Investment Policies & Regulations in Pudong New Area

Investment Policies & Regulations in Pudong New Area

9. What are the regulations concerning the examination and approval of the establishment of foreign-invested enterprises in Shanghai Pudong New Area?

1. Where is Pudong New Area?

Triangular in shape and adjacent to the city center, Pudong New Area lies in the east of Shanghai, i.e. to the east of the Huangpu River and to the southwest of the mouth of the Yangtze. It is planned to develop an area of 522 sq.kms, most of which is within a 15 km radius from the city's downtown area.

2. What sort of tax preferential policies can foreign investors enjoy in Pudong New Area?

(1) The income tax of foreign -invested manufacturing enterprises shall be levied at a reduced rated of 15%.

(2) Foreign -invested enterprises scheduled to operate for a period over 10 years shall be exempted from income tax in the first two years starting from the profit-making year and be granted a 50% reduction in the next three years.

(3) " High-tech Projects" invested by foreign investors in Pudong New Area can enjoy 10% income tax rate for another three years after the period of tax exemption and tax reduction. Export enterprises with foreign inv6stnient shall pay their income tax at a reduced rate of 10% when their annual export sales value amounts to more than 70% of the annual sales value.

(4) The income tax of foreign-invested enterprises in the field of sports, energy and transportation shall be levied at a reduced rate of 15%. If the operation period of the above-mentioned enterprises is over 15 years, the income tax shall be exempted for the first 5 years starting from the first profit-making year and allowed a 50% reduction in income tax for the next 5 years.

(5) All foreign-invested enterprises shall be exempted from local income tax before 2000.

(6) The buildings or houses built or purchased by foreign investors for their own use shall be exempted from house property tax for five years, starting from the date when the transaction is done.

(7) The foreign-invested financial institutes in Pudong New Area such as foreign-invested banks and JV banks with its injected capital over USD 10 million or its operating fund allocated by its headquarters over USD 1O million, after approval, can enjoy a reduced income tax rate at 15%. And starting from the first profit-making year, the above-mentioned enterprises can enjoy income tax exemption for one year and 50% income tax reduction for another two years.

3. What more preferential policies can foreign-invested enterprises located in Waigaoqiao Free Trade Zone enjoy?

The enterprises located in Waigaoqiao Free Trade Zone can not only enjoy the preferential policies of the economic and technological zones, Pudong New Area and special economic zones given by the State, but also enjoy the following privileges:

Investment policy:

Within the Free Trade Zone, investors can set up Chinese enterprises, wholly foreign owned enterprises and Joint-ventures engaged in manufacturing processing, trading, warehousing, transportation and other service & trading fields.

The enterprises located in the zone can focus on one business and deal in multiple areas. The business scope is relatively flexible.

Administration on import and export of commodities:

Enterprises located in the zone don't have to keep a bank margin standing book for processing on order from abroad.

For enterprises engaging in processing or material circulation within the zone, they should keep a record with the Customs and have an overall verification with the Customs.

Enterprises located within the zone are encouraged to engage in export processing. Processing within the zone is not restricted by lines of business or industrial guidance and not subject to import and export license, manufacturing license or operation license.

The products processed by enterprises located within the zone from imported materials, after approval, can be sold in the domestic market after the duty and other import taxes on the imported material have been paid.

Administration on warehousing:

Within the zone any products except those which are prohibited by the State to be imported or exported can be stored without any time limitation, the imported products to he sold in the domestic market can also be stored in the warehouse in the zone.

Commercial processing is allowed in the warehouse, such as sorting, packaging, selecting, sticking trademarks, etc.. The bonded commodities are free to be in and out of the warehouses. They can be taken out in whole and deposited in small amount for multiple times, and vice versa.

Taxation:

The income tax rate of the manufacturing enterprises within the zone is 15%. Foreign-invested enterprises scheduled to operate for a period over 10 years shall be exempted from income tax in the first two years starting from the profit-making year and be granted a 50% reduction in the next 3 years. The income tax rate of those non-manufacturing enterprises such as trading or warehousing enterprises in the zone is 15%. Those who will be operated over 10 years, starting from the first profit-making year, the income tax of the first year will be exempted, the income tax of the second and the third year will be allowed a 50% reduction.

Except otherwise stipulated by the State, the commodities imported from abroad to the zone, the entrepot commodities, commodities stored in the zone, the raw material needed by the enterprises within the zone in their manufacturing, machines and equipment for construction purposes in the zone, machines and equipment for enterprise's self use, office equipment in reasonable quantities, fuels, spare components for repair shall be exempted from duty and taxes on import .

Administration on foreign exchange:

The administration on the foreign currency income of the enterprises located within the zone will adopt the method of foreign exchange cash, if there is no surplus, the enterprises don't have to handle exchange settlement and sharing. The enterprises can open different accounts according to different kinds of currencies. The normal business expenditure doesn't have to be approved by the administration authorities of foreign exchange, it can be handled according to the contract by the bank with which the enterprise has opened its account.

The enterprises located within the zone can choose a financial institution in the zone to open an ordinary foreign exchange account to handle daily transfer and cash accounting, or to open a special foreign exchange account for specific purposes.

Foreign-invested financial institutions are allowed to set up branches in the zone, foreign currencies are convertible within the zone.

4. How do you apply for the establishment of duty-free warehouses and duty free processing factories?

To apply for the establishment of a duty free warehouse, you will have to submit your application and business license issued by the Industrial and Commercial Administration Office together with relevant documents issued by the competent department of the Foreign Economic and Trade Commission to the Customs House. Once examined, spot-investigated and approved, the Customs House will promulgate a Duty-Free Warehouse Registration Certificate. Only then can you start the business.

To set up a duty free processing factory, you shall entrust either an authoritative department ratified by the government dealing with import and export businesses or an enterprise engaged in the business of processing registered and ratified by the Industrial and Commercial Administration

Department to submit your application and relevant documents to the local Customs House. Once the examination result by the Customs House is in accordance with the related laws and regulations, once you have a special factory or workshop and a special warehouse or ground, once you have facilities for supervision and inspection of the customs, once you ensure that you'll abide by the Customs law of P.R.C. and all regulations concerning duty-free factories drawn by the Customs and once you promise to shoulder the responsibilities which you are supposed to fulfil, the Customs House will approve and issue the Duty-Free Registration Certificate.

5. What are the standard fees for land and housing in Pudong New Area?

The followings are some statistics provided by Waigaoqiao Free Trade Zone Third United Development Co.:

Prices for the Transfer of Land-Using Right and Land Leasing in Pudong New Area

Prices for the Transfer of Land-Using Right

Duration of Land

Using Right

For Industrial Use

(US dollar/sq.m)

Remarks

1.The longest duration is 50 years, the minimum land area is 2,000sq.m,with different sizes for choice.

2.The receiver of the land using right shall pay an additional land use fee to the Municipal Land AdministrationBureau at RMB 1/sq.m each year.(Area smaller than1000sq.m shall be charged at RMB1000. Area larger than 1000sq.m shall be charged at RMB 1sq.m)

3.The conditions of land include telecommunication, gas, drainage system, sewerage, water, road, planning red lines and the evenness of land.

4.The notarixation fee, registration fee, certificate fee, etc. for obtaining the land certificate normally account for 0.1% of the amount of land contract.

5.The land using right can be leased, mortgaged, inherited or transfered.

50 Years

100-120

Prices for the leasing of land use right

Purpose of land use	Annual Rental ($US/sqm	Remarks
Industrial Use	8-10	The rent will remain unchanged for 5 years after signing of the site leasing contract.The adjusted price will not be 30% higher than the previous one, and the interval will not be less than 3 years.

The purchase price and rental for standard factory building

The Purchasing Price

Category

Annual Rental

Remarks

Whole Building

40-55

The leasing fee includes the site fee.
The building area will be calculated according to the construction area.
For the factory building leased in advance, premium that accounts for 20% of the annual rental should be paid.
From the date of signing the contract the leasing price will not be changed for three years, from the fourth year, the prices can be adjusted. Later every three years there will be one adjustment. The margin will be no more than 30% of the previous year's annual leasing price.

main floor

sixth floor

based on the price of the whole building, different floors have different prices

6. What are the standard fees for electricity, gas and water in Pudong New Area?

Charges for Electricity Supply in Shanghai

category			below 1kv	1-10kv	over35kv
category			Unit Price
Charges for Household Illumination			0.55	0.545	N/A
Charges for non- industrial use	Common	illumination	0.6769	0.6719	0.6719
	Common	motive power	0.5769	0.5749	0.5719
	Hotel	illumination	0.7069	0.7019	0.7019
	Hotel	motive power	0.6069	0.6049	0.6019
Common Industry	illumination		0.6769	0.6719	0.6719
Common Industry	motive power		0.5769	0.5749	0.5719

Major Industry	Basic Charges	according to transformer capacity(KVA/month)	10.00	10.00	N/A
	Basic Charges	according to maximum quantity required(KVA/month)	15.00	15.00	15.00
	Charges based on KWH used		0.5249	0.5199	0.5169
Agriculture Irrigation Use			0.1892	0.1872	0.1842
Agriculture and Sideline Production			0.2242	0.2222	0.2192
Adjusted charges for power factor.			There is another standard of electricity charges adjusting range of power factor.

The standard charges at peak and valley point

Watt- Hour Fee	Peak Point	Use Time 08.00-11.00 18.00-21.00	Line of Business	below 1kv	1-10kv	over35kv
			Industry	0.726	0.720	0.714
			Hotel	0.816	0.810	0.804
			Commerce	0.784	0.778	0.772
	Normal Point	06.00-08.00 11.00-18.00 21.00-22.00	Industry	0.527	0.521	0.515
			Hotel	0.617	0.611	0.605
			Commerce	0.585	0.579	0.573
	Valley Point	22.00-next day 06.00	Industry	0.352	0.346	0.340
			Hotel	0.442	0.436	0.430
			Commerce	0.410	0.404	0.398
Basic Electricity Fee	According to transformer capacity(KVA/month)			N/A	10.00	10.00
Basic Electricity Fee	According to maximum quantity required(KVA/month)			15.00	15.00	15.00

Charges for Coal Gas and Liquefied Petroleum Gas

1. The supply pressure of piped gas for ordinary places is 120PA or over, and the calorific value is 14.63-15.88 megajoule per cubic metre.

2. Users shall bear all the costs for installation from the existing gas pipe networks, but the property right belongs to the Gas Company.

3. The charge for over-rated gas consumption levied on users shall be RMB 0.6/cubic meter.

Standard of Charges for Coal Gas and Liquefied Petroleum Gas

Nature of User	Unit of Measurment	Price (RMB)
Organisation Business, Non-profit organisation, Industry	cubic metre	1.05 1.30

Standard of charges for an increase in gas supply

Nature of User	Unit of measurment for maximum daily use	Price (RMB)
Hotel, High-class restaurant. Plants, Enterprise, Business Organisation,Non-profit organisation	cubic metre cubic metre	800 450 300

Charges For Water Supply

1. Charges for water supply: RMB 0.68/cubic metre for non-resident users supplied by the water company, at the same time drainage fee is charged. If the water is supplied by suburban water plant, the price is the same with that of the state-owned enterprises in that county, for instance, the water price in Song Jiang County is RMBO.70/cubic metre.

2.The charge for over-rated consumption shall be levied on users ten times of its basic price.

3.Charges for engineering:

(1) Installation charges: from the water pipe networks of municipal roads or neighborboods to the user's water-metre;

(2) Pipe arrangement fee: water pipes involving municipal roads or neighborboods must be implemented according to planning.

T'he above-mentioned water pipes, equipment and the property right belong to the water supply department

4. The user should pay maintenance fee for fire protection water systems installed in user's place.

Standard of Charges for an Increase in Water Supply

Nature of User	Maximum daily use	Price (RMB)
Hotel, High-class restaurant. Plants, Enterprise, Business Organisation,Non-profit organisation	cubic metre cubic metre	1300 825 450

Charges for water disposal: RMB 0.34/cubic metre

1. Anybody that discharges waste water into the city drainage or sewage shall pay the water discharge system using fee to the water company entrusted by Shanghai City Drainage Co.; the fee for groundwater and self-provided water discharge will be levied by drainage company.

2. The volume of sewage is computed as 90% of the water usage. For enterprises that primarily rely on water or are engaged in production in which much vaporisation occurs, the volume of sewage is computed by deducting the water content of the products and the degree of vaporisation from the total volume of water usage. The disposal of waste shall be supervised by the Shanghai Municipal Public Works Department.

7. How can the land-use right be granted in the Pudong New Area?

The state-owned land within Pudong New Area may be obtained subject to payment of consideration. Land users obtain land-using right through public bidding, and negotiation and then pay fees for the granting of land-using right. The land-using right obtained may also he transferred, leased, pawned, inherited according to the law or be used for other economic activities permitted by the law.

8. Can foreign-invested enterprises in Pudong New Area be exempted from customs duty in importing manufacturing equipment for self-use?

The projects which belong to the Encouraged List or the Restricted Type B List or the projects which involve technology transfer, the imported self-use equipment within the range of total investment can be free from duty or VAT, except those which are on the non-duty-free imported commodities List. Investors who invest in Pudong New Area or other places of Shanghai can enjoy the same policy.

9. What are the regulations concerning the examination and approval of the establishment of foreign-invested enterprises in Shanghai Pudong New Area?

(1) Departments for examining and approving foreign investment projects and the limit of their authority:

a. Any project with a total investment under USD 30 million are examined and approved by Pudong New Area Administrative Committee. For projects belonging to Restricted Type B in the Industrial Guidance of the State, the project proposals shall be approved and registered by the authoritative department of the State Council.

b. Any foreign investment project with a total investment under USD 30 million in the Pudong Waigaoqiao Free Trade Zone is approved by the Waigaoqiao Free Trade Zone Administrative Committee and registered by Shanghai Foreign Investment Commission (SFIC).

Any foreign investment project with a total investment of under USD 10 million is examined and approved by the departments for approving foreign investment projects in districts, counties or bureau’s.

c. Any production project of which the total investment exceeds USD 30 million and any non production projects which requires the approval of the competent department of the State Council, shall he examined and approved by it upon the approval of the municipal foreign investment committee together with other municipal departments concerned.

(2) Procedures for approval:

a. Submitting the project proposal;

b. Submitting the feasibility study report together with the contract and articles of association

c. Applying for the approval certificate; d. Applying for the business license.

The Chinese investors of both Sino-foreign joint ventures and Sino-foreign co-operative enterprise are responsible for submitting all these documents needed for approval; a wholly foreign-invested enterprise should entrust an advisory agent with the work.