Circular of the Ministry of Finance on the Issuance of Supplementary Provisions on the Implementation of the New Enterprise Financial Systems by Foreign-Invested Enterprises
Circular of the Ministry of Finance on the Issuance of Supplementary Provisions on the Implementation of the New Enterprise Financial Systems by Foreign-Invested Enterprises
Circular of the Ministry of Finance on the Issuance of Supplementary Provisions on the Implementation of the New Enterprise Financial Systems by Foreign-Invested Enterprises
Cai Gong Zi [1993] No. 474
December 23, 1993
After issuing the General Rules on Enterprise Finance and the enterprise financial systems for different industries, we issued some documents on the implementation of these rules by foreign-invested enterprises. With the goal of facilitating the implementation of new financial systems by foreign-invested enterprises, and in light of feedback received from local financial authorities and enterprises, we have formulated the Supplementary Provisions on the Implementation of New Enterprise Financial Systems by Foreign-invested Enterprises in accordance with national laws and regulations concerning foreign-invested enterprises and the characteristics and needs of foreign-invested enterprises, which are hereby issued for implementation. Please contact us with any questions or comments on the implementation of these regulations.
Appendix:
Supplementary Provisions on the Implementation of New Enterprise Financial Systems by Foreign-Invested Enterprises
I. The following financial issues relating to foreign-invested enterprises shall be treated in accordance with the Foreign-invested Enterprise Income Tax Law, the Law on Foreign-invested Enterprise, and other relevant laws and regulations:
1. Issues concerning the valuation of enterprise-related capital contributions made or cooperation conditions satisfied by investors. Enterprise-related capital contributions made or cooperation conditions satisfied by investors that are subject to valuation requirements shall be valued in accordance with the law. Industrial property rights and know-how contributed by foreign investors shall be valued in accordance with prevailing international valuation standards, but shall in any event be valued at no more than 20% of the registered capital of the foreign-invested enterprise concerned.
2.Issues concerning the withdrawal of investments in Sino-foreign contractual joint ventures during the cooperation period. Where, in the contract relating to a Sino-foreign contractual joint venture, it is agreed that ownership of all the fixed assets shall revert to the Chinese investor at the conclusion of the contract, both parties thereto may agree on the measures the foreign investor may take to withdraw its investment during the cooperation period, provided that the foreign investor shall be liable for the debts of the contractual joint venture in accordance with relevant laws and the terms of the contract. Where, in the contract relating to a Sino-foreign contractual joint venture, it is agreed that the foreign investor may withdraw its investment prior to paying income tax, the contract shall be submitted to the competent financial and taxation authorities for approval. A foreign investor may withdraw its investment only where it will not affect the normal production and operating activities of the enterprise concerned.
3. Issues concerning the amortization of intangible assets of foreign-invested enterprises. The amortization of intangible assets of foreign-invested enterprises shall be calculated using the straight-line method. Intangible assets used as investment assets or assigned to the enterprise for which the service life has been specified in the agreement or contract may be amortized in accordance with the specified service life. For intangible assets for which no service life has been specified or that have been developed by the investor, the amortization period shall be no less than ten years.
4.Issues concerning the depreciation methods, periods and estimated salvage values to be used for fixed assets. The depreciation of fixed assets of foreign-invested enterprises shall be calculated using either the straight-line method or the workload method. In the event that it is necessary to adopt an alternative method or change the existing method used, the enterprise shall file an application for approval in accordance with the law.
The depreciation of fixed assets of foreign-invested enterprises shall be calculated on the basis of the following classification:
(1) Houses and buildings, no less than 20 years;
(2) Trains, ships, engineering equipment, machinery, and other manufacturing equipment, no less than 10 years;
(3) Electronic equipment, transport vehicles other than trains and ships, and apparatus, tools and fittings used for production and operating activities, no less than five years.
Where the residual service life of pre-used fixed assets acquired by an enterprise is shorter than the depreciation period prescribed above, subject to providing appropriate documentation and going through the examination and approval procedure, depreciation may be calculated in accordance with the residual service life.
Prior to calculating depreciation for any fixed asset, the estimated salvage value shall be deducted from the original value of the fixed asset in question. The salvage value shall be no less than 10% of the original value. Where it is necessary to reduce the salvage value or assign a salvage value of zero, the enterprise concerned shall apply for approval in accordance with the law.
5.Issues concerning the allocation standards for bad debt reserves and the ascertainment of time limits for bad debts. Foreign-invested enterprises engaged in lending, leasing or similar business activities may, at the end of the year, deduct bad debt reserves of up to 3% of the value of accounts and notes receivable or the balance of loans (not including interbank lending) at the end of the year after applying for approval in accordance with the law. Where a debtor has failed to perform its repayment obligations for a period of two years or more and the loan is still not recoverable, the loan may be identified as a bad debt.
......
Cai Gong Zi [1993] No. 474
December 23, 1993
After issuing the General Rules on Enterprise Finance and the enterprise financial systems for different industries, we issued some documents on the implementation of these rules by foreign-invested enterprises. With the goal of facilitating the implementation of new financial systems by foreign-invested enterprises, and in light of feedback received from local financial authorities and enterprises, we have formulated the Supplementary Provisions on the Implementation of New Enterprise Financial Systems by Foreign-invested Enterprises in accordance with national laws and regulations concerning foreign-invested enterprises and the characteristics and needs of foreign-invested enterprises, which are hereby issued for implementation. Please contact us with any questions or comments on the implementation of these regulations.
Appendix:
Supplementary Provisions on the Implementation of New Enterprise Financial Systems by Foreign-Invested Enterprises
I. The following financial issues relating to foreign-invested enterprises shall be treated in accordance with the Foreign-invested Enterprise Income Tax Law, the Law on Foreign-invested Enterprise, and other relevant laws and regulations:
1. Issues concerning the valuation of enterprise-related capital contributions made or cooperation conditions satisfied by investors. Enterprise-related capital contributions made or cooperation conditions satisfied by investors that are subject to valuation requirements shall be valued in accordance with the law. Industrial property rights and know-how contributed by foreign investors shall be valued in accordance with prevailing international valuation standards, but shall in any event be valued at no more than 20% of the registered capital of the foreign-invested enterprise concerned.
2.Issues concerning the withdrawal of investments in Sino-foreign contractual joint ventures during the cooperation period. Where, in the contract relating to a Sino-foreign contractual joint venture, it is agreed that ownership of all the fixed assets shall revert to the Chinese investor at the conclusion of the contract, both parties thereto may agree on the measures the foreign investor may take to withdraw its investment during the cooperation period, provided that the foreign investor shall be liable for the debts of the contractual joint venture in accordance with relevant laws and the terms of the contract. Where, in the contract relating to a Sino-foreign contractual joint venture, it is agreed that the foreign investor may withdraw its investment prior to paying income tax, the contract shall be submitted to the competent financial and taxation authorities for approval. A foreign investor may withdraw its investment only where it will not affect the normal production and operating activities of the enterprise concerned.
3. Issues concerning the amortization of intangible assets of foreign-invested enterprises. The amortization of intangible assets of foreign-invested enterprises shall be calculated using the straight-line method. Intangible assets used as investment assets or assigned to the enterprise for which the service life has been specified in the agreement or contract may be amortized in accordance with the specified service life. For intangible assets for which no service life has been specified or that have been developed by the investor, the amortization period shall be no less than ten years.
4.Issues concerning the depreciation methods, periods and estimated salvage values to be used for fixed assets. The depreciation of fixed assets of foreign-invested enterprises shall be calculated using either the straight-line method or the workload method. In the event that it is necessary to adopt an alternative method or change the existing method used, the enterprise shall file an application for approval in accordance with the law.
The depreciation of fixed assets of foreign-invested enterprises shall be calculated on the basis of the following classification:
(1) Houses and buildings, no less than 20 years;
(2) Trains, ships, engineering equipment, machinery, and other manufacturing equipment, no less than 10 years;
(3) Electronic equipment, transport vehicles other than trains and ships, and apparatus, tools and fittings used for production and operating activities, no less than five years.
Where the residual service life of pre-used fixed assets acquired by an enterprise is shorter than the depreciation period prescribed above, subject to providing appropriate documentation and going through the examination and approval procedure, depreciation may be calculated in accordance with the residual service life.
Prior to calculating depreciation for any fixed asset, the estimated salvage value shall be deducted from the original value of the fixed asset in question. The salvage value shall be no less than 10% of the original value. Where it is necessary to reduce the salvage value or assign a salvage value of zero, the enterprise concerned shall apply for approval in accordance with the law.
5.Issues concerning the allocation standards for bad debt reserves and the ascertainment of time limits for bad debts. Foreign-invested enterprises engaged in lending, leasing or similar business activities may, at the end of the year, deduct bad debt reserves of up to 3% of the value of accounts and notes receivable or the balance of loans (not including interbank lending) at the end of the year after applying for approval in accordance with the law. Where a debtor has failed to perform its repayment obligations for a period of two years or more and the loan is still not recoverable, the loan may be identified as a bad debt.
......