On September 8, 2008, the Chinese government issued the Catalogue of Preferential Enterprise Income Tax Treatments for Public Infrastructure Projects (2008) in a notice, (Cai Shui (2008) 116, the Catalogue). The Catalogue is retroactively applicable to public infrastructure projects as of 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 relevant articles in the EIT Law and its implementation rules provide that the income derived by an enterprise from its investment in and operation of public infrastructure projects listed in the Catalogue will be eligible for tax exemption. Such income will be eligible for 100 percent EIT exemption for the first year to the third year, and 50 percent EIT exemption for the fourth year to the sixth year, starting from the tax year when the project begins to generate operating revenue.

The Catalogue covers the following seven categories of public infrastructure projects: (1) ports and docks; (2) airports; (3) railways; (4) highways; (5) municipal public transit; (6) electric power; and (7) water conservancy. The Catalogue further breaks down these seven categories to 18 subcategories. For each subcategory, the Catalogue sets forth the scope, approval authorities, and the technical standards that the projects must meet in order to enjoy the preferential EIT treatment.

For example, the State Council is the approving authority of new civil airports, new municipal subways and light rails, and new nuclear power plants. Some projects require governmental approval at the provincial level, while others only require lower-level government approval; these include projects involving water recourse, new wind farms, new solar power generation, and new geothermal power generation

In addition, the Catalogue sets forth important technical thresholds for some projects. It requires that ports and docks, railways, highways, hydro power plants, and power grids are subject to these technical thresholds.

Enterprises should assess whether they are eligible for the preferential EIT treatments according to the Catalogue. Qualified projects must be new projects or renovation projects commenced after January 1, 2008.