Issued by the MOCOM on 12 June 2007

The Circular encourages the transfer of vessels owned by PRC companies from foreign flag to PRC flag by exempting them from importation VAT and Customs duty provided they are imported and re-registered in China during the period from 1 July 2007 to 30 June 2009. It is expected that international vessels under the PRC flag will increase by 4 million tons within the next two years as a result of this new rule.

his tax incentive will be applicable to those vessels owned by PRC companies but registered under foreign flag before 31 December 2005. There are also restrictions on the age of various types of vessels and the lowest threshold is four years.

PRC shipping companies may apply for tax incentive qualification in the first place to the Ministry of Transportation within the next two years. Applications will be arranged in four groups (1 September 2007, 1 March 2008, 1 September 2008 and 1 March 2009). Applications for the first group should be submitted before 1 September 2007. The vessels transferring to the PRC flag should be re-registered with the Maritime Safety Administration in Shanghai, Tianjin or Dalian. Owners of these vessels are encouraged to continue pursuing international shipping interests.

It is not clear whether vessels must be physically imported into China. Nor is it clear whether vessels under the name of the foreign subsidies of a PRC company will be deemed owned by that PRC parent company.