Answer：the enterprises invested by Privately Raised Fund in China may get involved with the following taxes:
Manufacturing enterprises: value added tax, enterprise income tax, tariff, income tax, etc;
Service enterprises: enterprise income tax, income tax, sales tax, etc.
Among them, the enterprises show greatest concerns to enterprise income tax, which will be explained in the following.
I、The current Law of the People''s Republic of China on Income Tax of Enterprises with Foreign Investment and Foreign Enterprises and the rules for the implementation of the law stipulate that:
The enterprise income tax charged on enterprises with foreign investment and on foreign enterprises for the income of their organizations and sites dealing in production and business operations set up in the territory of China shall be calculated based on the taxable income amount and the tax rate is 30 percent; the local income tax shall be calculated based on the taxable income amount and the tax rate is 3 percent.
Enterprises with foreign investment founded in special economic zones, organizations or sites dealing in production or business operations set up in the special economic zones by foreign enterprises or productive enterprises with foreign investment founded in the economic and technological development zones shall be subject to the enterprise income tax at a reduced rate of 15 per cent.
Productive enterprises with foreign investment founded in the coastal economic open areas and in the old districts of the cities where the special economic zones or economic and technological development zones are located, shall be subject to the enterprise income tax at a reduced rate of 24 per cent.
Where enterprises with foreign investment founded in the coastal economic open areas, in the old districts of the cities where the special economic zones or economic and technological development zones are located, or in other regions designated by the State Council, fall under the categories of energy, communications, harbor, docks or other projects which are encouraged by the State, the enterprise income tax may be charged at a reduced rate of 15 per cent. The State Council shall lay down the relevant concrete measures thereon.
Productive enterprises with foreign investment and an operating period of more than 10 years are exempted from their enterprise income tax since the year when they start to profit, for the first and second year, and such taxes are levied on them with a 50 per cent reduction from the third to the fifth year. The State Council is, however, separately to prescribe those for the projects in the exploration of resources such as petroleum, natural gas, rare metals and precious metals. If the actual operating period of an enterprise with foreign investment is less than 10 years, it shall make up the enterprise income tax which has been exempted or reduced.
Enterprises with foreign investment engaging in agriculture, forestry or animal husbandry or enterprises with foreign investment established in remote and economically-underdeveloped areas, which have enjoyed the preferential treatment on tax exemption and tax reduction as provided in the preceding two paragraphs, may, after the expiration of the period of treatment and upon the application of the enterprise and approval by the competent department of the State Council for taxation, continue to enjoy a 15 per cent to 30 per cent reduction of the amount of enterprise income tax payable for 10 more years.
Where a foreign investor of an enterprise with foreign investment uses its profits earned from the enterprise directly to reinvest into the enterprise for increasing its registered capital, or uses its profits as capital to invest and establish other enterprises with foreign investment with the operating period not less than five years, 40 per cent of the income tax amount already charged on the reinvested portion shall, upon the application of the investor and approval by the tax authority, be refunded therefor; if the State Council prescribes otherwise on the preferential regulations, such regulations of the State Council shall be observed; in case the reinvestment has been withdrawn before the expiration of five full years, the amount of refunded tax shall be paid back.
Where an enterprise with foreign investment or an organization or a site of a foreign enterprise set up in the territory of China dealing in production and business operations sustains losses in a tax year, it may make up such losses by using the income of the following tax year; if the income of the following tax year is not sufficient to make up for the losses, the losses may be made up in the continuing and consecutive tax years, however, the maximum term may not exceed five years.
The income tax already paid abroad by an enterprise with foreign investment for its income originating outside China may, in filing its consolidated income tax return, be deducted from its total tax amount payable, however, the amount deducted can not exceed the tax amount payable calculated in accordance with the provisions of this Law for its income abroad.
Income tax is exempted from, or reduced for the following income:
1. profits earned by a foreign investor from an enterprise with foreign investment;
2. interest income from loans lent to the Chinese Government and state banks of China by international financial organizations;
3. interest income from loans lent to state banks of China by foreign banks at preferential interest rates;
4. on the royalty received from the supply of proprietary technologies for scientific research, energy resources exploration, development of the communications industry, agricultural, forestry and animal husbandry production, and the development of important technologies, the income tax may be charged at the reduced rate of 10 per cent upon approval by the competent department of the State Council for taxation, and if the technology supplied is advanced or the terms are preferential, they may be exempted from the income tax.
Where, apart from those provided by this Article, it is necessary to grant preferential treatment of income tax reduction or exemption for the profits, interests, rental, royalty and other income, and the State Council shall make regulations therefore.
The formula for the computation of taxable income is as follows:
（I）Manufacturing industry
1. Taxable income = (profit on sales) + (profit from other operations) + (non-business income) - (non-business expenses);
2. Profit on sales = (net sales) - (cost of products sold) - (taxes on sales) - 【 (sales expenses) + (administrative expenses) + (finance expenses) 】;
3. Net sales = (gross sales) - 【 (sales returns) + (sales discounts and allowances) 】;
4. Product sales Cost = (cost of products manufactured for the period) + (inventory of finished products at the beginning of the period) - (inventory of finished products at the end of the period);
5. Cost of products manufactured for the period = (manufacturing costs for the period) + (inventory of semi-finished products at the beginning of the period and products in production) - (inventory of semi-finished products at the end of the period and products in production);
6. Production costs for the period = (direct materials consumed in production for the period) + (direct wages) + (production expenses).
（II）Commerce：
1. taxable income = (profit on sales) + (profit from other operations) + (non-business income) - (non-business expenses);
2. profit on sales = (net sales) - (cost of sales) - (taxes on sales) - 【 (sales expenses) + (administrative expenses) + (finance expenses) 】;
3. net sales = (gross sales) - 【 (sales returns) + (sales discounts and allowances) 】;
4. sales cost = (inventory of merchandise at the beginning of the period) + { (purchase of merchandise during the period) - 【 (purchase returns) + (purchase discounts and allowances) 】 + (purchasing expenses) } - (inventory of merchandise at the end of the period).
（III）Service trades：
1. taxable income = (net business income) + (non-business income) -(non- business expenses);
2. net business income = (gross business income) - 【 (taxes on business income) + (operating expenses) + (administrative expenses) + (finance expenses) 】.
（IV）Other lines of business。Computations shall be made with reference to the above formulas.
II、regulations on foreign investor merge of the purchasing their enterprises within the territory of China by stock equity:
I ) Foreign investors make enterprises within the territory become enterprises with foreign investment through purchasing and merging the stock equity of their shareholders or subscribing their increased capital (hereinafter referred to as stock equity purchase) in accordance with the Interim Regulations Concerning the Issue of Foreign Investor Merge Enterprises Within the Territory of China (hereinafter referred to as Interim Regulations). If foreign investors of such enterprises have more than 25% of the total shares, the enterprises may pay various taxes according to tax laws and regulations applicable to enterprises with foreign investment.
II ) For enterprises established by foreign investors through stock equity purchase and merge, if they meet the relevant conditions stipulated by the Income Tax Law of the People''s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises (hereinafter referred to as Tax Law) and its detailed rules, they could enjoy preferential tax treatment made by Tax Law and other relevant provisions. The preferential tax should be calculated according to the following provisions:
(I) The initial and business operation periods. The day when an industrial and commercial organ issues a business license approving such a change is considered the beginning of such a foreign invested enterprise to start its business. From such a day to the business maturity date set by industrial and commercial registration is its business operation period.
(II) The settlement of pre-establishment loss. The total business loss that has not been made up before an enterprise is founded as a foreign invested establishment through stock equity purchase and merge should be covered by this enterprise in the remaining years of covering loss stipulated by Article 11 of Tax Law.
(III) Identification of profit-making year. Profit-making year refers to the year when an enterprise with foreign investment established through stock equity purchase makes profit after making up loss of the years before. In the profit-making year, if the production period is less than 6 months, the enterprise may choose the beginning year of tax reduction and remission according to Article 77 of detailed rules of Tax Law.
III、Moreover, special rules will be stipulated for the special industries and the special places of business registration. For instance, to promote the development and opening up of Tianjin Binhai New Area, the enterprises invested in the seven functional areas, namely, the three eco-towns and advanced manufacturing zone in Tanggu, Hangu, and Dagang under the jurisdiction of Binhai New Area, Binhai Hi-tech zone, chemical zone, airport-based industrial zone, seaport logistics zone, CBD and costal leisure and tourism zone will enjoy the following preferential policies of income tax of enterprises:
Enterprises set up in Binhai New Area, Tianjin and confirmed as high-tech enterprises by Science ＆ Technology Department of Tianjin Municipal Government in accordance with national regulations, shall be subject to the enterprise income tax at a reduced rate of 15 per cent.
Enterprises set up in Tianjin Economic-Technological Development Area, Tianjin Port Free Trade Zone, Tianjin Export Processing Zone, and Tianjin New Tech Industry Zone, shall be subject to the current preferential tax policy. The enterprises meeting the requirement of the first article shall be subject to the enterprise income tax at a reduced rate of 15 per cent. For the coexistence of different preferential tax policies, the enterprises can choose one applicable policy and the practice of two policies or more at the same time is not allowed.
The fixed assets of the enterprises in the Binhai New Area, Tianjin (buildings and construction excluded) can require the useful life to be shortened at the rate of no higher than 40% on the basis of the shortened useful life stipulated by the current policy.
The intangible assets assigned or invested by the enterprises in Binhai New Area, Tianjin can require the amortization period to be shortened at the rate of no higher than 40% on the basis of the amortization period stipulated by the current policy. But the intangible assets with time limit under contract or agreement should be amortized in accordance with the time limit in the contract or agreement.
IV、New Law of the People''s Republic of China on Income Tax of Enterprises with Foreign Investment and Foreign Enterprises will come into force in January 1, 2008.