TAXATION OF EQUITY HOLDERS The following is a summary of certain PRC and Hong Kong tax consequences of the ownership of H Shares by an investor that purchases such H Shares in the Global Offering and holds the H Shares as capital assets. This summary does not purport to address all material tax consequences of the ownership of H Shares, and does not take into account the specific circumstances of any particular investors, some of which may be subject to special rules. This summary is based on the tax laws of the PRC and Hong Kong as in effect on the date of publication of this prospectus, all of which are subject to change (or changes in interpretation), possibly with retroactive effect. This section of this prospectus does not address any aspects of Hong Kong or PRC taxation other than income tax, capital gains tax, stamp duty and estate duty. Prospective investors are advised to consult their tax advisors regarding the tax consequences of holding and disposing of H Shares in the PRC, Hong Kong and other jurisdictions. PRC TAXATION Income Tax Dividends Individual Investors According to the Individual Income Tax Law of the People s Republic of China ( ) (the Individual Income Tax Law ) enacted by the Standing Committee of the Fifth National People s Congress on September 10, 1980 and recently amended on June 30, 2011 and effective on September 1, 2011 and the Implementation Regulations of Individual Income Tax Law of the People s Republic of China (the Implementation Regulations ) recently amended by the State Council on July 19, 2011 and effective on September 1, 2011, dividends paid by PRC companies to individual investors are generally subject to a PRC withholding tax at a flat rate of 20%. For non-chinese resident individual investors, dividend income from a PRC company is normally subject to an individual income tax of 20% unless specially exempted by the competent tax authority of the State Council or reduced in accordance with an applicable tax treaty. Pursuant to the Notice of the State Administration of Taxation on Issues Concerning the Administration of Individual Income Tax Collection after the Annulment of Document Guo Shui Fa [1993] No.045 ( ) (Guo Shui Han [2011] No. 348) promulgated by the State Administration of Taxation on June 28, 2011, foreign resident individual investors are entitled to enjoy the preferential tax treatments in accordance with the tax treaties entered into between their respective countries and the PRC and the regulations of tax arrangements between the Mainland of China and Hong Kong (Macau) for shares issued in public offerings by non-foreign invested PRC enterprises in Hong Kong. Generally, PRC individual income tax at the rate of 10% will be withheld from dividends paid by a non-foreign invested PRC enterprise (the Relevant Non-Foreign Invested PRC Enterprise ) such as the Company to foreign individual investors (the Relevant Individual Investors ) holding shares publicly offered by the Relevant Nonforeign PRC Enterprise in Hong Kong, and no application for approval from the taxation authority in the PRC is required. In case the 10% tax rate is not applicable (e.g., if the individual non-prc shareholder and the tax rate applicable to such shareholder can be identified by the paying company), the Relevant Non-Foreign Invested PRC Enterprise shall: (i) apply on behalf of the investors for lower tax rates if the countries or regions of the Relevant Individual Investors have entered into tax treaties or tax arrangements with the IV-1
(ii) PRC with tax rates lower than 10%, and arrange for refund of over payment upon review and approval by the competent tax authority; withhold the tax at such rates as agreed if the countries or regions of the relevant individual investors have entered into tax treaties or tax arrangements with the PRC with tax rates higher than 10% but lower than 20%, and no application is required; (iii) withhold the tax at the rate of 20% if the countries or regions of the Relevant Individual Investors have not entered into any tax treaties (tax arrangements) with the PRC or otherwise. According to the Arrangement between the Mainland of China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income ( ) (Guo Shui Han [2006] No. 884) with respect to income tax entered into between mainland China and Hong Kong on August 21, 2006, the PRC government may impose tax on dividends payable by a PRC company to Hong Kong residents subject to a maximum of 10% of the gross amount of dividends payable, or 5% for Hong Kong residents holding not less than 25% equity interest in the PRC company upon application for approval by the PRC tax authority. Enterprises According to the Enterprise Income Tax Law of the People s Republic of China ( ) (the EIT Law ) and the Provisions for Implementation of Enterprise Income Tax Law of the People s Republic of China ( ) promulgated by the Standing Committee of the Tenth National People s Congress on March 16, 2007 and effective as of January 1, 2008, non-resident enterprises are subject to 10% enterprise tax on income from the PRC provided that the non-resident enterprises do not have established institutions in the PRC, or that the income has no connection with the established institutions of the non-resident enterprises in the PRC. Upon application and approval, such withholding tax may be reduced pursuant to an applicable Avoidance of Double Taxation treaty. According to the Notice of the State Administration of Taxation on the Issues Concerning Withholding the Enterprise Income Tax on the Dividends Paid by Chinese Resident Enterprises H Shareholders Which are Overseas Enterprises ( ) (Guo Shui Han [2008] No. 897) issued by the State Administration of Taxation and effective as of November 6, 2008, PRC resident enterprises such as the Company must withhold enterprise income tax at a rate of 10% on dividends distributed to nonresident enterprise shareholders of H shares for 2008 and thereafter. Upon application and approval, such withholding tax may be reduced pursuant to an applicable avoidance of double taxation treaty upon approval. Tax Treaties Investors who reside in countries, which have entered into Avoidance of Double Taxation treaties with the PRC may be entitled to a reduction of withholding tax on dividends to investors by PRC companies. The PRC currently has avoidance of double taxation treaties with many countries worldwide, including but not limited to: Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States. Foreign enterprises which are IV-2
entitled to a reduction of withholding tax according to the relevant income tax treaties or arrangements must apply to the PRC tax authority for refund of the withholding payments, which excess the tax rate of the relevant treaties, and the refund payments will be made upon approval by the PRC tax authority. Income Tax Transfer of Shares Individual Investors In accordance with the Implementation Rules on Individual Income Tax ( ), PRC resident individuals are subject to individual income tax at the rate of 20% on gains from the transfer of equity interests in PRC resident enterprises. The Implementation Rules on Individual Income Tax also provide that the Ministry of Finance (MOF) shall propose measures for collection of individual income tax on income from the transfer of shares and enact such measures upon approval by the State Council. However, no such measures have been proposed or enacted by the MOF. Under the Notice of the Ministry of Finance and State Administration of Taxation on Several Preferential Policies in Respect of Enterprise Income Tax ( ) jointly issued on March 30, 1998, income of individuals from transfer of shares in listed enterprises continues to be exempted from individual income tax since January 1, 1997. Although it is not certain whether such exemption is applicable to H shares, to the best of our knowledge, in practice the PRC tax authorities have not sought to collect tax on such gains from the transfer of shares by non-prc residents. Enterprises According to the EIT Law and the Implementation Rules of the EIT Law, non-resident enterprises, which have not established organizations or premises in the PRC, or if established, the income derived is not actually associated with such organizations or premises, are subject to an enterprise income tax of 10% on gains originated from the PRC, such as gains from sales of shares in a PRC enterprise. The tax may be reduced or eliminated pursuant to an applicable tax treaty. Stamp Duty Pursuant to the Provisional Regulations of the People s Republic of China on Stamp Duty ( ) which became effective on October 1, 1988, PRC stamp duty on the transfer of shares of PRC listed companies does not apply to the acquisition and disposal of H Shares by non-prc investors outside the PRC. Estate Tax According to the existing laws of the PRC, non-prc residents are not subject to estate tax for the holding of H Shares. HONG KONG TAXATION Tax on Dividends Under the current practices of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. IV-3
Capital Gains and Profit Tax No tax is imposed in Hong Kong in respect of capital gains from the sale of H shares. However, trading gains from the sale of the H shares by persons carrying on a trade, profession or business in Hong Kong, where such gains are derived from or arise in Hong Kong from such trade, profession or business will be subject to Hong Kong profits tax, which is currently imposed at the maximum rate of 16.5% on corporations and at the maximum rate of 15% on unincorporated businesses. Certain categories of taxpayers (for example, financial institutions, insurance companies and securities dealers) are likely to be regarded as deriving trading gains rather than capital gains unless these taxpayers can prove that the investment securities are held for long-term investment purposes. Trading gains from sales of H shares effected on the Hong Kong Stock Exchange will be considered to be derived from or arise in Hong Kong. Liability for Hong Kong profits tax would thus arise in respect of trading gains from sales of H shares effected on the Hong Kong Stock Exchange realized by persons carrying on a business of trading or dealing in securities in Hong Kong. Stamp Duty Hong Kong stamp duty, currently charged at the ad valorem rate of 0.1% on the higher of the consideration for or the market value of the H Shares, will be payable by the purchaser on every purchase and by the seller on every sale of Hong Kong securities, including H shares (in other words, a total of 0.2% is currently payable on a typical sale and purchase transaction involving H shares). In addition, a fixed duty of HK$5.00 is currently payable on any instrument of transfer of H Shares. Where one of the parties is a resident outside Hong Kong and does not pay the ad valorem duty due by it, the duty not paid will be assessed on the instrument of transfer (if any) and will be payable by the transferee. If stamp duty is not paid on or before the due date, a penalty of up to ten times the duty payable may be imposed. Estate Duty The Revenue (Abolition of Estate Duty) Ordinance 2005 came into effect on February 11, 2006 in Hong Kong, pursuant to which no Hong Kong estate duty is payable, and no estate duty clearance papers are needed for the application of a grant of representation in respect of holders of H Shares whose deaths occur on or after February 11, 2006. TAXATION OF THE COMPANY IN THE PRC Income Tax In accordance with the EIT Law, enterprises and other institutions established in the PRC shall be subject to enterprise income tax at the rate of 25%. Business Tax Pursuant to the PRC Provisional Regulations on Business Tax ( ) recently amended on November 5, 2008 and effective from January 1, 2009 and the relevant implementation rules, a business tax of 3% to 20% is imposed on enterprises for taxable services, transfer of intangible assets, or disposal of real estate. Financial and insurance enterprises are subject to business tax at the rate of 5%. IV-4
Value-added Tax Pursuant to the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax ( ) (Cai Shui [2016] No.36) issued by the Ministry of Finance and the State Administration of Taxation on March 23, 2016, the financial enterprise will be subject to value-added tax at the rate of 6% instead of business tax starting from May 1, 2016. FOREIGN EXCHANGE CONTROL The lawful currency of the PRC is Renminbi, which is subject to foreign exchange controls and is not freely convertible. The SAFE under the PBOC is empowered with the functions of administering all matters relating to foreign exchange, including the enforcement of foreign exchange control regulations. On January 29, 1996, the State Council promulgated the Regulation of the PRC on Foreign Exchange Administration ( ) (the Foreign Exchange Regulation ), which was subsequently amended on January 14, 1997 and August 5, 2008, respectively. Pursuant to the Foreign Exchange Regulation, all international payments and transfers are classified into current account items and capital account items. Most of the current account items are no longer subject to the approval of SAFE, while capital account items still are. Pursuant to the Regulations on the Management of Settlement, Sales and Payment of Foreign Exchange ( ) promulgated by the PBOC on June 20, 1996, which took effect on July 1, 1996, the existing restrictions on convertibility of foreign exchange in respect of current account items in the PRC were abolished, while the restrictions on foreign exchange transactions in respect of capital account items remained unchanged. On July 21, 2005, the PBOC announced that from the same date, the PRC would implement a managed floating exchange rate system based on market supply and demand and with reference to a basket of currencies. Therefore, the Renminbi exchange rate was no longer pegged to the U.S. dollar only, and the exchange rate mechanism for Renminbi became more flexible. The PBOC would announce the price of a foreign currency such as the U.S. dollar against Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day. Such closing exchange rates will be used as the middle exchange rate of the currency against Renminbi on the following working day. Since January 4, 2006, the PBOC improved the method of generating the middle price for quoting the Renminbi exchange rate by introducing an enquiry system while keeping the matchmaking system in the inter-bank spot foreign exchange market. In addition, the liquidity of the foreign exchange market was also improved by adopting a market-maker system in the inter-bank foreign exchange market. In accordance with the Foreign Exchange Regulation, the foreign exchange income of current account items may be retained or sold to financial institutions engaging in the sales and settlement of foreign exchange. Foreign exchange income of capital account items may be retained or sold to financial institutions engaging in the sales and settlement of foreign exchange if so approved by the competent foreign exchange administrative authority, unless it is exempted under the laws of the PRC. PRC enterprises (including foreign-invested enterprises), which require foreign exchange for transactions relating to current account items may, without approval of SAFE, effect payment from IV-5
their foreign exchange account or convert and pay at designated foreign exchange banks with the provision of valid receipts and proof of transactions. Foreign-invested enterprises, which need foreign exchange for distribution of profits to their shareholders, and PRC enterprises, which in accordance with regulations are required to pay dividends to shareholders in foreign exchange, may effect payment from their foreign exchange account, or with the provision of required documents, may convert and pay at designated foreign exchange banks according to the resolutions of shareholders meetings or board meetings on the distribution of profits. Dividends to investors of H Shares shall be denominated in Renminbi but shall be paid in Hong Kong dollars. The reporting currency of the Company consolidated financial statements is Renminbi. In accordance with the Decision of the State Council on Canceling or Adjusting a Group of Administrative Approval Items and Other Matters ( ) issued by the State Council and effective from November 24, 2014, the remittance and settlement of foreign exchange from the proceeds raised from the issue of overseas listed shares by a domestic company are no longer subject to approval by the SAFE or its branches. In accordance with the Notice on Relevant Issues of Foreign Exchange Management of Overseas Listing ( ) issued by SAFE and effective on December 26, 2014, a domestic enterprise shall register with the local branch of the SAFE at the place of its incorporation within 15 working days after the completion of its overseas IPO. The proceeds from overseas listing may be remitted to the domestic account or deposited in an overseas account. The proceeds shall be used in accordance with this prospectus and other disclosure documents. IV-6