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To the people’s governments at the provincial level, the people’s governments of autonomous regions and municipalities directly under the State Council, the ministries, and the institutions directly under the State Council

The PRC Enterprise Income Tax Law (referred to as the “EIT Law” hereafter) and the Implementation Regulations of the PRC Enterprise Income Tax Law (referred to as the Implementation Regulations hereafter) will take effect on January 1, 2008. In accordance with Article 57 of the EIT Law, the State Council gives notice on the issues of grandfathering preferential policies under the EIT Law as below:

1. Provisions relating to grandfathering tax preferential treatment for enterprises of which the incorporation have been approved before the promulgation of the EIT law

The tax preferential policies that enterprises have been enjoying in accordance with the old income tax law, regulations and the documents announced under the legal authority of the State Council shall be grandfathered and implemented in the following way:

As from 1st January 2008, the enterprises that have enjoyed preferential tax rates shall be taxed at rates to be increased from the current rate to the full rate under the EIT law within a period of 5 years. Among others, the enterprises that have been taxed at 15% currently shall be taxed at 18% in 2008, 20% in 2009, 22% in 2002, 24% in 2011 and 25% in 2012; the enterprises that have been taxed at 24% under the old income tax law shall be taxed at 25% as from 2008.

As from 1st January 2008, the enterprises that have been granted “two plus three” and “five plus five” tax concessions shall continue to enjoy the tax concessions until the expiry day in accordance with the tax preferences under the old income tax law, regulations and relevant provisions. Where the tax preferences have not been granted due to the fact that the enterprises have not made any profits, the tax preferential period shall commence as from 2008.

The enterprises, to which the tax preferential policies apply during the transitional period, refer to those enterprises that have obtained the business registrations at the local office of State Administration of Industry and Commerce before 16th March 2007. The scope and items to which the grandfathering preferential policies apply are set out in the “List of Grandfathering Preferential Policies for the Implementation of the PRC EIT Law (See attached list)”.

2. Continuing the tax preferential policies in the grand development of China’s Western region

The tax preferential policies for the grand development of the Western regions shall be continued in accordance with the “Notice of the Issues on Tax Preferential Policies for the Grand Development of Western Regions by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs” jointly issued under document Cai Shui (2001) 202 by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs in accordance with the spirit of the State Council documents that implement the grand development of the Western regions.

3. Other Provisions on the Implementation of Grandfathering Tax Preferential Policies for enterprises

The enterprises to which the grandfathering income tax preferential policies apply shall compute the taxable income in accordance with the rules of the EIT Law and the Implementation Regulations, and compute the tax preferences in accordance with part one under this notice.

The enterprises can choose the more favorable preferential policies where the there exist any intersections between the grandfathering preferential policies and the preferential policies as provided under the new EIT Law and Implementation Regulations, except that the enterprises shall not receive duplicate preferences. After the enterprise has made the choice, no change is allowed.

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