Mineral Resource Indemnification Fee

General Rules

The mineral resource indemnification fee is a type of property revenue which is the economic realization of the state ownership of the mineral resources.  The mineral resource indemnification fee is to be shared by the central and local governments.  The geology and mineral resource authorities are responsible for the charge of such fees together with the financial sectors at the same level.

The mineral resource indemnification fee is to be calculated based on a certain proportion of the sales revenues of the mineral products (which refer to the products derived from the mineral resources that are different to their natural state as a result of exploitation or dressing).  The calculation formula is:

Payable Amount for Mineral Resource Indemnification Fee=ales Revenue of Mineral Products*Rate for Indemnification Fee*Factor of Exploitation Recovery Rate

The rate for the indemnification fee as mentioned herein is 0.5% to 4% with an average of 10.18%.

Factorof Exploitation RecoveryRate =Ratified Exploitation Recovery/Actual Exploitation Recovery

The sales revenue of mineral exploitation rights holders processing mineral products on their own shall be calculated based on specified prices according to state regulations.  If no such prices are regulated by the state, the sales revenue shall be calculated according to the average prices of the local mineral market at the time when such fee is charged.  The sales revenue of the mineral exploitation rights holders selling mineral products to the overseas market shall be calculated based on the sales prices of the ,international market.

The mineral resource indemnification fee is to be paid by the mineral exploitation rights holder.  Such a fee is to be settled with the currencies used for mineral product sales or the currencies used for the sales of the final mineral products if the mineral exploitation rights holders process mineral products on their own.

The charge of mineral resource indemnification fee for gold is different from that for other mineral resources.   The calculation formula is:

Mineral Resource Indemnification Fee for Gold = Mineral Product Sales Revenues * Indemnification Fee Rate * Recovery Factor * Adjusted Factor for Chargeable Indemnification Fee(The adjusted factor for chargeable indemnification fee is between 65% and 78%).

Main Preferential Terms for Fee Deduction/Exemption

1) If the mineral exploitation rights holder is engaging in the following: a) recovery of mineral products from barren rocks; or b) exploitation of non-safeguarded abandoned minerals from closed mines as approved according to the state regulations, such mineral exploitation rights holder shall be exempt from the mineral resource indemnification fee.

2) If the mineral exploitation rights holder is engaging in the following: a) recovery mineral products from tailings; b) exploitation of low-grade mineral resources which are less than industrial grade or with uncounted reserves; c) legitimate exploitation of mineral resources underwater, under buildings or  under  key traffic  routes;  or d)  suffering  from a policy-related loss due to implementation of the pricing policy as stipulated by the government, the mineral exploitation rights holder shall be charged a reduced mineral resource indemnification fee.

3) Only 50% of the mineral resource indemnification fee must be paid for syngenetic and associated mineral products by the foreign enterprises and their liaison offices and representative offices established in China for their investment, exploitation and recovery of syngenetic and associated minerals of the main mineral species other than petroleum/natural gas.  For those  who  utilize  the  tailings,  the  mineral  resource indemnification fee may be exempted.  For those who have used advanced technologies to explore and utilize mineral resources difficult to explore and utilize with China's existing technologies, the mineral resources indemnification fee may be reduced to 50% for 3 years.

4) For those foreign enterprises and their liaison offices and representative offices established in China that work with the Chinese mineral  prospecting  rights  holders or mineral exploitation rights holders to explore and exploit mineral resources other than petroleum/natural gas, and have made the exploitation recovery rate, dressing recovering rate and synthetic utilization rate higher than the standard of that of domestic enterprises of the  same type,  their mineral resources indemnification fee may be reduced to 50% for 3 years.  The extra mineral products exploited with the said higher rates are to be exempted from the mineral resource indemnification fee.

5) For the foreign enterprises and the liaison offices and representative offices established in China, that have invested in China's western region, in exploitation of the mineral resources other than petroleum/natural gas which are listed under the Encouraged Category of the Foreign-Invested Enterprise  Industry  Guidance  Directory,  their  mineral resources indemnification fee may be exempted for 5 years.

Mineral Prospecting / Exploitation Rights Royalties

General Rules

1) Mineral prospecting rights royalties refers to the royalties charged to the Mineral prospecting rights holder, according to the relevant regulations, if the mineral resources prospecting rights are transferred by the government to the mineral prospecting rights holder.

The mineral prospecting rights royalties are calculated based on the exploration years and is paid annually according to area sizes.  RMB 100 per square kilometer per annum will be charged for the 1 st to 3rd exploration year; while an extra RMB 100 per square kilometer per annum will be charged for the 4th exploration year with the upper limit being RMB 500 per square kilometer per annum.

2) Mineral exploitation rights royalties refers to the royalties charged  to  the  mineral  exploitation  rights  holder, according to the relevant regulations, if the mineral resources exploitation  rights are transferred  by the government to the mineral exploitation rights holder.

Mineral  exploitation  rights  royalties  are  paid  annually according to the mining area sizes at a rate of RMB 1,000 per square kilometer per annum.

Main Preferential Terms for Fee Deduction/Exemption

1) Those to whom any of the following apply to as they conduct mineral resource exploration and exploitation in China's west, remote and poor regions and sea areas as defined by the State Council, may apply for deductions to or exemption from mineral prospecting  exploitation rights royalties.

The exploration and exploitation of mineral resources in extremely short supply in China;

The exploration and exploitation of successive and substitute resources by large and medium-sized mining enterprises;

Mineral  resource  exploitation  by  utilization  of  new technologies and methods to improve the synthetic utilization standard, including the exploitation of mineral resources of low grade that are difficult to dress or smelt, as well as the utilization of the tailings of old mining areas;

Other cases as defined by the geology and mineral resources authorities of the State Council and the financial sector.

2) Applications for deductions in or exemption from mineral prospecting and exploitation rights royalties are to be examined and approved according to the following:

The mineral prospecting rights royalties for the 1 st exploration year may be exempted; those

for the 2nd and 3rd years may be reduced by-50% and those for the 4th to 7th exploration years may be reduced by 25%.

The mineral exploitation rights royalties for the 1 st year of the initial construction phase and production startup of the mine may be exempted; those for the 2nd and 3rd years of the production startup of the mine may be reduced by 50%, those for the 4th through to 7th years may be reduced by 25% and those royalties for the year when the mine is closed may be exempted.

3) Those foreign investors who invest in the western regions of China and who are involved in the exploration and exploitation of mineral resources other than petroleum/natural gas via wholly-foreign-owned enterprises or through Sino-foreign equity or cooperative joint ventures may exempt from mineral prospecting/exploitation rights royalties for 1 year and only have to pay for half of the said royalties for 2 years, in addition to being eligible for the existing preferential policies duly implemented by the government.

Price Value for Mineral Prospecting/Exploitation Rights

The  price  value  for  mineral  prospecting  rights  and exploitation rights refer to the all income that the authorities being  charge of approval and  registration  of mineral prospecting and exploitation rights affiliated to the central and local governments collected via either bidding, auction and  listing  or on  agreement to transfer the  mineral prospecting  and  exploitation  rights  formed  through government's own investment; and state-owned enterprises pay the price value in arrears, which possess without consideration the mineral prospecting and exploitation rights formed through government's own investment.

If there is really a difficult for the price value for mineral prospecting and exploitation rights to be paid at once, installment payment can be allowed after authorization of the department of registration. The longest payment term for the price value for exploration rights shall not exceed 2 years and for mining rights shall not exceed 10 years

Mining Area Usage Fee

The mining area usage fee is charged to Sino-foreign enterprises that are involved in exploitation of offshore petroleum resources and Sino-foreign cooperative enterprises that are involved in the exploitation of onshore petroleum resources.  It is calculated and charged based on the total crude oil or natural gas output of each petroleum/natural gas field for each calendar year, and the mining area usage fee rate, with a lowest chargeable standard.  The exceeded part will be eligible for progressive rates and can be paid with real goods, and this is to be levied and managed by the tax authorities.  The rates for such fees range from 1% to 12.5%.

The offshore petroleum mining area usage fee shall be the central government's income while the onshore petroleum mining area usage fee shall be the local government's income.

No mineral resource indemnification fees or resource taxes shall be paid by enterprises that have paid mining area usage fees; and resource tax is exempted for the time being.

Special Income Fee of Petroleum

Special Income fee of petroleum means that the government collects  income  money  from  petroleum  exploitation enterprises in proportion, as they obtain excess income for selling domestic crude oil at a price over a certain level Special Income fee of petroleum is colleted by 5-grade progressive rates on amounts in excess of specified amounts and valuation of a fixed amount of rate, is calculated by month and to be paid by quarter.  The collection percentage should be fixed by monthly weighted average price of selling crude oil  by petroleum explitation enterprises. Gauging the value of crude oil should be at dollars per barrel. The tax threshold is $40/bbll to over $60/bbl, while the collection ration rises from 20% to 40%. (see table 4-2)

From March 26th 2006, the government started to impose special income fee of  petroleum. All the other enterprises such as, solely foreign- owned, joint venture and cooperative enterprises which exploit and sell crude oil in the territorial land and within the maritime space under the People's Republic of China's jurisdiction should pay special income fee of petroleum in accord with this measure. The Chinese party of the joint venture and cooperative enterprises can deduct and pay special income fee of petroleum on joint venture and cooperative enterprises' behalf.