(Adopted by the Tenth Executive Meeting of the State Council on June 25, 1988 promulgated by Decree No 7 of the State Council of the People's Republic of China on July 3, 1988,and effective as of the date of promulgation)
These Provisions are formulated in order to promote economic and technological exchanges between China's mainland and the region of Taiwan, thereby boosting common prosperity of the two parts of the motherland on both sides of the Straits, and to encourage companies, enterprises and individuals in Taiwan ( hereinafter referred to as 'investors from Taiwan') to make investments on China's mainland.
Investors from Taiwan may make investments in all provinces, autonomous regions, municipalities directly under the Central Government, and special economic zones on China' s mainland. Investors from Taiwan are encouraged to engage themselves in land development operations in Hainan Province and on the designated islands and in areas along the coastal regions of the Province of Fujian, Guangdong and Zhejiang.
The investments made by investors from Taiwan on China's mainland may take the following forms:
(1) to establish enterprises with the capital wholly owned by investors from Taiwan;
(2) to establish equity or contractual joint ventures;
(3) to carry out compensation trade, to process supplied materials, to assemble supplied parts, and to carry out contractual production;
(4) to purchase shares and various kinds of bonds and debentures of existing enterprises;
(5) to purchase real estate;
(6) to obtain land use right according to law and to engage in land development operations; and
(7) to adopt other forms of investment permitted under the laws and regulations.
Investors from Taiwan may make investments in various trades in China's mainland: industries, agriculture, service trades and other trades that are in conformity with the orientation of social and economic development. Investors from Taiwan may select investment projects from the lists of projects published by the departments concerned under various local people's government: they may also put forward, of their own accord, proposals as to their investment intent and file their applications to the departments of foreign economic relations and trade or to the examining and approving organs designated by various local people's governments in areas where they intend to make investments. The State encourages investors from Taiwan to make investments in the establishment of export oriented enterprises and of technological advanced enterprises and gives corresponding preferential treatment to such enterprises.
With respect to the various types of enterprises established with investments by investors from Taiwan - enterprises with the capital wholly owned by investors from Taiwan, equity and contractual joint ventures (hereinafter referred to as 'enterprises with investments by compatriots from Taiwan'), they shall all be operated in accordance with these Provisions; in addition to this, they may also enjoy the corresponding preferential treatment as enjoyed by enterprises with foreign investments with reference to the relevant provisions in foreign -related economic laws, decrees and regulations of the state.
With respect to the other forms of investment made by investors from Taiwan on China's mainland, and with respect to those investors from Taiwan who have not set up business offices on the mainland, but have dividends, interest, rentals royalties and other incomes that come from China's mainland, in addition to the application of these Provisions, reference shall be made to the relevant foreign - related economic law, decrees and regulations.
Investors from Taiwan may make investments by using freely convertible currencies, machinery and equipment or other physical goods, industrial property right, and proprietary technology.
Article 7 The investment made on China' s mainland by investors from Taiwan, the assets they have purchased, their industrial property right, their profits from investments, and other lawful rights and interests shall be protected by state laws, and may be transferred or inherited according to law. Investors from Taiwan shall, in their activities on China' s mainland, abide by state laws, decrees and regulations.
The state shall not nationalize the investments made by investors from Taiwan or other assets belonging to them.
Where the state, in light of the needs of social and public interest, has to requisition the enterprise with investments by compatriots from Taiwan, the State shall handle the requisitioning according to the legal procedures and the investors concerned shall be duly compensated.
The lawful profits gained by the investors from Taiwan from their investments, their other lawful income and the funds after liquidation may be remitted out of China's mainland according to law.
Machinery and equipment imported to meet the needs of the enterprises with investments by compatriots from Taiwan and included in the total amount of investment, the motor vehicles for use in production, the office equipment, as well as the articles and means of communications for personal use and within reasonable quantities, imported by individual compatriots from Taiwan during the period when they work in the aforesaid enterprises shall be exempted from Customs duties and consolidated industrial and commercial tax, and also from application of import licenses.
The raw and processed materials, fuels, bulk parts, spare and component parts, primary parts, and fittings, which are imported by the enterprises with investments by compatriots from Taiwan for the production of export commodities, shall all be exempted from Customs duties and consolidated industrial and commercial tax and also from obtaining import license, and placed under the supervision of the Customs. In case that the aforesaid imported raw materials and parts are used for the production of commodities to be sold on the market of China's mainland, it is imperative to make up the procedures for importation and to pay taxes and duties according to the regulations. The export commodities produced by the enterprises with investments by compatriots from Taiwan shall, with the exception of those commodities the export of which is under restriction by the state, be exempted from Customs duties on export goods and consolidated industrial and commercial tax.
Enterprises with investments by compatriots from Taiwan may obtain loans from financial institutions if China's mainland; they may also obtain loans from financial institution outside China's mainland, and may use their assets as well as their rights and interests as mortgage or security.
With respect to the enterprises with the capital wholly owned by investors from Taiwan, their period of operation shall be determined by the investors themselves; as to equity and contractual joint ventures their period of operation shall be determined, through consultation, by the various parties to the ventures, they may also choose not to stipulate a period of operation.
The composition of the board of directors of equity joint ventures and the appointment of the chairman of the board of directors, the composition of the board of directors or of the joint managerial organs of contractual joint ventures and the appointment of the chairman or the appointment of the director of the joint managerial organs, shall be determined, through consultation, by the various parties to the equity or contractual joint ventures in light of the proportion of investments or the terms of contract.
Enterprises with investments by compatriots from Taiwan shall conduct their operational and managerial activities in accordance with the approved contract or articles of association. The enterprises decision - making power for business operations and management shall not be interfered with.
The technical and managerial personnel, engaged by individuals and enterprises investing on China' s mainland may apply and obtain multiple - journey travel documents.
The investors from Taiwan, who make investments on China's mainland, may appoint their relatives or friends residing on the mainland as their agents. The agents should hold legally effective letters of authority.
In areas where enterprises with investments by compatriots from Taiwan are concentrated, the investors from Taiwan may apply to the local people's government for the establishment of the association of investors from Taiwan.
With respect to equity and contractual joint ventures to be established on China's mainland, with investments by investors from Taiwan, the application for establishment of the aforesaid enterprises shall be filled by the mainland party; as to the enterprises to be established with capital wholly owned by investors from Taiwan, the application shall be filed directly by the investors from Taiwan themselves, or they may entrust their relatives or friends residing on the mainland, or entrust the institution providing advisory services, with the application. The applications for the establishment of enterprises with investments by investors from Taiwan shall be accepted and handled, in a unified manner, by the local department for foreign economic relations and trade, or by the examining and approving organs designated by the local people' s government. Cases concerning the examination and approval of the application for the establishment of enterprises with investments by compatriots from Taiwan shall be handled in accordance with the authority prescribed by the State Council, Departments for Foreign Economic Relations and Trade at various levels or the examining and approving organs designated by the local people's government shall, within forty - five days of receipt of complete application documents, make the decision on whether the said application is approved or disapproved. The applications shall, within thirty days receipt of the written approval, file and application to the department for the administration of industry and commerce, and, in accordance with the relevant procedures for registration and administration, go through the procedures for registration and obtain business licenses.
With respect to the investors from Taiwan who have made investments in China' s mainland, in case that dispute arises during the execution of or in connection with a contract, the parties concerned shall try their best to settle the dispute through consultation or mediation.
Where the parties concerned are unwilling to settle the dispute through consultation or mediation, or the consultation or mediation has failed, the parties concerned may, in accordance with the stipulation of the arbitration articles in the contract, or in accordance with the written arbitration agreement reached by the parties concerned after the dispute has arisen, submit their dispute to the arbitration authorities on China's mainland or in Hong Kong settlement.
In the event that the parties concerned did not include and arbitration article in their contract, and on written arbitration agreement has been reached after the dispute has arisen, then the dispute may be brought before the people's court.
The right to interpret these Provisions resides in the Ministry of Foreign Economic Relations and Trade.
These Provisions shall go into effect as of the date of promulgation.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.