Circular of the General Tax Bureau of the Ministry of Finance Concerning Issues Relevant to the Taxation of Income from Construction and Engineering Projects Participated in by Foreign Parties in Partnership with or at the Behest of Chinese Enterprises

Circular of the General Tax Bureau of the Ministry of Finance Concerning Issues Relevant to the Taxation of Income from Construction and Engineering Projects Participated in by Foreign Parties in Partnership with or at the Behest of Chinese Enterprises

Cai Shui Wai Zi [1986] No. 172

July 15, 1986

With regards to issues relevant to the taxation of income from construction and engineering projects participated in by foreign companies, foreign enterprises, and other foreign organizations (hereinafter foreign parties) in partnership with or at the behest of Chinese enterprises, the Ministry of Finance has formulated regulations on the basis of the Law for Foreign Enterprise Income Tax and the detailed rules for the implementation thereof. Certain issues that have arisen during implementation in various regions are hereby clarified as follows:

Article 1 When a foreign party is employed by a Chinese enterprise to carry out design work for construction or engineering projects and, excluding a visit to China prior to commencement of design work for the purposes of on-site surveying, information gathering, and general understanding of the project, the design planning, calculating, drawing, and other relevant work were all conducted outside of Chinese territory, with the drawings sent to Chinese enterprise after their completion, then, in such a case, a lenient interpretation of tax law is appropriate; all the income obtained from Chinese sources by said foreign party shall be tax exempt.

Article 2 When a foreign party is employed by or enters into partnership (alliance) with a Chinese enterprise as part of a construction or engineering project and, in addition to a visit to China prior to commencement of design work for the purposes of on-site surveying, information collection, and general understanding of the project, all or some part of the design planning, calculating, drawing, and other work were conducted inside of Chinese territory, and, after the design was complete, the foreign party sent employees to China in order to provide explanation of drawings, technical guidance, or to conduct supervision of implementation, then the activities of said foreign parties in China constitute having a place of business here.
　　......