(Adopted at the Fourth Session of the Fifth National People'sCongress on December 13, 1981)

(Adopted at the Fourth Session of the Fifth National People'sCongress on December 13, 1981) Whole Doc.

Article 1 Income tax shall be levied in accordance with this Law on the income derived from production, business and other sources of any foreign enterprise operating in the People's Republic of China.

"Foreign enterprises" mentioned in this law refer, with the exception of those for whom separate provisions are stipulated in Article 11, to foreign companies, enterprises and other economic organizations which have establishments in the People's Republic of China engaged in independent business operation or co-operative production or joint business operation with Chinese enterprises.

Article 2 The taxable income of a foreign enterprise shall be the net income in a tax year after deduction of costs, expenditures and losses in that year.

Article 3 Income tax on foreign enterprises shall be assessed at progressive rates for the parts in excess of a specific amount of taxable income. The tax rates are as follows: Range of income Tax rate (per cent) --------------- Annual income below 250,000 yuan . . 20 That part of annual income above 250,000 and up to 500,000 yuan . . . . . . 25 That part of annual income above 500,000 and up to 750,000 yuan . . . . . . 30 That part of annual income above 750,000 and up to 1,000,000 yuan . . . . . 35 That part of annual income above 1,000,000 yuan . . . . . . . . . . . . . . . . . 40 --------------- Article 4 In addition to the income tax levied on foreign enterprises in accordance with the provisions of the preceding article a local income tax of 10 per cent of the same taxable income shall be levied.

Where a foreign enterprise needs reduction in, or exemption from local income tax on account of the small scale of its production or business, or its rate of profit, this shall be decided by the people's government of the province, municipality or autonomous region in which that enterprise is located.

Article 5 A foreign enterprise scheduled to operate for a period of 10 years or more in farming, forestry, animal husbandry or other low- profit occupations may, upon approval by the tax authorities of an application filed by the enterprise, be exempted from income tax in the first profit-making year and allowed a 50 per cent reduction in the second and third years.

With the approval of the Ministry of Finance, a 15 to 30 per cent reduction in income tax may be allowed for a period of 10 years following the expiration of the term for exemptions and reductions specified in the preceding paragraph.

Article 6 Losses incurred by a foreign enterprise in a tax year may be carried over to the next year and made up with a matching amount drawn from that year's income. Should the income in the subsequent tax year be insufficient to make up for the said losses, the balance may be made up with further deductions against income year by year over a period not exceeding five years.

Article 7 Income tax on foreign enterprises shall be levied on an annual basis and paid in quarterly installments.

Such provisional payments shall be made within 15 days after the end of each quarter. The final settlement shall be made within five months after the end of a tax year. Excess payments shall be refunded by the tax authorities or deficiencies made good by the taxpayer.

Article 8 Foreign enterprises shall file their provisional income tax returns with the local tax authorities within the period prescribed for provisional payments. The taxpayer shall file its final annual income tax return together with its final accounts within four months after the end of the tax year.

Article 9 The method of financial management and the system of accounting of foreign enterprises shall be submitted to local tax authorities for reference.

Where the method of financial management and the system of accounting of foreign enterprises are in contradiction with the provisions of the Tax Law, tax payments shall be assessed according to the provisions of the Tax Law.

Article 10 Foreign enterprises shall present relevant certificates to the local tax authorities for tax registration when they go into operation or close down in accordance with law.

Article 11 A 20% income tax shall be levied on the income obtained from dividends, interest, rentals, royalties and other resources in China by foreign companies, enterprises and other economic organizations which have no establishments in China. Such tax shall be withheld by the paying unit in each of its payments.

For the payment of income tax according to the provisions in the preceding paragraph, the foreign companies, enterprises and other economic organizations which earn the income shall be the taxpayer, and the paying unit shall be the withholding agent. Taxes withheld on each payment by a withholding agent shall, within five days, be turned over to the State Treasury and the income tax return submitted to the tax authorities.

Income from interest on loans given to the Chinese Government or China's state banks by international finance organizations shall be exempted from income tax. Income from interest on loans given at a preferential interest rate by foreign banks to China's state banks shall also be exempted from income tax.

Income derived from interest on deposits of foreign banks in China's state banks and on loans given at a normal interest rate by foreign banks to China's state banks shall be taxed. However, exemption from income tax shall be granted to those foreign banks in whose countries income from interest on deposits and loans of China's state banks is exempted from income tax.

Article 12 The tax authorities have the right to investigate the financial affairs, account books and tax situation of any foreign enterprise, and have the right to investigate the withholding situation of any withholding agent. Such foreign enterprises and withholding agents must make reports on fact and provide all relevant information and shall not refuse to co-operate or conceal any facts.

Article 13 Income tax levied on foreign enterprises shall be computed in terms of Renminbi (CNY). Income in foreign currency shall be assessed according to the exchange rate quoted by the State General Administration of Exchange Control of the People's Republic of China and taxed in Renminbi.

Article 14 Foreign enterprises and withholding agents must pay their tax within the prescribed time limit. In case of failure to pay within the prescribed time limit, the appropriate tax authorities, in addition to setting a new time limit for tax payment, shall surcharge overdue payments at one half of one per cent of the overdue tax for every day in arrears, starting from the first day of default.

Article 15 The tax authorities may, acting at their discretion, impose a penalty on any foreign enterprise which has violated the provisions of Article 8, 9, 10 and 12 of this Law.

In dealing with those withholding agents who have violated the provisions of Article 11 of this Law, the tax authorities may, in addition to setting a new time limit for the payment of the part of tax that should have been withheld and, at their discretion, impose a penalty of not more than the amount that should have been withheld.

In dealing with foreign enterprises which have evaded or refused to pay income tax, the tax authorities may, in addition to pursuing the tax, impose a fine of not more than five times the amount of tax underpaid or not paid, according to how serious the offence is. Cases of gross violation shall be handled by the local people's courts according to law.

Article 16 In case of disputes with tax authorities about tax payment, foreign enterprises must pay tax according to the relevant regulations first before applying to higher tax authorities for reconsideration. If they do not accept the decisions made after such reconsideration, they can bring the matter before the local people's courts.

Article 17 Where agreements on tax payment have been concluded between the Government of the People's Republic of China and the government of another country, matters concerning tax payment shall be handled in accordance with the provisions of these agreements.

Article 18 Detailed rules and regulations for the implementation of this Law shall be formulated by the Ministry of Finance of the People's Republic of China.

Article 19 This Law shall come into force as of January 1, 1982.