Article 27　Foreign investment enterprises may retain in cash both the foreign exchange revenue derived² from the export of their own products and that from other business activities. Such foreign exchange shall be administered in accordance with the regulations of the local branch of the People's Bank of China.

　　Article 28　Foreign investment enterprises may raise foreign exchange loans from inside and outside China. Within 15 days of borrowing funds from abroad， Hongkong or Macao or from a branch in the PRC of a foreign bank， foreign investment enterprises must carry out foreign debt registration³ procedures at the exchange control departments of the places where they are located.

　　Article 29　Foreign business entities⁴ may remit⁵ the profits they derive¹ from enterprises established in the Hainan Special Zone on the strength of written resolutions on the distribution of foreign exchange profits adopted by their boards f directors or authoritative⁶ organizations equivalent to boards of directors. Such remittances⁸ shall be made from the enterprises' foreign exchange accounts and be exempt⁹ from the income tax on the remitted¹⁰ amounts.

　　Article 30　Expatriate staff and workers of foreign investment enterprises may remit abroad their foreign exchange wages and other foreign exchange revenue after payment of tax according to law. The remittance⁷ procedures shall be carried out by the banks with which such staff and workers have opened accounts， on the strength of the tax payment certificates issued by the tax authorities.

　　PART SIX　PREFERENTIAL TREATMENT

　　Article 31　The income from production and business operations and other income derived by foreign investment enterprises from the Hainan Special Economic Zone shall be subject to enterprise income tax at the rate of 15%. Among such enterprises：

　　1. those engaged in the development and operation of infrastructure¹¹ facilities such as ports， piers¹²， airports， highways， railways， power stations， coal mines and water conservancy facilities， and enterprises engaged in the development of and business operations in connection with agriculture， with terms of operation of 15 years or more， shall， commencing from the first profit-making year， be exempt from income tax from the first until the fifth years and be granted a 50% reduction of income tax from the sixth until the tenth year. Among such enterprises， those whose terms of operation are less than 15 years shall， commencing from the first profit-making year， be exempt from income tax in the first and second years and be granted a 50% reduction of income tax from the third until the fifth year；

　　2. enterprises engaged in productive sectors¹³ such as industry and communications and transportation， with terms of operation of 10 years or more ， shall commencing from the first profit-making year， be exempt from income tax in the first and second years and be granted a 50% reduction of income tax from the third until the fifth years. Among such enterprises， those that are confirmed by the Hainan Provincial¹⁴ People's Government as technologically¹⁵ advanced shall be granted a 50% reduction of income tax from the sixth until the eighth years. Those enterprises with terms of operation less than 10 years shall， commencing from the first profit-making year， be exempt from income tax in the first and second years；

　　3. enterprises engaged in such productive sectors as industry and agriculture may pay income tax at the rate of 10% in any year after the expiry of the periods for exemption¹⁶ and reduction of enterprise income tax specified¹⁷ in the preceding two Items， provided that the value of products exported in that year is 70% or more of their output value in that year；

　　4. enterprises engaged in service sectors， with a total amount of investment of more than US$5 million or its Renminbi equivalent and terms of operation of 10 years or more， shall， commencing from the first profit-making year， be exempt from income tax in the first year and be granted a 50% reduction in income tax in the second and third years. Among such enterprises， those whose total amounts of investment or terms of operation do not comply with the above standards shall， commencing from the first profit-making year， be exempt from income tax in the first year and be granted a 50% reduction in income tax in the second year；

　　5. enterprises engaged， with approval， in other industries shall， commencing from the fist profit-making year， be exempt from income tax in the first year and be granted a 50% reduction of income tax in the second year； and

　　6. enterprises that use foreign investment to engage in infrastructure construction projects and to establish production enterprises in Sanya and Tongji Municipalities and in autonomous¹⁸ counties of minority ethnic¹⁹ groups， with terms of operation of 10 years or more， shall， commencing from the first profit-making year， be exempt from income tax from the first until the tenth years and be granted a 50% reduction in income tax from the eleventh until the twentieth years.

　　Article 32　The income from production and business operations and other income derived by foreign investment enterprises from the Hainan Special Economic Zone shall be exempt from local income tax.

　　Article 33　Income from sources in the Hainan Special Economic Zone such as dividends²⁰， interest， rentals²¹ and royalties²² and other income derived therefrom by foreign business entities that do not maintain establishments in the PRC shall be exempt from withholding²³ tax.

　　Article 34　Subject to approval by the departments of Hainan province in charge of finance and taxation²⁴， foreign investment enterprises that are export-oriented or technologically advanced may adopt such accelerated depreciation²⁵ methods as are commonly used internationally， in order to accelerate the replacement²⁶ of their equipment and the progress of their technology.

　　Article 35　Where a foreign business entity²⁷ reinvests in the PRC for a period of at least five years profits derived from an enterprise in the Hainan Special Economic Zone， 40% of the enterprise income tax already paid on the reinvested portion shall be refunded²⁸ after verification and approval by the tax authorities of the place where the enterprise is located. If such profits are reinvested in an enterprise in the Hainan Special Economic Zone that is engaged in the construction of infrastructure facilities or in agricultural development or that is export-oriented or technologically advanced， all enterprise income tax already paid on the reinvested portion shall be refunded.

　　Article 36　Products produced by foreign investment enterprises that are sold in the Hainan Special Economic Zone shall be exempt from product or value-added tax， except tobacco products， alcoholic²⁹ beverages³⁰， mineral oils and a small number of other products as determined³¹ by the Hainan Provincial People's Government， which shall be granted a 50% reduction of product or value-added tax. Where the above products that contain parts or materials that are imported with an exemption or reduction of duty and tax， the customs duty and the product or value-added tax on such imported parts or materials shall be exempted³²， reduced or made up in accordance with the relevant regulations of the State.

　　Article 37　Foreign investment enterprises may independently sell the products they have produced to other regions in the PRC， except for products subject to State import restrictions³³， whose sale to such other regions shall be submitted for approval in accordance with the relevant regulations of the State. However， in case of such sale， product or value-added tax shall be paid according to regulations and， for those of such products that contain parts or materials that were imported with an exemption or reduction of duty and tax， the customs duty and product or value-added tax on such imported parts or materials shall be made up according to regulations.

　　Article 38　Foreign investment enterprises that require loans in the course of production and circulation may be granted loans by the banks with which they have opened accounts or by other financial institutions on a priority basis in accordance with the Bank of China， Loans to Foreign Investment Enterprises Procedures.

　　Article 39　Foreign investment enterprises that sell their products on the domestic market may apply for treatment as import substitutes of those products that conform to the provisions of the State's measures for the substitution of importation with production.

　　Article 40　Foreign business entities are encouraged to invest in and establish export-oriented enterprises and technologically advanced enterprises， which will be granted corresponding preferential treatment. The specific measures for granting such preferential treatment shall be determined by the Hainan Provincial People's Government.

　　Foreign investment enterprises that are export-oriented and/or technologically advanced shall be examined and confirmed as such by the administrative³⁴ department of Hainan province in charge of economic cooperation in conjunction with the relevant department.

　　PART SEVEN　BUSINESS ACTIVITIES

　　Article 41　Foreign investment enterprises shall enjoy autonomy in their management activities.

　　Article 42　Foreign investment enterprises may independently decide on the purchase of machinery³⁵ for use in and the staffing of their own enterprises， as well as on the employment and dismissal of senior management personnel and the increase and retrenchment³⁶ of staff and workers， as production and business may require. Foreign investment enterprises may advertise for and employ technical personnel， management personnel and workers locally or， if the demand for such personnel cannot be met locally or within Hainan province， in other places in or outside Hainan province （advertisement for and employment of such personnel other than where done locally shall be organized and coordinated³⁷ by the administrative departments in charge of labor³⁸ of the places where the enterprises are located）。 Foreign investment enterprises may impose a range of sanctions， up to expulsion， on staff and workers whose violations³⁹ of rules and regulations lead to certain consequences， depending on the seriousness of the cases. Foreign investment enterprises shall report for the record their advertisement for and employment， dismissal or expulsion of staff and workers to the administrative departments in charge of labor of the places where they are located.

　　Article 43　Foreign investment enterprises shall have the right to determine their own business policies and management systems， to determine production， sales and financial plans， to price their products （except for those subject to special regulations of the State）， to determine profit distribution plans， and to determine wage scales， forms of wages and award and subsidy⁴⁰ regulations， in accordance with their contracts and articles of association.

　　Article 44　Foreign investment enterprises shall take out all their insurance policies with insurance companies in the Hainan Special Economic zone. Types of insurance that cannot be provided by insurance companies in the Hainan Special Economic Zone may be taken out from insurance companies outside the Hainan Special Economic Zone.

　　Article 45　Foreign investment enterprises may issue bonds upon approval by the head office or Hainan branch of the People's Bank of China. Foreign investment enterprises that are companies limited by shares may issue shares upon approval by the head office or Hainan branch of the People's Bank of China. The specific measures for such issues of bonds and shares shall be formulated⁴² separately.

　　Article 46　Foreign investment enterprises shall draw up accounting⁴³ books， conduct independent accounting and submit accounting statements to the relevant departments in accordance with the relevant regulations of the State.

　　Foreign investment enterprises should submit statistical⁴⁴ statements to the relevant departments in accordance with the relevant regulations of the State.

　　Article 47　Foreign investment enterprises shall be subject to supervision⁴⁵ and inspection⁴⁶ by the relevant departments of the local governments in such matters as taxation， environmental protection， labor protection， sanitation⁴⁷， anti-epidemic measures and production safety.

　　PART EIGHT　INVESTMENT PROTECTION

　　Article 48　The investments， assets purchased， intellectual property， investment profits and other lawful⁴⁸ rights and interests in the Hainan Special Economic Zone of foreign business entities shall be protected under the laws of the State and may be assigned and succeeded to according to law.

　　Article 49　Investments and other assets of foreign business entities shall not be nationalized or expropriated. Under special circumstances， foreign investment enterprises may be expropriated in accordance with legal procedures if the public interest so requires， in which case appropriate compensation shall be provided. Where the PRC has concluded investment protection agreements with the relevant foreign governments， matters shall be handled pursuant to such agreements.

　　Article 50　No department or unit may charge fees from foreign investment enterprises other than， or levy⁴⁹ fees at rates higher than， those expressly provided for by the State and the Hainan Provincial People's Government. Foreign investment enterprises shall have the right to refuse to be apportioned⁵⁰ payment of any unreasonable⁵¹ expenses.

　　Article 51　Foreign business entities shall have recourse to the Chinese courts if their investments or other lawful rights and interests are unlawfully infringed⁵².

　　PART NINE　SETTLEMENT OF DISPUTES

　　Article 52　Disputes between the parties to Sino-foreign equity⁵³ joint⁵⁴ ventures and Sino-foreign co-operative joint ventures over the interpretation⁵⁵ or implementation⁵⁶ of their agreements， contracts or Articles of association may be settled through consultation⁵⁷ between the parties or through mediation⁵⁸ by third parties.

　　Where a party does not wish to attempt to settle the dispute through consultation or mediation or if consultation or mediation is unsuccessful， the dispute may be submitted to a Chinese arbitration⁵⁹ institution or another arbitration institution for arbitration， on the basis of the arbitration clause of the contract or a written arbitration agreement reached subsequently.

　　Where the parties neither include an arbitration clause in their contract nor subsequently reach a written arbitration agreement， any party may institute proceedings⁶⁰ in the Chinese court.

　　Article 53　Disputes among foreign investment enterprises themselves and between foreign investment enterprises and domestic enterprises shall be handled in accordance with the relevant laws and regulations of the PRC and the local regulations of Hainan province.

　　PART TEN　SUPPLEMENTARY⁶¹ PROVISIONS

　　Article 54　Matters concerning investment in the Hainan Special Economic Zone by companies， enterprises， other economic organizations or individuals from Taiwan， Hongkong and Macao and by overseas Chinese shall all be handled by reference to these Regulations.

　　Article 55　The Hainan Provincial People's Government may formulate⁴¹ implementing⁶² measures for these Regulations.

　　Article 56　The Hainan Provincial People's Government shall be responsible for interpreting these Regulations in the event of problems in their application to specific situations.

　　Article 57　These Regulations shall be implemented as of the date of promulgation

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