LDK Solar Co., Ltd. - Asia Europe Clean Energy (Solar) Advisory Co ...

tax treatments to foreign-invested enterprises such as a two-year exemption from the national enterprise
income tax for their first two profitable years of operation and a 50% reduced national enterprise income tax
for the subsequent three years for manufacturing companies with operating terms of more than ten years.
Pursuant to the PRC Provisional Regulation on the Value Added Tax, or VAT, and its implementation
rules, any entity or individual engaged in the sale of goods, provision of specified services and importation of
goods in China is generally required to pay a VAT, at the rate of 17.0% of the gross sales proceeds received,
less any deductible VAT already paid or borne by such entity or individual. When an entity exports goods from
China, the exporter is entitled to a refund of a portion or all of the VAT paid by the entity. Our imported raw
materials used for manufacturing products subject to export, to the extent they are placed in governmentsanctioned
bonded warehouses, are exempt from import VAT.
In March 2007, the National People's Congress enacted a new Enterprise Income Tax Law, which will
become effective on January 1, 2008. The new tax law would impose a unified income tax rate of 25% on all
domestic enterprises and foreign-invested enterprises unless they qualify under certain limited exceptions. The
new tax law permits companies to continue to enjoy their existing preferential tax treatment until such
treatment expires in accordance with its current terms. Under the new tax law, ""high and new technology
enterprises'' specially supported by the PRC government will continue to enjoy a reduced national enterprise
tax rate of 15%. The new tax law, however, does not specify what high and new technology enterprises will be
eligible for special support from the government. Our wholly owned subsidiary, Jiangxi LDK Solar, obtained
the ""high and new technology enterprise'' status in December 2006. Such status is valid for two years and is
renewable upon review and approval by the Science and Technology Bureau of Jiangxi Province. If we fail to
maintain our status as a ""high and new technology enterprise'' or fail to qualify for special support from the
PRC government, we will be subject to the 25% unified enterprise income tax rate beginning in 2011 after our
current preferential tax treatment expires.
Under the current PRC tax law, dividend payments to foreign investors made by foreign-invested
enterprises, such as our PRC subsidiary, Jiangxi LDK Solar, are exempt from PRC withholding tax. Pursuant
to the new tax law, however, dividends payable by a foreign-invested enterprise to its foreign investors will be
subject to a 20% withholding tax, unless any such foreign investor's jurisdiction of incorporation has a tax
treaty with China that provides for a different withholding arrangement. The Cayman Islands, where we are
incorporated, does not have such a tax treaty with China. Although the new PRC tax law contemplates the
possibility of exemptions from withholding taxes for China-sourced income of foreign-invested enterprises, the
PRC tax authorities have not promulgated any related implementation rules and it remains unclear whether
we would be able to obtain exemptions from PRC withholding taxes. In addition, under the new tax law,
enterprises organized under the laws of jurisdictions outside China with their ""de facto management bodies''
located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise
income tax at the rate of 25% on their worldwide income. The new tax law, however, does not define the term
""de facto management bodies.'' If a majority of the members of our management team continue to be located
in China after the effective date of the new tax law, we may be considered a PRC resident enterprise and
therefore subject to PRC enterprise income tax at the rate of 25% on our worldwide income.
Foreign Currency Exchange
China regulates foreign currency exchanges primarily through the following rules and regulations:
‚ Foreign Currency Administration Rules of 1996, as amended; and
‚ Administrative Rules of the Settlement, Sale and Payment of Foreign Exchange of 1996.
As we have disclosed in ""Risk Factors Ì Risks Relating to Business Operations in China Ì Changes in
foreign exchange and foreign investment regulations in China may affect our ability to invest in China and the
ability of our PRC subsidiary to pay dividends and service debts in foreign currencies'' in this prospectus,
Renminbi is not a freely convertible currency at present. Under the current PRC regulations, conversion of
Renminbi is permitted in China for routine current-account foreign exchange transactions, including trade and
service related foreign exchange transactions, payment of dividends and service of foreign debts. Conversion of
Renminbi for most capital-account items, such as direct investments, investments in PRC securities markets
and repatriation of investments, however, is still subject to the approval of the SAFE.
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