for your reference: you can check out the full national FI Encouraged Catalogue in English here, and the full FI Encouraged Catalogue for China’s western regions in English here.

The next step is to assess whether the specific equipment, technology, and parts can enjoy the exemption of customs duty, which means the imports are for self-use purpose and should not fall under the Catalogue of Imported Goods for Foreign Investment Projects Not Exempted from the Duties and the Catalogue of Imported Major Technical Equipment and Products Not Exempted from the Duties.

If both of the above conditions are met, you can submit applications to the in-charge customs authorities to apply for duty exemptions.

Dezan Shira & Associates has been staying abreast of the preferential policies for foreign investment in the course of China’s opening-up. Our experts are well-positioned to provide assistance to foreign enterprises with the application process, For more information or assistance on application, you are welcome to contact China@dezshira.com.

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