• Technology Transfer
Because foreign-invested solar projects fall under the category of Encouraged Industries in the Catalogue, imports of certain essential components or equipment for the operation of such business in the PRC are entitled to preferential treatment including tariff exemptions.
• Manufacturing/Distribution/Sales
For foreign investors that already have a manufacturing base in the PRC, the rules are fairly straight forward with respect to sales of domestically produced solar products to customers within China, and once a manufacturing facility is duly established, generally, there are fewer legal hurdles with respect to special certifications or standards on the distribution and sales of such goods. It is important to note however that the use of certain chemicals (such as those classified as “dangerous chemicals in the Catalogue of Dangerous Goods) in the manufacturing process may subject the manufacturer to certain production license requirements and permits.
• Research & Development Centers
Foreign investment through R&D centers is encouraged by the Catalogue and allows for cost control through the shared use of resources and expenses in one of China’s many established high-technology parks. Examination and approval authority rests with the provincial-level Ministry of Finance offices. Once approved, the foreign invested R&D center may import technology and equipment with reduced duty and VAT (except for those items listed in the Catalogue of Imported Goods Not Exempt from Taxation for Foreign Investment Projects). Furthermore, commercialised technology that has been developed in a R&D operation will not be subject to business tax on any revenues generated from the license of such technologies (but are still subject to State and local income tax, see Part C below).
• Construction Projects
The PRC government does offer subsidies to construction projects that use certain solar technologies at RMB 20/Wp – which may be applied for by the developer or supplier of the products.
B. Foreign Investment in China’s Green Energy Sector Through Off-Shore Companies
• Importation/Distribution/Sales
Foreign imports must fall under the category of permitted goods which can be imported into China. As mentioned above, importation and use of certain products such as dangerous chemicals may be subject to special certificates or licenses. The tarrif rates on imported solar technology vary according to the nature of the imported good and the status of the purchaser. Purchasers are subject to the List of Imported Goods for Domestic Projects Not Entitled to Tarrif Exemption (effective December 15th, 2008) and List of Imported Goods for Domestic Projects Entitled to Tariff Exemption.
• Design and Engineering Services
If the foreign investor will supply its products and render related engineering and design services it will be subject to (i) bidding requirements on green energy projects, and (ii) other specific requirements depending on the project, such as price restrictions or in some cases preference for domestic products/companies. To provide design and engineering services in its own name the foreign investor must obtain a ‘qualification certificate’ – which requires, among others, a presence in China. Otherwise such investor is required to either partner with a qualified local company which will vouch for the work, or otherwise provide only limited services for a project.
C. PRC Tax Benefits for Foreign Investments in Green Energy
Foreign investors of the Catalogue’s approved green industries will be eligible for general tax benefits available to all such foreign investors in China regardless of the industry in which they operate - such as lower enterprise income tax rates for the first 3 years of operation (i.e., 15%, down from the standard 25%) for High and New Technology enterprises . More specific tax benefits will depend on where the project is located and which type of green industry is involved. For example certain types of Clean Development Mechanism or energy conservation projects are also eligible for ‘tax holidays’ or 3 years with exemption and 3 years with 50% reductions on enterprise income tax. Value-added tax (VAT) exemptions and refunds are also areas where investors can receive significant benefits.
IV. Conclusion
It is evident that ROIs on solar projects can be achieved. Thus far, China has been the largest solar panel producer in the world -but approximately 95% of finished products are exported. However, because of the credit crisis world demand has gone down for solar products so now the Chinese government is trying to stimulate the domestic market and has already been implementing solar rooftop initiatives in villages in the sunshine regions of "Tibet, Mongolia, etc." which makes for an attractive mainland market.
Because foreign-invested solar projects fall under the category of Encouraged Industries in the Catalogue, imports of certain essential components or equipment for the operation of such business in the PRC are entitled to preferential treatment including tariff exemptions.
• Manufacturing/Distribution/Sales
For foreign investors that already have a manufacturing base in the PRC, the rules are fairly straight forward with respect to sales of domestically produced solar products to customers within China, and once a manufacturing facility is duly established, generally, there are fewer legal hurdles with respect to special certifications or standards on the distribution and sales of such goods. It is important to note however that the use of certain chemicals (such as those classified as “dangerous chemicals in the Catalogue of Dangerous Goods) in the manufacturing process may subject the manufacturer to certain production license requirements and permits.
• Research & Development Centers
Foreign investment through R&D centers is encouraged by the Catalogue and allows for cost control through the shared use of resources and expenses in one of China’s many established high-technology parks. Examination and approval authority rests with the provincial-level Ministry of Finance offices. Once approved, the foreign invested R&D center may import technology and equipment with reduced duty and VAT (except for those items listed in the Catalogue of Imported Goods Not Exempt from Taxation for Foreign Investment Projects). Furthermore, commercialised technology that has been developed in a R&D operation will not be subject to business tax on any revenues generated from the license of such technologies (but are still subject to State and local income tax, see Part C below).
• Construction Projects
The PRC government does offer subsidies to construction projects that use certain solar technologies at RMB 20/Wp – which may be applied for by the developer or supplier of the products.
B. Foreign Investment in China’s Green Energy Sector Through Off-Shore Companies
• Importation/Distribution/Sales
Foreign imports must fall under the category of permitted goods which can be imported into China. As mentioned above, importation and use of certain products such as dangerous chemicals may be subject to special certificates or licenses. The tarrif rates on imported solar technology vary according to the nature of the imported good and the status of the purchaser. Purchasers are subject to the List of Imported Goods for Domestic Projects Not Entitled to Tarrif Exemption (effective December 15th, 2008) and List of Imported Goods for Domestic Projects Entitled to Tariff Exemption.
• Design and Engineering Services
If the foreign investor will supply its products and render related engineering and design services it will be subject to (i) bidding requirements on green energy projects, and (ii) other specific requirements depending on the project, such as price restrictions or in some cases preference for domestic products/companies. To provide design and engineering services in its own name the foreign investor must obtain a ‘qualification certificate’ – which requires, among others, a presence in China. Otherwise such investor is required to either partner with a qualified local company which will vouch for the work, or otherwise provide only limited services for a project.
C. PRC Tax Benefits for Foreign Investments in Green Energy
Foreign investors of the Catalogue’s approved green industries will be eligible for general tax benefits available to all such foreign investors in China regardless of the industry in which they operate - such as lower enterprise income tax rates for the first 3 years of operation (i.e., 15%, down from the standard 25%) for High and New Technology enterprises . More specific tax benefits will depend on where the project is located and which type of green industry is involved. For example certain types of Clean Development Mechanism or energy conservation projects are also eligible for ‘tax holidays’ or 3 years with exemption and 3 years with 50% reductions on enterprise income tax. Value-added tax (VAT) exemptions and refunds are also areas where investors can receive significant benefits.
IV. Conclusion
It is evident that ROIs on solar projects can be achieved. Thus far, China has been the largest solar panel producer in the world -but approximately 95% of finished products are exported. However, because of the credit crisis world demand has gone down for solar products so now the Chinese government is trying to stimulate the domestic market and has already been implementing solar rooftop initiatives in villages in the sunshine regions of "Tibet, Mongolia, etc." which makes for an attractive mainland market.
