RULES FOR THE IMPLEMENTATION OF THE INCOME TAX LAW OF THE PEOPLE'SREPUBLIC OF CHINA FOR ENTERPRISES WITH FOREIGN INVESTMENT AND FOREIGNENTERPRISES
RULES FOR THE IMPLEMENTATION OF THE INCOME TAX LAW OF THE PEOPLE'SREPUBLIC OF CHINA FOR ENTERPRISES WITH FOREIGN INVESTMENT AND FOREIGNENTERPRISES
(Promulgated by Decree No. 85 of the State Council of the People'sRepublic of China on June 30, 1991. and effective as of July 1, 1991)
Important Notice:
In case of discrepancy, the original version in Chinese shall prevail.
Whole Document
RULES FOR THE IMPLEMENTATION OF THE INCOME TAX LAW OF THE PEOPLE'S
REPUBLIC OF CHINA FOR ENTERPRISES WITH FOREIGN INVESTMENT AND FOREIGN
ENTERPRISES
(Promulgated by Decree No. 85 of the State Council of the People's
Republic of China on June 30, 1991. and effective as of July 1, 1991)
Chapter I General Provisions
Article 1
These Rules are formulated in accordance with the provisions of Article 29
of the Income Tax Law of the People's Republic of China for Enterprises
with Foreign Investment and Foreign Enterprises (hereinafter referred to
as the "Tax Law").
Article 2
"Income from production and business operations" mentioned in Article 1,
paragraph 1 and paragraph 2 of the Tax Law means income from production
and business operations in manufacturing, mining, communications and
transportation, construction and installation, agriculture, forestry,
animal husbandry, fishery, water conservation, commerce, finance, service
industries, exploration and exploitation, and in other trades.
"Income from other sources" mentioned in Article 1, paragraph 1 and
paragraph 2 of the Tax Law means profits (dividends), interest, rents,
income from the transfer of property, income from the provision or
transfer of patents, proprietary technology, income from trademark rights
and copyrights as well as other non-business income.
Article 3
"Enterprises with foreign investment" mentioned in Article 2, paragraph 1
of the Tax Law and "foreign companies, enterprises and other economic
organizations which have establishments or places in China and engage in
production or business operations" mentioned in Article 2, paragraph 2 of
the Tax Law are, unless otherwise especially specified, generally all
referred to as "enterprises" in these Rules.
"Establishments or places" mentioned in Article 2, paragraph 2 of the Tax
Law refers to management organizations, business organizations,
administrative organizations and places for factories and the exploitation
of natural resources, places for contracting of construction,
installation, assembly, and exploration work, places for the provision of
labor services, and business agents.
Article 4
"Business agents" mentioned in Article 3, paragraph 2 of these Rules means
companies, enterprises and other economic organizations or individuals
entrusted by foreign enterprises to engage as agents in any of the
following:
(1) representing principals on a regular basis in the arranging of
purchases and signing of purchase contracts and the purchasing of
commodities on commission;
(2) entering into agency agreements or contracts with principals, storing
on a regular basis products or commodities owned by principals, and
delivering on behalf of principals such products or commodities to other
parties; and
(3) having authority to represent principals on a regular basis in signing
of sales contracts or in accepting of purchase orders.
Article 5
"Head office" mentioned in Article 3 of the Tax Law refers to the central
organization which is established in China by an enterprise with foreign
investment as a legal person pursuant to the laws of China and which is
responsible for the management, operations and control over such
enterprise.
Income from production and business operations and other income derived by
the branches within or outside China of an enterprise with foreign
investment shall be consolidated by the head office for purposes of the
payment of income tax.
Article 6
"Income derived from sources inside China" mentioned in Article 3 of the
Tax Law refers to:
(1) income from production and business operations derived by enterprises
with foreign investment and foreign enterprises which have establishments
or places in China, as well as profits (dividends), interest, rents,
royalties and other income arising within or outside China actually
connected with establishments or sites established in China by enterprises
with foreign investment or foreign enterprises;
(2) the following income received by foreign enterprises which have no
establishments or sites in China:
(a) profits (dividends) earned by enterprises in China;
(b) interest derived within China such as on deposits or loans, interest
on bonds, interest on payments made provisionally for others, and deferred
payments;
(c) rentals on property leased to and used by lessees in China;
(d) royalties such as those received from the provision of patents,
proprietary technology, trademarks and copyrights for use in China;
(e) gains from the transfer of property, such as houses, buildings,
structures and attached facilities located in China and from the
assignment of land-use rights within China;
(f) other income derived from China and stipulated by the Ministry of
Finance to be subject to tax.
Article 7
In respect of Chinese-foreign contractual joint ventures that do not
constitute legal persons, each partner thereto may separately compute and
pay income tax in accordance with the relevant tax laws and regulations of
the State; income tax may, upon approval by the local tax authorities of
an application submitted by such enterprises, be computed and paid on a
consolidated basis in accordance with the provisions of the Tax Law.
Article 8
"Tax year" mentioned in Article 4 of the Tax Law begins on January 1 and
ends on December 31 under the Gregorian Calendar.
Foreign enterprises that have difficulty computing taxable income in
accordance with the tax year stipulated in the Tax Law may, upon approval
by the local tax authorities of an application submitted by such
enterprises, use their own 12-month fiscal year as the tax year.
Enterprises commencing business operations in the middle of a tax year or
actually operating for a period of less than 12 months in any tax year due
to such factors as merger or shut-down shall use the actual period of
operations as the tax year.
Enterprises that undergo liquidation shall use the period of liquidation
as the tax year.
Article 9
"The competent authority for tax affairs under the State Council"
mentioned in Article 8, paragraph 3 and Article 19, paragraph 3, Item (4)
of the Tax Law and Article 72 of these Rules refers to the Ministry of
Finance and the State Tax Bureau.
Chapter II Computation of Taxable Income
Article 10
"The formula for the computation of taxable income" mentioned in Article 4
of the Tax Law is as follows:
(1) Manufacturing:
(a) taxable income = (profit on sales) + (profit from other operations) +
(non-business income) - (non-business expenses);
(b) profit on sales = (net sales) - (cost of products sold) - (taxes on
sales) - [ (selling expenses) + (administrative expenses) + (finance
expenses) ];
(c) net sales = (gross sales) - [ (sales returns) + (sales discounts and
allowances) ];
(d) cost of products sold = (cost of products manufactured for the period)
+ (inventory of finished products at the beginning of the period) -
(inventory of finished products at the end of the period);
(e) cost of products manufactured for the period = (manufacturing costs
for the period) + (inventory of semi-finished products and products in
process at the beginning of the period) - (inventory of semi-finished
products and products in process at the end of the period);
(f) manufacturing costs for the period = (direct materials consumed in
production for the period) + (direct labour) + (manufacturing expenses).
(2) Commerce:
(a) taxable income = (profit on sales) + (profit from other operations) +
(non-business income) - (non-business expenses);
(b) profit on sales = (net sales) - (cost of sales) - (taxes on sales) -
[ (selling expenses) + (administrative expenses) + (finance expenses) ];
(c) net sales = (gross sales) - [ (sales returns) + (sales discounts and
allowances) ];
(d) cost of sales = (inventory of merchandise at the beginning of the
period) + { (purchase of merchandise during the period) - [ (purchase
returns) + (purchase discounts and allowances) ] + (purchasing expenses) }
- (inventory of merchandise at the end of the period).
(3) Service trades:
(a) taxable income = (net business income) + (non-operating income) -(non-
operating expenses);
(b) net business income = (gross business income) - [ (taxes on business
income) + (operating expenses) + (administrative expenses) + (finance
expenses) ].
(4) Other lines of business:
Computations shall be made with reference to the above formulas.
Article 11
The computation of taxable income of an enterprise shall, in principle, be
on an accrual basis.
The following income from business operations of an enterprise may be
determined by stages and used as the basis for the computation of taxable
income:
(1) Where products or commodities are sold by instalment payment methods,
income from sales may be recognized according to the invoice date of the
products or commodities to be delivered; income from sales may also be
recognized according to the date of payment to be made by the buyer as
agreed upon in the contract;
(2) Where construction, installation and assembly projects, and provision
of labour services extend beyond one year, income may be recognized
according to the progress of the project or the amount of work completed;
(3) Where the processing or manufacturing of heavy machinery, equipments
and ships for other enterprises extends beyond one year, income may be
recognized according to the progress of the project or amount of work
completed.
Article 12
Where Chinese-foreign contractual joint ventures operate on the basis of
product-sharing, the partners thereto shall be deemed to receive income at
the time of the division of the products; the amount of income shall be
computed according to the price sold to third party or with reference to
prevailing market prices.
Where foreign enterprises are engaged in the co-operative exploration of
petroleum resources, the partners thereto shall be deemed to receive
income at the time of the division of the crude oil; the amount of income
shall be computed according to a price which is adjusted periodically with
reference to the international market prices of crude oil of similar
quality.
Article 13
In respect of income obtained by enterprises in the form of non-monetary
assets or rights and interests, such income shall be computed or appraised
with reference to prevailing market prices.
Article 14
"Exchange rate quoted by the State exchange control authorities" mentioned
in Article 21 of the Tax Law refers to the buying rate quoted by the State
Administration of Exchange Control.
Article 15
In respect of income obtained by enterprises in foreign currency, upon
payment of income tax in quarterly instalments in accordance with the
provisions of Article 15 of the Tax Law, taxable income shall be computed
by converting the income into Renminbi according to the exchange rate
quotation on the last day of the quarter. At the time of final settlement
following the end of the year, no recomputation and reconversion need be
made in respect of income in a foreign currency for which tax has already
been paid on a quarterly basis; only that portion of the foreign currency
income of the entire year for which tax has not been paid shall, in
respect of the computation of taxable income, be converted into Renminbi
according to the exchange rate quotation on the last day of the tax year.
Article 16
Where an enterprise is unable to provide complete and accurate
certificates of costs and expenses and is unable to correctly compute
taxable income, the local tax authorities shall determine the rate of
profit and compute taxable income with reference to the profit level of
other enterprises in the same or similar trade. Where an enterprise is
unable to provide complete and accurate certificates of revenues and is
unable to report income correctly, the local tax authorities shall
appraise and determine taxable income by the use of such methods as cost
(expense) plus reasonable profits.
When the tax authorities appraise and determine profit rates or revenues
in accordance with the provisions of the preceding paragraph, and where
other treatment is provided by the laws, regulations and rules, such other
treatment shall be applicable.
Article 17
Foreign air transportation and ocean shipping enterprises engaged in
international transport business shall use 5% of the gross revenues from
passenger and cargo transport and shipping services arising within China
as taxable income.
Article 18
Where an enterprise with foreign investment invests in another enterprise
within China, the profits (dividends) so obtained from the enterprise
receiving such investment may be excluded from taxable income of the
enterprise; however, expenses and losses incurred in such above-mentioned
investments shall not be deducted from taxable income of the enterprise.
Article 19
Unless otherwise stipulated by the State, the following items shall not be
itemized as costs, expenses or losses in the computation of taxable
income:
(1) expenses in connection with the acquisition or construction of fixed
assets;
(2) expenses in connection with the transfer or development of intangible
assets;
(3) interest on capital;
(4) various income tax payments;
(5) fines for illegal business operations and losses due to the
confiscation of property;
(6) surcharges and fines for overdue payment of taxes;
(7) the portion of losses due to natural disasters or accidents for which
there has been compensation;
(8) donations and contributions other than those used in China for public
welfare or relief purposes;
(9) royalties paid to the head office;
(10) other expenses not related to production or business operations.
Article 20
Reasonable administrative expenses paid by a foreign enterprise with an
establishment or site in China to the head office in connection with
production or business operations of the establishment or site shall be
permitted to be itemized as expenses following agreement by the local tax
authorities after an examination and verification of documents of proof
issued by the head office in respect of the scope of the administrative
expenses, total amounts, the basis and methods of allocation, which shall
be provided together with an accompanying verification report of a
certified public accountant.
Administrative expenses in connection with production and business
operations shall be allocated reasonably between enterprises with foreign
investment and their branches.
Article 21
Reasonable interest payments incurred on loans in connection with
production and business operations shall be permitted to be itemized as
expenses following agreement by the local tax authorities after an
examination and verification of documents of proof, which shall be
provided by the enterprises in respect of the loans and interest payments.
Interest paid on loans used by enterprises for the purchase or
construction of fixed assets or the transfer or development of intangible
assets prior to the assets being put into use shall be included in the
original value of the assets. "Reasonable interest" mentioned in the
first paragraph of this Article refers to interest computed at a rate not
higher than normal commercial lending rates.
Article 22
Entertainment expenses incurred by enterprises in connection with
production and business operations shall, when supported by authentic
records or invoices and vouchers, be permitted to be itemized as expenses
subject to the following limits:
(1) Where annual net sales are 15 million yuan (CNY) or less, not to
exceed 0.5% of net sales; for that portion of annual net sales that
exceeds 15 million yuan (CNY), not to exceed 0.3% of that portion of net
sales.
(2) Where annual gross business income is 5 million yuan (CNY) or less,
not to exceed 1% of annual gross business income; for that portion of
annual gross business income that exceeds 5 million yuan (CNY), not to
exceed 0.5% of that portion of annual gross business income.
Article 23
Exchange gains or losses incurred by enterprises during preconstruction or
during production and business operations shall, except as otherwise
provided by the State, be appropriately itemized as gains or losses for
that respective period.
Article 24
Salaries and wages, and benefits and allowances paid by enterprises to
employees shall be permitted to be itemized as expenses following
agreement by the local tax authorities after an examination and
verification of the submission of wage scales and supporting documents and
relevant materials.
Foreign social security premiums paid by enterprises to employees working
in China shall not be itemized as expenses.
Article 25
Enterprises engaged in such businesses as credit and leasing operations
may, on the basis of actual requirements and following approval by the
local tax authorities of a report thereon, provide year-by-year bad debt
provisions, the amount of which shall not exceed 3% of the amount of the
year-end loan balances (not including inter-bank loans) or the amount of
accounts receivable, bills receivable and other such receivables, to be
deducted from taxable income of that year.
The portion of the actual bad debt losses incurred by an enterprise which
exceeds the bad debt provisions of the preceding year may be itemized as a
loss in the current year; the portion less than the bad debt provisions of
the previous year shall be included in taxable income of the current year.
Bad debt losses mentioned in the preceding paragraph shall be subject to
approval after examination and verification by the local tax authorities.
Article 26
"Bad debt losses" mentioned in Article 25, paragraph 2 of these Rules
refers to the following accounts receivable:
(1) due to the bankruptcy of the debtor, collection is still not possible
after the use of the bankruptcy assets for settlement;
(2) due to the death of the debtor, collection is still not possible after
the use of the estate for repayment;
(3) due to the failure of the debtor to fulfil repayment obligations for
over two years, collection is still not possible.
Article 27
Accounts receivable already itemized as bad debt losses which are
recovered in full or in part by an enterprise in a subsequent year shall
be included in taxable income of the year of recovery.
Article 28
Foreign enterprises with establishments or places in China may, except as
otherwise provided by the State, deduct as expenses foreign income tax,
which has been paid on profits (dividends), interest, rents, royalties and
other income received from outside China and actually connected with such
establishments or places.
Article 29
"Net assets or remaining property" mentioned in Article 18 of the Tax Law
means the amount of all assets or property following deduction of various
liabilities and losses upon the liquidation of an enterprise.
Chapter III Tax Treatment for Assets
Article 30
"Fixed assets of enterprises" means houses, buildings and structures,
machinery, mechanical apparatus, means of transport and other such
equipment, appliances and tools related to production and business
operations with a useful life of one year or more. Items not in the nature
of major equipment which are used for production or business operations
and which have a unit value of 2,000 yuan (CNY) or less, or with a useful
life of two years or less may be itemized as expenses on the basis of
actual consumption.
Article 31
The valuation of fixed assets shall be based on original cost.
The original cost of purchased fixed assets shall be the purchase price
plus transportation expenses, installation expenses and other related
expenses incurred prior to the use of the assets.
The original cost of fixed assets manufactured or constructed by an
enterprise itself shall be the actual expenses incurred in their
manufacture or construction.
The original cost of fixed assets treated as investments shall, giving
consideration to the degree of wear and tear of the fixed assets, be such
reasonable price as is specified in the contract, or a price appraised
with reference to the relevant market price plus the relevant expenses
incurred prior to the use thereof.
Article 32
Depreciation of fixed assets of an enterprise shall be computed commencing
with the month following the month in which they are first put into use.
The computation of depreciation shall cease in the month following the
month in which the fixed assets cease to be used.
All investments made during the development stage by enterprises engaged
in the exploitation of oil resources shall, taking the oil (gas) field as
a unit, be aggregated and treated as capital expenditures; the computation
of depreciation shall begin in the month following the month in which the
oil (gas) field commences commercial production.
Article 33
In respect of the computation of depreciation of fixed assets, the salvage
value shall first be estimated and deducted from the original cost of the
assets. The salvage value shall not be less than 10% of the original
value; any request for retaining a lower salvage value or not salvage
value must be approved by the local tax authorities.
Article 34
Depreciation of fixed assets shall be computed using the straight-line
method. Where it is necessary to use any other method of depreciation, an
application may be filed by an enterprise which, following examination and
verification by the local tax authorities, shall be reported level-by-
level to the State Tax Bureau for approval.
Article 35
The computation of the minimum useful life in respect of the depreciation
of fixed assets is as follows:
(1) for houses and buildings: 20 years;
(2) for railway rolling stock, ships, machinery, mechanical apparatus, and
other production equipment: 10 years;
(3) for electronic equipment and means of transport other than railway
rolling stock and ships, as well as as such fixtures, tools and
furnishings related to production and business operations: 5 years.
Article 36
Depreciation of fixed assets in the nature of investments during the
development stage and subsequent stages of an enterprise engaged in the
exploitation of oil resources may be computed on a consolidated basis
without retaining salvage value; the period of depreciation shall not be
less than six years.
Article 37
"Houses and buildings" mentioned in Article 35, Item (1) of these Rules
means houses, buildings and attached structures used for production and
business operations, and living quarters and welfare facilities for
employees, the scope of which is as follows:
- houses, including factory buildings, business premises, office
buildings, warehouses, residential buildings, canteens, and other such
buildings;
- buildings, including towers, ponds, troughs, wells, racks, sheds (not
including temporary, simply constructed structures such as work sheds and
vehicle sheds), fields, roads, bridges, platforms, piers, docks, culverts,
gas stations as well as pipes, smokestacks, and enclosing walls that are
detached from buildings, machinery and equipment;
Facilities attached to buildings and structures mean auxiliary facilities
that are inseparable from buildings and structures and for which no
separate value is computed, including, for example, building and structure
ventilation and drainage systems, oil pipelines, communication and power
lines, elevators and sanitation equipment.
Article 38
The scope of railway rolling stock, ships, machinery, mechanical apparatus
and other production equipment mentioned in Article 35, Item (2) of these
Rules is as follows:
- "railway rolling stock" includes various types of locomotives,
passenger coaches, freight cars, as well as auxiliary facilities on
rolling stock for which no separate value is computed;
- "ships" includes various types of motor ships as well as auxiliary
facilities on ships for which no separate value is computed;
- " machinery, mechanical apparatus and other production equipment"
includes various types of machinery, mechanical apparatus, machinery
units, production lines, as well as auxiliary equipment such as various
types of power, transport and conduction equipment.
Article 39
The scope of electronic equipment, means of transport other than railway
rolling stock and ships mentioned in Article 35, Item (3) of these Rules
is as follows:
- "electronic equipment" means equipment comprising mainly integrated
circuits, transistors, electron tubes and other electronic components
whose primary functions are to bring into use the application of
electronic technology (including software), including computers as well as
computer-controlled robots, and digital-control or program-control
systems.
- "means of transport other than railway rolling stock and ships"
includes airplanes, automobiles, trams, tractors, motor bikes (boats),
motorized sailboats, sailboats, and other means of transport.
Article 40
Where, for special reasons, it is necessary to shorten the useful life of
fixed assets, an application may be submitted by an enterprise to the
local tax authorities which following examination and verification shall
be reported level-by-level to the State Tax Bureau for approval.
Fixed assets which for special reasons as mentioned in the preceding
paragraph require the useful life to be shortened include:
(1) machinery and equipment subject to strong corrosion by acid or alkali
and factory buildings and structures subject to constant shaking and
vibration;
(2) machinery and equipment operated continually year-round for the
purpose of raising the utilization rate or increasing the intensity of
use;
(3) fixed assets of a Chinese-foreign contractual joint venture having a
period of cooperation shorter than the useful life specified in Article 35
of these Rules and which will be left with the Chinese party upon
termination of the cooperation.
Article 41
Enterprises which acquire used fixed assets having a remaining useful life
shorter than the useful life specified in Article 35 of these Rules may,
following agreement by the local tax authorities after examination and
verification of certifying documents so submitted, compute depreciation
according to the remaining useful life.
Article 42
Where expenditures incur during the course of the use of fixed assets due
to increased value caused by expansion, replacement, reconstruction and
technical innovation of fixed assets, the original value of fixed assets
shall be increased; where the period of use of fixed assets can be
extended, the useful life shall be appropriately extended and the
computation of depreciation adjusted accordingly.
Article 43
No further depreciation shall be allowed in respect of fixed assets which
can be continued to be used after having been fully depreciated.
Article 44
The balance of proceeds from the transfer or disposal of fixed assets by
an enterprise shall, after deduction of the underpreciated amount or the
salvage value and handling fees, be entered into the profit and loss
account for the current year.
Article 45
Depreciation of fixed assets received as gifts by enterprises may be
computed on the basis of reasonable valuation.
Article 46
Patents, proprietary technology, trademarks, copyrights, land-use rights
and other intangible assets of enterprises shall be appraised on the basis
of the original value.
For alienated intangible assets, the original value shall be the actual
amount paid based on a reasonable price.
For self-developed intangible assets, the original value shall be the
actual amount of expenditure incurred in the course of development.
For intangible assets used as investment, the original value shall be such
reasonable price as is stipulated in the agreement or contract.
Article 47
The amortization of intangible assets shall be computed using the
straight-line method.
Intangible assets transferred or assigned or used as investments, where
the useful life is stipulated in the agreement or contract, may be
amortized over the period of that useful life; the amortization period in
respect of intangible assets for which no useful life has been stipulated
or which have been developed internally shall not be less than ten years.
Article 48
Reasonable exploration expenses incurred by enterprises engaged in the
exploitation of petroleum resources may be amortized against income from
oil (gas) fields that have already commenced commercial production. The
amortization period shall not be less than one year.
Where operation of a contract field owned by a foreign oil company is
terminated due to failure to find commercially viable oil (gas), and where
ownership of the contract for the exploitation of petroleum (gas)
resources is not continued and management organizations or offices for
carrying on operations for the exploitation of petroleum (gas) resources
are no longer maintained in China, reasonable exploration expenses already
incurred in respect of the terminated contract field shall, upon
examination and confirmation and the issuance of certification by the tax
authorities, be permitted to be amortized against production income of a
newly owned contract field when the new contract for cooperative
exploitation of oil (gas) resources is signed within ten years from the
date of the termination of the old contract.
Article 49
Expenses incurred by enterprises during the period of organization shall
be amortized beginning with the month following the month in which
production and business operations commence; the period of amortization
shall not be less than five years.
The period of organization mentioned in the preceding paragraph means the
period from the date of approval of the organization of the enterprise to
the date of commencement of production and business operations (including
trial production and trial business operations).
Article 50
Inventories of merchandise, finished products, goods in process, semi-
finished products, raw materials, and other such materials of enterprises
shall be valued at cost.
Article 51
Enterprises may choose one of the following such methods: first-in, first-
out; moving average; weighted average or last-in, first-out as the method
of computing actual costs in respect of the delivery or receipt and use of
goods in stock.
Once a method of valuation has been adopted for use, no change shall be
made thereto. Where a change in the method of valuation is indeed
necessary, the matter shall be reported to the local tax authorities for
approval prior to the commencement of the next tax year.
Chapter IV Business Dealings Between Associated Enterprises
Article 52
"Associated enterprises" mentioned in Article 13 of the Tax Law refers to
companies, enterprises and other economic units that have any of the
following relationships with other enterprises:
(1) relationships in respect of existing direct or indirect ownership of
or control over such matters as finances, business operations or purchases
and sales;
(2) direct or indirect ownership of or control over it and another by a
third party;
(3) any other relationship in respect of an association of reciprocal
interests.
Article 53
"Business transactions between independent enterprises" mentioned in
Article 13 of the Tax Law means business dealings carried out between
unassociated and unrelated enterprises on the basis of arm's length prices
and common business practices.
Enterprises have a duty to provide to the local tax authorities relevant
materials such as standard prices and charges in respect of business
dealings with their associated enterprises.
Article 54
Where prices in respect of purchase and sales transactions between an
enterprise and its associated enterprises are not based on independent
business dealings, adjustments may be made thereto by the local tax
authorities according to the following arrangements and methods of
determination:
(1) based on prices of the same or similar business activities between
independent enterprises;
(2) based on the level of profits obtained from resales in respect of
unassociated and unrelated third party prices;
(3) based on costs plus reasonable expenses and profit margin;
(4) based on any other reasonable method.
Article 55
Where interest paid or received in respect of accommodating financing
between an enterprise and an associated enterprise exceeds or is lower
than the amount that would be agreed upon by unassociated and unrelated
parties, or where the rate of interest exceeds or is lower than the normal
rate of interest in respect of similar business, adjustments may be made
thereto by the local tax authorities with reference to normal rates of
interest.
Article 56
Where labour service fees paid or received in respect of the provision of
labour services by an enterprise to an associated enterprise are not based
on business dealings between independent enterprises, adjustments may be
made thereto by the local tax authorities with reference to the normal fee
standards of similar labour activities.
Article 57
Where the valuation or the receipt or payment of usage fees in respect of
such business dealings as the transfer of property or the granting of
rights to the use of property between an enterprise and an associated
enterprise is not based on business dealings between independent
enterprises, adjustments may be made thereto by the local tax authorities
with reference to amounts that would be agreed to by unassociated and
unrelated parties.
Article 58
Management fees paid by an enterprise to an associated enterprise shall
not be expensed.
Chapter V Withholding at Source
Article 59
"Taxable income on profits, interest, rents, royalties and other income"
mentioned in Article 19, paragraph 1 of the Tax Law shall, except as
otherwise stipulated by the State, be computed on the basis of gross
income. Gross royalties obtained from the provision of patents and
proprietary technology include fees for blueprint materials, technical
services and personnel training, as well as other related fees.
Article 60
"Profits" mentioned in Article 19 of the Tax Law means income derived from
the right to profits according to the proportion of investment, equity
rights, stockholding, or other non-debt profit-sharing rights.
Article 61
"Other income" mentioned in Article 19 of the Tax Law includes gains from
the transfer of property such as houses, buildings and structures and
attached facilities within China and land-use rights.
"Gains" mentioned in the preceding paragraph means the amount remaining
from the receipt on transfer minus the original value of the property.
Where foreign enterprises are unable to provide correct certification of
the original value of the property, the original value of the property
shall be determined by the local tax authorities according to the specific
circumstances thereof.
Article 62
"The amount of payment" mentioned in Article 19, paragraph 2 of the Tax
Law means cash payments, payment by remittances, and amounts paid by
account transfers, as well as amounts in equivalent cash value paid in
non-cash assets or rights and interests.
Article 63
"Profits obtained from an enterprise with foreign investment" mentioned in
Article 19, paragraph 3, Item (1) of the Tax Law means income obtained
from profits of an enterprise with foreign investment following the
payment or the reduction of or exemption from income tax in accordance
with the provisions of the Tax Law.
Article 64
"International finance organizations" mentioned in Article 19, paragraph
3, Item (2) of the Tax Law means financial institutions such as the
International Monetary Fund, the World Bank, the Asian Development Bank,
the International Development Association, and the International Fund for
Agricultural Development.
Article 65
"Chinese State banks" mentioned in Article 19, paragraph 3, Item (2) and
Item (3) of the Tax Law means the People's Bank of China, the Industrial
and Commercial Bank of China, the Agricultural Bank of China, the Bank of
China, the People's Construction Bank of China, the Bank of Communications
of China, the Investment Bank of China, and other financial institutions
authorized by the State Council to engage in credit businesses such as
foreign exchange deposits and loans.
Article 66
The scope of the reduction of or exemption from income tax on royalties
provided for in Article 19, paragraph 3, Item (4) of the Tax Law is as
follows:
(1) royalties received in providing proprietary technology for the
development of farming, forestry, animal husbandry and fisheries:
(a) technology provided to improve soil and grasslands, develop barren
mountainous regions and make full use of natural conditions;
(b) technology provided for the supplying of new varieties of animals and
plants and for the production of pesticides of high effectiveness and low
toxicity;
(c) technology provided such as to advance scientific production
management in respect of farming, forestry, fisheries and animal
husbandry, to preserve the ecological balance, and to strengthen
resistance to natural calamities;
(2) royalties received in providing proprietary technology for scientific
institutions, institutions of higher learning and other scientific
research units to conduct or cooperate in carrying out scientific research
or scientific experimentation;
(3) royalties received in providing proprietary technology for the
development of energy resources and expansion of communications and
transportation;
(4) royalties received in providing proprietary technology in respect of
energy conservation and the prevention and control of environmental
pollution;
(5) royalties received in providing the following proprietary technology
in respect of the development of important fields of science and
technology:
(a) production technology for major and advanced mechanical and electrical
equipment:
(b) nuclear power technology;
(c) production technology for large-scale integrated circuits;
(d) production technology for photoelectric integrated circuits, microwave
semi-conductors and microwave integrated circuits, and manufacturing
technology for microwave electron tubes;
(e) manufacturing technology for ultra-high speed computers and
microprocessors;
(f) optical telecommunications technology;
(g) technology for long-distance, ultra-high voltage direct current power
transmission; and
(h) technology for the liquefaction, gasification and comprehensive
utilization of coal.
Article 67
In respect of income of foreign enterprises engaged in China in
construction, installation, assembly, and exploration contracting work,
and provision of labour activities such as consulting, management and
training, the tax authorities may designate the parties paying the
contracted amounts and labour service fees as tax withholding agents.
Chapter VI Tax Preferences
Article 68
Pursuant to the provisions of Article 6 of the Tax Law, the granting of
any necessary preferential treatment in respect of enterprise income tax
to enterprises with foreign investment that are encouraged by the State
shall be implemented in accordance with the provisions of the relevant
laws and administrative rules and regulations of the State.
Article 69
"Special economic zones" mentioned in Article 7, paragraph 1 of the Tax
Law means the special economic zones of Shenzhen, Zhuhai, Shantou and
Xiamen and the Hainan Special Economic Zone established by law or
established upon approval of the State Council; "economic and
technological development zones" mentioned therein means the economic and
technological development zones in the coastal port cities established
upon approval of the State Council.
Article 70
"Coastal economic open zones" mentioned in Article 7, paragraph 2 of the
Tax Law means those cities, counties and districts established as coastal
economic open zones upon approval of the State Council.
Article 71
"Imposition of enterprise income tax at the reduced rate of 15%" mentioned
in Article 7, paragraph 1 of the Tax Law shall be limited to income
obtained by enterprises from production and business operations in the
respective areas so specified in Article 7, paragraph 1 of the Tax Law.
"Imposition of enterprise income tax at the reduced rate of 24%" mentioned
in Article 7, paragraph 2 of the Tax Law shall be limited to income
obtained by enterprises from production and business operations in the
respective areas so specified in Article 7, paragraph 2 of the Tax Law.
Article 72
"Enterprises with foreign investment of a production nature" mentioned in
Article 7, paragraph 1 and paragraph 2 and Article 8, paragraph 1 of the
Tax Law means enterprises with foreign investment engaged in the following
industries:
(1) machine manufacturing and electronics industries;
(2) energy resource industries (not including exploitation of oil and
natural gas);
(3) metallurgical, chemical and building material industries;
(4) light industries, and textiles and packaging industries;
(5) medical equipment and pharmaceutical industries;
(6) agriculture, forestry, animal husbandry, fisheries and water
conservation;
(7) construction industries;
(8) communications and transportation industries (not including passenger
transport);
(9) development of science and technology, geological survey and
industrial information consultancy directly for services in respect of
production and services in respect of repair and maintenance of production
equipment and precision instruments;
(10) other industries as specified by the tax authorities under the State
Council.
Article 73
"Imposition of enterprise income tax at the reduced rate of 15%" mentioned
in Article 7, paragraph 3 of the Tax Law applies to the following:
(1) production-oriented enterprises with foreign investment established in
the coastal economic open zones, special economic zones and in the old
urban districts of municipalities where economic and technological
development zones are located and which are engaged in the following
projects:
(a) technology-intensive or knowledge-intensive projects;
(b) projects with foreign investments of over US $ 30 million and having
long periods for return on investment;
(c) energy resource, transportation and port construction projects;
(2) Chinese-foreign equity joint ventures engaged in port and dock
construction;
(3) financial institutions such as foreign capital banks and Chinese-
foreign banks established in the special economic zones and other areas
approved by the State Council, where the capital contribution of the
foreign investor or the funds for business activities allocated by the
head office bank to the branch bank exceeds US $ 10 million, and where the
period of operations is ten years or more;
(4) production-oriented enterprises with foreign investment established in
the Pudong New Area of Shanghai, as well as enterprises with foreign
investment engaged in energy resource and transport construction projects
such as airports, ports, railways, highways and power stations;
(5) enterprises with foreign investment recognized as high or new
technology enterprises established in the State high or new technology
industrial development zones designated by the State Council, as well as
enterprises with foreign investment recognized as new technology
enterprises established in the new technology industrial development
experimental zone of the municipality of Beijing;
(6) enterprises with foreign investment engaged in projects encouraged by
the State and established in other areas stipulated by the State Council.
Enterprises with foreign investment in projects listed in Item (1) of the
preceding paragraph shall, following approval by the State Tax Bureau of
an application submitted by such enterprises, be subject to enterprises
income tax at the reduced tax rate of 15%.
Article 74
"The period of business operations" mentioned in Article 8, paragraph 1 of
the Tax Law means the period commencing on the date an enterprise with
foreign investment actually begins production or business operations
(including trial production and trial business operations) and ending on
the date the enterprise ceases production or business operations.
Enterprises with foreign investment that pursuant to the provisions of
Article 8, paragraph 1 of the Tax Law may enjoy treatment in respect of
reductions of or exemptions from enterprise income tax shall submit to the
local tax authorities for examination and verification such circumstances
as the lines of business in which engaged, names of major products, and
the period of operations decided upon. No treatment in respect of
reductions of or exemptions from enterprise income tax shall be enjoyed
without examination and verification and agreement thereof.
Article 75
"The relevant provisions promulgated by the State Council before the entry
into force of this Law" mentioned in Article 8, paragraph 2 of the Tax Law
means the following provisions in respect of exemptions from or reductions
of enterprise income tax promulgated or approved for promulgation by the
State Council:
(1) Chinese-foreign equity joint ventures engaged in port and dock
construction where the period of operations is 15 years or more shall,
following application by the enterprise and approval thereof by the tax
authorities of provinces, autonomous regions, or municipalities directly
under the Central Government of the location and commencing with the first
profit-making year, be exempt from enterprise income tax from the first
year to the fifth year and subject to enterprise income tax at a rate
reduced by one half for the sixth year through the tenth year.
(2) Enterprises with foreign investment established in the Hainan Special
Economic Zone and engaged in infrastructure facility projects such as
airports, harbours, docks, highways, railways, power stations, coal mines
and water conservation, and enterprises with foreign investment engaged in
the development of and operations in agriculture where the period of
operations is 15 years or more shall, following application by the
enterprise and approval thereof by the tax authorities of Hainan Province
and commencing with the first profit-making year, be exempt from
enterprise income tax from the first year to the fifth year and subject to
enterprise income tax at a rate reduced by one half for the sixth year
through the tenth year.
(3) Enterprises with foreign investment established in the Pudong New Area
of Shanghai and engaged in construction projects such as airports, ports,
railways, highways and power stations where the period of operations is 15
years or more shall, following application by the enterprise and approval
thereof by the tax authorities of the municipality of Shanghai and
commencing with the first profit-making year, be exempt from enterprise
income tax from the first year to the fifth year and subject to enterprise
income tax at a rate reduced by one half for the sixth year through the
tenth year.
(4) Enterprises with foreign investment established in the special
economic zones and engaged in service-oriented industries where the amount
of the foreign investment exceeds US $ 5 million and the period of
operations is ten years or more shall, following application by the
enterprise and approval thereof by the tax authorities of the special
economic zone and commencing with the first profit-making year, be exempt
from enterprise income tax in the first year and subject to enterprise
income tax at a rate reduced by one half for the second and third years.
(5) Financial institutions such as foreign capital banks and Chinese-
foreign banks established in the special economic zones and other areas
approved by the State Council where the capital contribution of the
foreign investor or the funds for business activities allocated by the
head office bank to the branch bank exceeds US $ 10 million and the period
of operations is ten years or more shall, following application by the
enterprise and approval thereof by the local tax authorities and
commencing with the first profit-making year, be exempt from enterprise
income tax in the first year and subject to enterprise income tax at a
rate reduced by one half for the second and third years.
(6) Chinese-foreign equity joint ventures recognized as high or new
technology enterprises and established in the State high or new technology
industrial development zones designated by the State Council where the
period of operations is ten years or more shall, following application by
the enterprise and approval thereof by the local tax authorities and
commencing with the first profit-making year, be exempt from enterprise
income tax in the first year and second year. Enterprises with foreign
investment established in the special economic zones and the economic and
technological development zones shall be governed by the preferential tax
provisions of the special economic zones and the economic and
technological development zones. Enterprises with foreign investment
established in the new technology industrial development experimental zone
of the municipality of Beijing shall be governed by the preferential tax
provisions of the new technology industrial development experimental zone
of the municipality of Beijing.
(7) Export-oriented enterprises invested in and operated by foreign
businesses for which in any year the output value of all export products
amounts to 70% or more of the output value of the products of the
enterprise for that year may pay enterprise income tax at the tax rate
specified in the Tax Law reduced by one half after the period of
enterprise income tax exemptions or reductions has expired in accordance
with the provisions of the Tax Law. However, export-oriented enterprises
in the special economic zones and economic and technological development
zones and other such enterprises subject to enterprise income tax at the
tax rate of 15% that qualify under the above-mentioned conditions shall
pay enterprise income tax at the tax rate of 10%.
(8) Advanced technology enterprises invested in and operated by foreign
businesses which remain advanced technology enterprises after the period
of enterprise income tax exemptions or reductions has expired in
accordance with the provisions of the Tax Law may continue to pay for an
additional three years enterprise income tax at the tax rate specified in
the Tax Law reduced by one half.
(9) Implementation of other provisions in respect of exemptions from or
reductions of enterprise income tax promulgated or approved for
promulgation by the State Council.
Enterprises with foreign investment shall, in applying for exemptions from
or reductions of enterprise income tax in accordance with the provisions
of Item (6), Item (7), or Item (8) of the preceding paragraph, submit
relevant documents of proof issued by departments in respect of the
examination, verification and confirmation, the application shall be
subjected to approval by the local tax authorities after examination and
verification.
Article 76
"The first profit-making year" mentioned in Article 8, paragraph 1 of the
Tax Law and in Article 75 of these Rules means the first tax year in which
profits are obtained by an enterprise following commencement of production
or business operations. Where an enterprise suffers losses during the
early stages after establishment, such losses may be made up by the income
of the following tax year in accordance with the provisions of Article 11
of the Tax Law. The first profit-making year shall be the year in which
profits are obtained after such losses are made up.
The period for exemptions from or reductions of enterprise income tax
specified in the first paragraph of Article 8 of the Tax Law and Article
75 of these Rules shall be computed continuously commencing with the year
in which the enterprise begins to make profits. The computation shall not
be deferred because of losses incurred in any of the subsequent years.
Article 77
Enterprises with foreign investment which commence operations in the
middle of a year and earn profits may, where the actual period of
operations is less than six months, choose to use the following year as
the period in which to begin the computation of tax exemptions or tax
reductions; however, income tax shall be paid in accordance with the Tax
Law on profits earned during the year.
Article 78
Unless otherwise provided by the State Council, the preferential tax
provisions of Article 8, paragraph 1 of the Tax Law shall not apply to
enterprises engaged in the exploitation of such natural resources as
petroleum, natural gas, rare metals and precious metals.
Article 79
Enterprises with foreign investment that have received exemptions from or
reductions of enterprise income tax pursuant to the provisions of Article
8, paragraph 1 of the Tax Law and Article 75 of these Rules shall, where
the actual period of operations is less than the period stipulated
therein, except in the case of major losses sustained due to natural
disasters or unforeseen accidents, make up the amount of the exemptions
from or reductions of enterprise income tax.
Article 80
"Direct reinvestment" mentioned in Article 10 of the Tax Law refers to
profits received from an enterprise with foreign investment by foreign
investor of that enterprise which prior to receipt are directly used to
increase registered capital, or which following receipt are directly used
to organize another enterprise with foreign investment.
Foreign investors shall, in computing the amount of tax refundable in
accordance with the provisions of Article 10 of the Tax Law, provide
certificates confirming the use of the reinvested profits for the year;
the local tax authorities shall adopt any reasonable method for the
reckoning and determination thereof where certificates cannot be provided.
Foreign investors shall, in respect of the application for a refund of
tax, submit within one year of the date of the actual investment of the
reinvested amount a record of the reinvested amount and a certificate for
the investment period of the increased capital or contributed capital to
the tax authorities in the place where the taxes were originally paid.
Article 81
"Other preferential provisions of the State Council" mentioned in Article
10 of the Tax Law refers to direct reinvestment in China by foreign
investors for the organization and expansion of export-oriented
enterprises or advanced technology enterprises, as well as profits of
foreign investors earned from enterprises established in the Hainan
Special Economic Zone that are directly reinvested in the Hainan Special
Economic Zone in infrastructure projects and agriculture development
enterprises and for which the entire portion of enterprise income tax that
has already been paid on the reinvested amount may, in accordance with the
provisions of the State Council, be refunded.
Foreign investors that apply for a refund of tax on reinvestments in
accordance with the provisions of the preceding paragraph shall, in
addition to completing the requirements pursuant to Article 80, paragraph
2 and paragraph 3 of these Rules, submit certificates issued by the
examining, verifying and confirming departments confirming the
organization and expansion of export-oriented enterprises or advanced
technology enterprises.
Enterprises in which foreign investors have reinvested in respect of the
organization or expansion thereof which within three years of commencing
production or operations have not achieved the standards in respect of
export-oriented enterprises or have not continued to be confirmed as
advanced technology enterprises shall repay 60% of the amount of tax
refunded.
Article 82
"Tax refunds on reinvestments" mentioned in Article 10 of the Tax Law and
Article 81, paragraph 1 of these Rules shall be computed according to the
following formula:
Amount of tax refund = Reinvestment amount v [1 - (originally applicable
enterprise income tax rate + local income tax rate)] X originally
applicable enterprise income tax rate X tax refund rate
Chapter VII Tax Credits
Article 83
"Income tax already paid abroad" mentioned in Article 12 of the Tax Law
means income tax actually paid abroad by an enterprise with foreign
investment on income from sources outside China and does not include taxes
paid for which compensation is later received or assumed by other parties.
Article 84
"The amount of tax payable computed on income from sources outside China
in accordance with the provisions of this Law" mentioned in Article 12 of
the Tax Law means the amount of tax payable computed on taxable income
arising from income from abroad of enterprises with foreign investment,
following the deduction of costs, expenses and losses allowable in
accordance with the relevant provisions of the Tax Law and these Rules
attributable to that income. The limit of the amount of tax payable that
can be deducted shall be computed on a country-by-country basis; the
method of computation is as follows:
Limit on deduction Total amount of tax Amount of
of tax payable on = payable on domestic * income from
income from abroad income and foreign sources
income from ----
abroad computed Total domestic
in accordance with income and
the Tax Law income from
abroad
Article 85
Where the amount of income tax actually paid abroad on income from sources
from abroad by enterprises with foreign investment is less than the
deductible limit resulting from computation based on the provisions of
Article 84 of these Rules, the actual amount of income tax paid abroad may
be deducted from the amount of tax payable; where the deductible limit is
exceeded, the portion in excess shall not be deducted from tax and shall
not be itemized as an expense, however, the portion not exceeding the
limit thereof may be used as a deduction against following year's taxes;
the time limit for such supplemental deductions shall not exceed five
years.
Article 86
The provisions of Article 83 to Article 85 of these Rules shall apply only
to enterprises with foreign investment with head offices established
within China. Enterprises with foreign investment that deduct taxes in
accordance with the provisions of Article 12 of the Tax Law shall provide
the original tax payment certificates signed and issued by the foreign tax
authorities in respect of the same year; copies or tax payment
certificates of different years shall not be used as tax deduction
certificates.
Chapter VIII Tax Administration
Article 87
Enterprises shall, within 30 days of completing business registration,
complete tax registration with the local tax authorities. Enterprises with
foreign investment that establish or terminate branch offices outside
China shall, within 30 days of the date of establishment or termination
thereof, complete with the local tax authorities procedures in respect of
tax registration, amendments to the registration, or cancellation of the
registration.
Enterprises that complete registrations in the preceding paragraph shall,
in accordance with the provisions, present relevant documents, licenses
and materials.
Article 88
Enterprises that undergo important registration changes such as changes of
address, restructurings, mergers, spin-offs, terminations, as well as
changes in the amount of capital and scope of business shall, within 30
days of the completion of the change in business registration or prior to
the cancellation of registration, complete the change in registration or
cancellation of registration with the local tax authorities with the
relevant documents.
Article 89
Foreign enterprises which establish two or more business organizations in
China may use one of the selected business organizations in respect of the
consolidated filing and payment of income tax. However, the business
organization so selected shall meet the following conditions:
(1) assumption of supervisory and management responsibility over the
business operations of the other respective business organizations;
(2) maintenance of complete account records and certificates which
accurately reflect the income, cost, expense and profit and loss
situations of the respective business organizations.
Article 90
In respect of foreign enterprises which in accordance with the provisions
of Article 89 of these Rules consolidate the filing and payment of income
tax, the business organization so selected thereunder shall submit an
application for approval according to the following provisions after
examination and verification thereof by the local tax authorities:
(1) consolidated filing and payment of income tax in respect of business
organizations located in the same province, autonomous region, or
municipality directly under the Central Government shall be subject to
approval by the tax authorities of the province, autonomous region or
municipality directly under the Central Government;
(2) consolidated filing and payment of income tax in respect of business
organizations located in two or more provinces, autonomous regions, or
municipalities directly under the Central Government shall be subject to
approval by the State Tax Bureau.
Following approval for the filing and payment of tax on a consolidated
basis by foreign enterprises, such circumstances as the establishment of
additional business organizations, mergers, change of address, termination
of operations, or shutdowns shall, prior to such event, be reported to the
local tax authorities by the business organization responsible for the
filing and payment of tax on a consolidated basis. Any change in respect
of the business organization filing and paying tax on a consolidated basis
shall be dealt with in accordance with the provisions of the preceding
paragraph.
Article 91
Where business organizations related to foreign enterprises that file and
pay income tax on a consolidated basis apply different tax rates in
respect of the payment of tax, the amount of taxable income of the
respective business organizations shall be separately computed on a
reasonable basis and income tax shall be paid on the basis of the
different tax rates.
Where the respective business organizations mentioned in the preceding
paragraph have losses and profits, tax shall be paid on the profit
remaining after the offsetting of losses against profits according to the
tax rate applicable to the profit-making business organization. A business
organization which incurs losses shall offset losses using profits of the
subsequent year of the business organization; tax shall be paid on the
profit remaining after the offsetting of such losses according to the tax
rate applicable to the business organization; tax paid on the offsetting
amounts shall be based on the tax rate applicable to the business
organization that offsets the losses incurred by the other business
organization.
Article 92
Notwithstanding the provisions of Article 91 of these Rules, where a
business organization responsible for filings and payment of tax on a
consolidated basis is unable to compute separately and reasonably the
taxable income of the respective business organizations, the local tax
authorities may make a reasonable apportionment among the respective
business organizations of the gross taxable income based on the proportion
of business revenues, the proportion of cost and expenses, the proportion
of capital assets, and the proportion of the number of staff or salaries
and wages.
Article 93
Enterprises with foreign investment which establish branch offices in
China shall complete consolidated filings and payment of income tax with
reference to the provisions of Article 91 and Article 92 of these Rules.
Article 94
Enterprises that pay taxes in advance on a quarterly basis in accordance
with the provisions of Article 15 of the Tax Law shall pay in advance on
the basis of actual quarterly profits; where difficulty exists in paying
in advance on the basis of actual quarterly profits, the advanced
quarterly payment of tax may be made according to one-fourth of the
taxable income of the previous year or any other method approved by the
local tax authorities.
Article 95
Enterprises, whether realizing profits or losses in a tax years, shall
file income tax returns and final statements of account with the local tax
authorities within the time limit prescribed in Article 16 of the Tax Law,
and unless otherwise provided by the State, shall include when filing the
final accounting statement an audit statement of a certified public
accountant registered in China.
Where, for special reasons, an enterprise cannot file an income tax return
and final accounting statement within the period prescribed in the Tax
Law, an application shall be submitted within the filing period and, upon
approval of the local tax authorities, the filing period may be extended
appropriately.
Article 96
Final accounting statements submitted by branches or business
organizations to head offices or business organizations that file and pay
income tax on a consolidated basis, shall be submitted at the same time to
the local tax authorities.
Article 97
Enterprises that are merged, spun off, or terminated during the year
shall, within 60 days of the termination of production or business
operations, complete with the local tax authorities procedures for the
settlement of any liability for and payment of income tax, with refunds
for overpayments or supplementary payments for deficiencies.
Article 98
Enterprises which must complete procedures for tax refunds in the case of
overpayments of tax may, where income in foreign currency has already been
converted into Renminbi according to the foreign exchange rate, convert
the amount of the tax in Renminbi to be refunded into foreign currency
according to the exchange rate in effect when the tax was originally paid,
and then reconvert this amount of foreign currency into Renminbi according
to the foreign exchange rate at the date of issuance of the tax refund
certificate. Where it is necessary to complete procedures for
supplementary tax payments in the case of underpayments of tax, the amount
of supplementary tax payments shall be converted into Renminbi according
to the foreign exchange rate at the date of issuance of the certificate
for supplementary tax payments.
Article 99
Enterprises with foreign investment that undergo liquidation shall, prior
to the completion of the cancellation of business registration, complete
the filing of income tax returns with he local tax authorities.
Article 100
Except as otherwise provided by the State, enterprises shall maintain in
China accounting vouchers, books and statements that support the correct
computation of taxable income.
Accounting vouchers, books and statements, and reports of enterprises
shall be completed in the Chinese language or completed in both the
Chinese language and a foreign language.
Enterprises that use electronic computers for purposes of book-keeping
shall treat the accounting records in computer storage or in printed form
as account books. All records on magnetic tape and diskette that have not
been printed out shall be completely retained.
Accounting vouchers, books and statements, and reports of enterprises
shall be retained for at least 15 years.
Article 101
Invoices and certificates of receipts of enterprises shall be subjected to
approval by the local tax authorities prior to printing and use.
Administrative measures in respect of the printing and use of invoices and
certificates of receipts of enterprises shall be formulated by the State
Tax Bureau.
Article 102
All enterprise income tax returns and certificates of tax payments shall
be printed by the State Tax Bureau.
Article 103
If the final day of the period for payment of tax and the period for
filing of a tax return falls on a Sunday or a legal holiday, the day
following the holiday shall be used as the last day of the period.
Article 104
Tax authorities may pay withholding agents as specified in Article 19,
paragraph 2 of the Tax Law and Article 67 of these Rules a handling fee
based on a certain proportion of the amount of tax withheld; the specific
methods shall be formulated by the State Tax Bureau.
Article 105
Local tax authorities may, according to the seriousness of the case,
impose a fine of 5,000 yuan (CNY) or less on taxpayers or withholding
agents that refuse to accept examination by the tax authorities in
accordance with the relevant provisions or that refuse to pay late payment
penalties within the time limit prescribed by the tax authorities.
Article 106
The tax authorities may, according to the seriousness of the case, impose
a fine of 5,000 yuan (CNY) or less on an enterprise which violates the
provisions of Article 87; Article 90, paragraph 2; Article 95; Article 96;
Article 97; Article 99; Article 100 and Article 101 of these Rules.
Article 107
"Tax evasion" mentioned in Article 25 of the Tax Law means the illegal
actions of a taxpayer who has intentionally violated the provisions of the
Tax Law such as by: falsifying, altering or destroying account books,
receipts or accounting vouchers; falsely itemizing or overstating costs
and expenses; concealing or understating taxable income or receipts; or
avoiding taxes or fraudulently recovering taxes already paid.
Article 108
The tax authorities shall, in punishing taxpayers or withholding agents in
accordance with the provisions of the Tax Law and these Rules, serve
notice of contravention.
Article 109
Any entity or individual shall have the right to report a failure to
comply with the Tax Law and the violators thereof. The tax authorities
shall maintain confidentiality for informants and award them in accordance
with the relevant provisions herein.
Chapter IX Supplementary Provisions
Article 110
Enterprises with foreign investment which completed business registration
prior to the promulgation of the Tax Law may, in respect of the payment of
income tax in accordance with the provisions of the Tax Law and where the
liability for tax is higher than that prior to the entry into force of the
Tax Law, use the original applicable tax rate during the approved period
of operations. Where there is no established period of operations, income
tax may be paid using the original applicable tax rate for five years
commencing on the date of the entry into force of the Tax Law. However, in
respect of the above-mentioned period, if during a tax year the tax
liability is higher than that stipulated in the Tax Law, income tax shall
be paid commencing with that tax year according to the tax rate stipulated
in the Tax Law.
Article 111
Preferential treatment in terms of exemptions from and reductions of
enterprise income tax enjoyed pursuant to the laws and administrative
rules and regulations prior to the entry into force of the Tax Law by
enterprises with foreign investment which completed business registration
prior to the promulgation of the Tax Law may continue to remain in effect
until the termination of the period of exemptions and reductions.
Enterprises with foreign investment which completed business registration
prior to the promulgation of the Tax Law but which have not earned profits
or have earned profits for less than five years may, in accordance with
the provisions of Article 8, paragraph 1 of the Tax Law, be granted a
corresponding period of treatment in respect of exemptions from or
reductions of enterprise income tax.
Article 112
Enterprises with foreign investment which completed business registration
after the promulgation of the Tax Law but prior to the entry into force of
the Tax Law may refer to the provisions of Article 110 and Article 111 of
these Rules for implementation herein.
Article 113
The Ministry of Finance and the State Tax Bureau shall be responsible for
the interpretation of these Rules.
Article 114
These Rules shall come into force on the effective date of the Income Tax
Law of the People's Republic of China for Enterprises with Foreign
Investment and Foreign Enterprises. The Detailed Rules for the
Implementation of the Income Tax Law of the People's Republic of China
Concerning Chinese-Foreign Equity Joint Ventures and the Detailed Rules
for the Implementation of the Income Tax Law of the People's Republic of
China for Foreign Enterprises shall be abrogated at the same time.
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