This article is intended to provide a general guide to the subject matter. Specific advice should be sought about individual circumstances. Further information or advice may be obtained from Linklaters & Paines, Hong Kong office, 14th Floor, Alexandra House, Chater Road, Hong Kong; telephone: (852) 2842 4888; fax: (852) 2810 8133; contact David Mullarkey or Jeremy Parr.

This article examines briefly the taxation of joint ventures. For further discussion of joint ventures, please see the article headed "Joint ventures in the PRC".

The tax treatment of equity joint ventures and hybrid cooperative joint ventures are similar. When a true cooperative joint venture is set up however, the parties' tax liabilities are assessed and paid separately.

The main taxes are:

(a) Enterprise Income Tax - 33% of income less expenses, costs and losses. The rate is reduced to 15% or 24% in various economic zones.

(b) Urban Real Estate Tax - 1.2% of value or 18% of annual rent. If land-use or site-use rights are contributed to a joint venture as capital, the joint venture will be liable to this tax.

(c) Value Added Tax ("VAT") or Business Tax - arises whenever goods or "taxable services" are sold or imported. VAT applies to the supply of goods (including imported goods) by all enterprises, foreign or domestic, operating in the PRC and varies from 6% to 17% according to the type of goods produced and the size of the enterprise. Business tax applies to the provision of services, the transfer of intangible assets and the disposal of immoral properties, and ranges between 3% to 20%.

(d) Land Value Added Tax - a capital gains tax applied to the disposal of real property, which is levied at rates between 30% and 60%.

Other taxes and contributions include stamp duty, social security contributions for employees and customs duties. Customs duties vary according to current domestic policies for encouraging local industry and their purpose is to encourage local manufacturing. Although customs tariffs are not imposed on assets which form part of the foreign party's capital contribution to the joint venture (e.g. machinery or office equipment), a joint venture operation which requires substantial importation of raw materials or finished products for overseas may be affected although an exemption may be obtained for goods that are imported for processing and/or assembly and subsequently exported or that are imported into designated zones (such as special economic zones and open coastal cities). (N.B. the PRC's policies on tariffs is currently subject to change, in light of its negotiations to become a member of the World Trade Organisation).

Further information or advice may be obtained from Linklaters & Paines, Hong Kong office, 14th Floor, Alexandra House, Chater Road, Hong Kong; telephone: (852) 2842 4888; fax: (852) 2810 8133; contact David Mullarkey or Jeremy Parr.