On August 26, 2008, the Chinese government issued the Catalogue of Preferential Enterprise Income Tax Treatments for the Comprehensive Utilization of Resources (2008), Cai Shui (2008) 117, the Catalogue). The Catalogue is retroactively effective starting from January 1, 2008.

The Ministry of Finance, the State Administration of Taxation, and the National Development and Reform Commission jointly issued the Catalogue according to the PRC Law on Enterprise Income Tax (the EIT Law) and the EIT Law’s implementation rules. The EIT Law and its implementation rules provide that if an enterprise derives income using the raw materials listed in the Catalogue to produce products that conform to the relevant national and industry standards, and the products are not forbidden or restricted by the government, only 90 percent of such income will be taxable income for enterprise income tax (the EIT).

The Catalogue covers the following three categories of resources: (1) paragenetic minerals and associated minerals; (2) waste water (liquid), waste gas, and waste residue; and (3) renewable resources. These three categories further cover 16 subcategories of certain resources. For each subcategory of resources, the Catalogue sets forth the end product(s) to be produced using the resources and the required technical standards.

Most of the technical standards specify what percentage of the raw materials of the end products must have come from the listed resources. For instance, producers of recycled water that is generated 100 percent from sewage or industrial waste water and that meets the national water quality standards may qualify for the preferential EIT treatment. For preferential EIT treatments to apply to the production of biodiesel and oil for industrial use, 100 percent of the raw materials must come from discarded biomass oil and lubricants.