On July 27^th, 2011, the Ministry of Finance, the State Administration of Taxation (SAT)  and the General Administration of Customs (GAC) issued circular Caishui [2011] No. 58 (“Circular 58”), which updates multiple development incentives for China’s Western Regions. The circular has a ten year timeframe, effective retrospectively from January 1, 2011, until December 31, 2020.

The circular is largely an extension of Caishui [2001] No. 202 (“Circular 202”), which also addressed fiscal incentives for development in Western China and expired in December 2010.

Major carryover incentives from Circular 202:

• Scope of “Western Regions” unchanged, and covers Guizhou Province, Gansu Province, Sichuan Province, Yunnan Province,  Inner Mongolia Autonomous Region, Ningxia Hui Autonomous Region, Xinjiang Uighur Autonomous Region, Tibet Autonomous Region, Guangxi Zhuang Autonomous Region, the municipality of Chongqing, and the Xinjiang Production and Construction Corps.
• CIT rate reduced to 15% for enterprises that meet the following requirements:

1. Enterprise’s major business is within the scope of the listed encouraged industries (for new Circular, relevant industries will be listed in the <Catalogue of Encouraged Industries in Western Region> yet to be released)
2. More than 70% of the enterprises total revenue must come from a business covered in the catalogue

• Customs duty is exempt for foreign-invested and domestic projects, provided they are within the scope of encouraged industries. Foreign-invested projects in competitive industries are also exempt from customs duty.

Major changes from Circular 202:

• Domestic and foreign-invested projects in encouraged industries and foreign-invested projects in competitive industries are no longer exempt from import VAT
• Qualified enterprises under the previous circular whose business scope included power, water resource utilization, radio and television, transportation and postal services will no longer enjoy CIT exemption for their first two years of operation and a 50% reduction in CIT from their third to fifth years. However, qualified enterprises that were established before the expiry of the previous circular (before December 31, 2010) will still benefit from unused tax holidays until their date of expiry
• Previously, qualified projects in autonomous regions were eligible for CIT holidays, as well as farmland occupation tax exemption and agricultural specialty tax exemption, among others. These are no longer applicable.

The promulgation of Circular 58 shows the government’s continued desire to promote economic development in the Western Regions of China within the framework of the Twelth Five-Year plan. While Circular 58 does provide documentation detailing the fiscal incentives that relevant enterprises can enjoy in the Western Region of China, it still does not include details about the actual implementation of the measures. Those enterprises looking to take advantage of the incentives should follow closely any developments from the GAC or SAT regarding circular 58. Interested parties should also follow the actions of local tax bureaus, as despite the lack of clarity from central organs, local authorities could already begin to implement some of the incentives offered under Circular 58.