A. Brief Preferential Policies on Transfer of Property Rights in Hunan Province

Forms of Transfer

1. Property rights transfers can be done through wholly or partly for sale, joint venture and cooperation, merger and acquisitions (M&As), and managerial rights transfer of public services.

Price

2. If enterprises are wholly bought through M&As and buyers can employ their workers, the following expenses can be deducted from net assets.

(1) Taking the actual expenditure of last year as the base, deduct the total of retirement pension, medicare fees, pension fees and subsidy in ten years.

(2) Calculated as three times the average salary of the past fiscal year in Hunan Province, deduct the settlement allowance of superfluous employees, which is 20 percent of the total.

3. The money used to buy enterprise property rights can be paid off in installments over three years. But the first payment must be no less than 40 percent of the total. If all the money is paid off immediately, there will be a 20 percent discount; if the money is paid off in two years, there will be a 10 percent discount.

4. The market should decide the price of property rights. After approval, the trading price is allowed to be below the assessed price.

5. For enterprises whose assets approximately equal their debts, if the enterprises continue operations through asset mortgaging, they can be sold without payment.

Land

6. After enterprises are acquired, if the land use right is leased, the land fee in five years is collected at 30 percent of the lowest level. If the land use right is sold, the land fee is collected at 50 percent of the lowest level. If the money is paid in 60 days, there will be a 20 percent discount. If the money is paid in installments, 25 percent of land fees must be paid in 60 days, and the remainder paid off in five years.

7. For M&As and contracts, if the land is not transferred again and its use is not changed, the land will be used without paying fees for five years after the approval of the land resources authorities.

Credit and Debt

8. The fiscal working funds borrowed by acquired enterprises, after approval, can be turned into state investment capital.

9. The money achieved from acquired company?s housing reform belongs to the Property Administrative Company as a housing reform fund. The non-operational assets, after they are split from parent enterprises, will be taken over by government or provisionally managed by the acquired enterprises.

10. The losses of the acquired enterprises can be made up by acquiring enterprise?s pretax profit in a certain period if the tax regulations so allow.

Taxation

11. For enterprises that re-employ laid-off workers representing more than 20 percent of total employees, income tax within two years will be refunded through the fiscal department after the tax authority collects it.

12. Taking the tax that an acquired enterprise handed in last year as the base, 50 percent of the remainder of income tax and value-added tax will be refunded by the fiscal department in three years after the tax authority collects them.

13. Foreign-funded manufacturing enterprises operating for over 10 years are exempt from enterprise income tax in two years from the time they earn profits, and only half of tax is levied from the third to fifth years.

14. For foreign-funded enterprises involved in agriculture, forestry and stockbreeding, and foreign-funded enterprises in depressed areas, they can not only enjoy the policy prescribed in the above provision, but also pay 15 percent to 30 percent less tax in the following 10 years if their applications are approved by the State Administration of Taxation.

15. Foreign-funded export enterprises can enjoy the tax exemption and reduction policy prescribed in the provision of No. 13. If their export value exceeds 70 percent of their total output value, they pay only half the calculated enterprise income tax since the sixth year.

16. Foreign-funded advanced technology enterprises enjoy the tax exemption and reduction policy in the first five years, and pay 50 percent less enterprise income tax in the following three years.

17. If foreign-funded enterprises use their profits to increase investment, reinforce registered capital or set up new enterprises which run for at least five years, 40 percent of the tax levied in reinvestment will be refunded after investors? application is approved by the taxation authority. If they set up, or extend export enterprises and advanced technology enterprises with operation of at least five years, all the enterprise income tax in the reinvestment process will be refunded.

18. Profits the foreign investors get from foreign-funded enterprises are exempt from income tax.

19. For new hi-tech foreign-funded enterprises in hi-tech development zones approved by the State Council, their enterprise income tax can be 15 percent less.

20. The foreign-funded enterprises in Changsha and Yueyang City can enjoy the same preferential tax policies with coastal economic development zones.

(1) For these foreign-funded manufacturing enterprises in Changsha and Yueyang City, they pay enterprises income tax at a rate of 24 percent.

(2) If the foreign-funded enterprises in Changsha and Yueyang belong to:

a. Technology-intensive or knowledge-intensive items;

b. Projects that have over US$30 million investment and a very long return cycle;

c. Projects of energy, transportation, and harbor construction.

Their enterprise income tax rate is 15 percent (it needs approval from State Administration of Taxation).

21. Foreign-funded manufacturing enterprises running over 10 years are exempt from local tax (including local income tax, real estate tax, license plate tax for car and ship, and butcher tax) for ten years.

22. Enterprises in the energy, transportation, infrastructure and raw material processing fields, and foreign-funded enterprises in economic development zones and hi-tech development zones are exempt from local tax.

23. The expense in the process of property rights transference, including these in asset assessment, transactions, auctions and notarization, should be charged by below 50 percent of the current standard. Only cost price is charged when modifying registration, check-in or ownership transfer.