National Development and Reform Commission and Ministry of Commerce Jointly Release New Competitive Industries Catalogue for Foreign Investment in Midwest Areas

On December 25, 2008, the National Development and Reform Commission and the Ministry of Commerce jointly released the Competitive Industries Catalogue for Foreign Investment in Midwest Areas (the "Midwest Catalogue 2008"), effective January 1, 2009. The Midwest Catalogue 2008, which supersedes both the Midwest Catalogue 2004 and a similar catalogue for the Liaoning Province, has listed the respective industries in twenty-one provinces and municipalities of China that are entitled to preferential treatments.  These preferential treatments are similar to those granted to the industries falling within the encouraged category under the Guiding Industries Catalogue for Foreign Investment, an industry catalogue provided for regulating foreign investment in general, which tends to encourage infrastructure-building, energy-efficient, environment-friendly and high-technology industries, among others. In the past, preferential treatments have mainly included a simplified approval process, reduced income tax rates and the exemption of import duty and Value-added Taxes ("VAT") for imported equipment. Nonetheless, as China is adopting a uniform income tax rate for both domestic and foreign-invested enterprises and is also reforming its VAT system, the tax benefits flowing from the different catalogues are either reduced (in the case of income tax) or are no longer exclusive to Foreign Invested Enterprises ("FIEs"), and applicable to both domestic enterprises and FIEs (e.g. input import VAT can be deducted against output VAT).

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