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Imported Equipment Duty Exemption

Attracted by the continual improvements in China’s socio-economic development, particularly its strong economic performance, more foreign investors are looking toward China, and particularly Beijing, to target their investments.

Still, foreign investors can easily get confused and frustrated while adapting to Beijingís foreign investment policies, rules and regulations, so Business Beijing, in cooperation with the Beijing Municipal Development and Reform Commission, is beginning this Q&A column to serve foreign investors.

If you have any questions about investing in Beijing please write us via e-mail at: invest@btmbeijing.com in English; for questions in Chinese, please visit the official Web site of the Beijing Municipal Commission of Development and Reform at: http://www.bjpc.gov.cn/gwzjly/. Either way, we will find someone authoritative to provide you with the best and latest information available. Please remember: only e-mails and faxes are acceptable.

Q: Our company is a dairy products manufacturing enterprise registered and set up in Beijing’s Chaoyang District. We mainly produce case-packed yogurt. Our company plans to import a yogurt case-packing production line from UK, and we were wondering if we could qualify for a duty exemption for this imported equipment?

A: According to the Industrial Policies on Foreign Investments (revised in 2004), your company belongs to the Fifth Item of Article I Food Processing Industry of Provision III in the Encouraged Category. Based on the regulations of Document No. 316, issued by the National Development and Reform Commission, you qualify for the duty exemption for imported equipment.

Q: Our company is a wholly foreign-invested enterprise involved in optoelectronic parts and apparatus processing and production. Our project has been ratified by the Development and Reform Commission of Tongzhou District, Beijing Municipality, involving a total investment of US$5 million and falls within the “encouraged” category of enterprises. How should we determine where to apply for the letter of confirmation of duty exemption and whether the application of the letter of confirmation should be handled by the Municipal Commission of Development and Reform?

A: According to the regulations of Document No. 316 issued by the National Development and Reform Commission, for a foreign invested project falling in the encouraged category involving less than 30 million yuan (US$3.9 million), the letter of confirmation should be handled by the development and reform commission at the provincial level; your company falls in the purview of our commission to issue the letter of confirmation. 

In reporting the letter of confirmation for duty exemption to our commission, the following documents should be attached: 

1.    Two copies of ratification documents issued by the Development and Reform Commission of Tongzhou District;

2.     A “List of Imported Equipment for the Project” affixed with the seal of the project owner and that of the Development and Reform of Tongzhou District in quintuplicate (Format sample is available on the Web site of the Beijing Municipal Development and Reform Commission);

3.     A copy of project application report including a list of imported equipment;

4.    Other materials to be explained or provided.

Q: Our company is a foreign invested enterprise; it will introduce advanced foreign equipment for technology upgrading utilizing the capital of our own company. The project has been ratified by the development and reform commission at the district or county level, so what kind of letter of confirmation should we apply for?

A: According to the Circular of China Customs on Further Encouraging Foreign Investment Relevant to Import Duty Policies (No. 791 [1999] issued by China Customs on Duty), for duty exemption and import duty exemption, the following conditions should be complied with by enterprises using their own capital for technology upgrading:

1.    First of all, the companies must fall within the five categories of companies (including already set up in the “encouraged” category and “restricted B” category foreign-invested enterprises, foreign-invested centres of excellence, the “advanced technology” category as well as product exporting foreign invested enterprises).

2.    The capital should be generated by the self-owned capital excluded in the total investment of five categories of enterprises (viz. enterprise reserve funds, development funds, depreciation and after-tax profit).

3.    Determine the usage of imported commodities: within the originally ratified production and business scope, upgrading (excluding set equipment and production line) or maintaining the original equipment of the enterprise.

4.    Determine the scope of imported commodities: equipment that cannot be produced domestically or cannot meet the specifications of performance (namely products excluded in the “Catalogue of Duty-Bound Commodities Imported by Domestically Invested Projects, as well as the technology, utilities and spare parts of the above-mentioned equipment, including those imported with the equipment or separately).

Those meeting the above-mentioned regulations can go through proceedings of “Certificate for Foreign Invested Company for Importing Upgraded Equipment, Technology and Spare Parts”; those who do not fall within the scope of Point 2 in technology upgrading, should apply for the “Certificate for Technology Upgrading Project Registration.”

Note: The index for foreign invested company utilizing self-owned capital in technology upgrading should comply with “Industrial Structure Adjustment Guideline Index (2005)” in purchasing equipment.

Q: Our company has obtained a “Letter of Confirmation of Domestic or Foreign Invested Project Encouraged by the State” issued by your commission; however, because a provider of one kind of equipment violated the contract unilaterally and terminated the contract, we urgently turned to another provider who can provide the same kind of product, with changing models and quotations. How should we handle the alteration, and what kind of materials should be submitted?

A: According to the regulations contained in the Circular of the National Development and Reform Commission on Relevant Issues of handling ‘Letter of Confirmation of Domestic or Foreign Invested Project Encouraged by the State’ of Foreign Invested Projects(No. 316 [2006] issued by the National Development and Reform Commission on Foreign Investment), for the letter of confirmation that has been issued by our commission, provided that the major items like the project owner, investment total, foreign exchange total, enforcement year and equipment list need to be altered during the project enforcement, alteration applications should be submitted to our commission, with the following materials attached:

1.    A copy of the already issued letter of confirmation for the project;

2.    “Before and after” comparison tables of the adjusted items, and relevant explanatory materials.

With the agreement of our commission, the written alteration certificate of the letter of confirmation of the project shall be issued.