Income Tax Law of the People's
Republic of China on Enterprises with Foreign Investment
and Foreign Enterprises
Article 1 Enterprises with foreign investment who earn income
from production, business operations and other sources within
the borders of the People's Republic of China , shall pay Income
Tax according to the provisions of this Law.
Foreign enterprises who earn income from production, business
operations and other sources within the prodders of the People's
Republic of China , shall pay Income Tax according to the
provisions of this Law.
Article 2 ‘Enterprises with foreign investment' in
this Law, refers to Chinese-foreign equity joint-ventures,
Chinese-foreign contractual joint-ventures and wholly foreign-funded
enterprises established within the borders of the People's
Republic of China .
‘ Foreign enterprises' in this Law, refers to foreign
companies, enterprises and other economic organizations which
have established organizations or sites within the borders
of China and engage in production or business, and those which,
though not having established organizations or sites in China,
have income from sources within the borders of China.
Article 3 Any enterprise with foreign investment which establishes
its head office in China shall pay Income Tax on its income
derived from sources inside and outside China . Any foreign
enterprise shall pay Income Tax on its income derived from
sources within China .
Article 4 For enterprises with foreign investment and foreign
enterprises with establishments and sites in China , the amount
of taxable income on the total income each year from those
establishments and sites, shall be the amount remaining from
gross income for that year after costs, expenses and losses
have been deducted.
Article 5 The enterprise Income Tax of enterprises with
foreign investment and the Income Tax which shall be paid
by foreign enterprises on the income of their organizations
or sites in China for production or business purposes, shall
be calculated on taxable income at a rate of 30%; local Income
Tax shall be calculated on taxable income at a rate of 3%.
Article 6 The State shall, in accordance with its industrial
policies, guide the orientation of foreign investment and
encourage the establishment of enterprises with foreign investment
which adopt advanced technology and equipment and export all
or the greater part of their production.
Article 7 The Income Tax on enterprises with foreign investment
established in special economic zones, foreign enterprises
which have establishments or sites in special economic zones
engaged in production or business operations, and enterprises
with foreign investment of a production nature in economic
and technological development zones shall be levied at the
reduced rate of 15%.
The Income Tax on enterprises whit foreign investment of
a production nature established in coastal economic open zones,
or in the old urban districts of cities where the special
economic zones or the economic and technological development
zones are located, shall be levied at the reduced rate of
24%.
The Income Tax on enterprises with foreign investment in
coastal economic open zones, old urban districts of cities
where the special economic zones or the economic zones or
the economic and technological development zones are located,
or other regions defined by State Council within the scope
of energy, communications, harbour , wharf or other projects
encouraged by the State, may be levied at the reduced rate
of 15%. The specific rules shall be formulated by State Council
.
Article 8 Any enterprise with foreign investment of a production
nature scheduled to operate of a period of not less than 10
years shall, from the year in which it begins to make profits,
be exempted from Income Tax in the first and second years
and slowed a 50%reduction in the third to fifth years. However,
the exemption from or reduction of Income Tax for enterprises
with foreign investment engaged in the exploitation of resources
such as petroleum, natural gas, rare metals and precious metals
shall be regulated separately by State Council. Enterprises
with foreign investment which have operated for a period of
less than 10 years shall repay the amount of Income Tax already
exempted or reduced.
The relevant regulations promulgated by State Council before
the entry into force of this Law, which provide preferential
treatment in the form of exemption from or reduction of Income
Tax for enterprises engaged in energy, communications, harbour,
wharf and other major projects of a production nature, for
a period longer than that specified in the preceding paragraph,
or which provide preferential treatment in the form of exemption
from or reduction of Income Tax for enterprises engaged in
major projects of a non-production nature, shall remain applicable
after this Law enters into force.
Any enterprise with foreign investment which is engaged in
agriculture, forestry or animal husbandry and any other enterprise
with foreign investment which is established in remote underdeveloped
areas may, upon approval, by the responsible department for
tax affairs under State Council, of an application filed by
the enterprise, be allowed a 15% to 30% reduction of the amount
of Income Tax payable for a period of 10 years following the
expiration of the period for tax exemption or reduction provided
for in the preceding two paragraphs.
After this Law enters into force, any modification to the
provisions of the preceding three paragraphs of this Article
on the exemption from or reduction of Income Tax on enterprises
shall be submitted by State Council to the Standing Committee
of the National People's congress for a decision.
Article 9 For any enterprise with foreign investment which
operates in an industry or undertakes a project encouraged
by the State, the exemption from or reduction of local Income
Tax shall, in accordance with the actual situation, be at
the discretion of the People's government of the relevant
province, autonomous region or municipality under the Central
Government.
Article 10 Any foreign investor of an enterprise with foreign
investment which reinvests its share of profit from the enterprise
directly into that enterprise by increasing its registered
capital, or which uses the profit as capital investment to
establish other enterprises with foreign investment to operate
for a period of not less than 5 years shall, upon approval
by the tax authorities of an application filed by the investor,
be refunded 40% of the Income Tax already paid on the reinvested
amount. Where regulations of State Council provide otherwise
in respect of preferential treatment, such regulations shall
apply; if the investor withdraws his reinvestment before the
expiration of a period of 5 years, he shall repay the refunded
tax.
Article 11 The losses incurred in a tax year by an enterprise
with foreign investment or by the organizations or sites established
by a foreign enterprise in China for production or business
operations, may be offset against income in the following
tax year. Where the income of the following year is not sufficient
to offset those losses, the balance may be offset against
income of subsequent years, over a period not exceeding 5
years.
Article 12 enterprises with foreign investment may, when
filing a consolidated Income Tax return, deduct from the amount
of tax payable the foreign Income Tax already paid abroad
in respect of income derived from sources outside China .
The amount deducted, however, may not exceed the amount of
Income Tax otherwise payable under this Law with respect to
income derived from sources outside China .
Article 13 In business transactions between an enterprise
with foreign investment or the establishments or sites set
up in China by a foreign enterprise for production or business
operations, and its associated enterprise, the payment of
receipt of charges or fees shall be made in business transactions
between independent enterprises. Where the payment or receipt
of charges or fees is not made in the same way as business
transactions between independent enterprises and results in
a reduction of taxable income, the tax authorities have the
right to make appropriate adjustments.
Article 14 Where an enterprise with foreign investment or
a foreign enterprise with an establishment or site in China
for production or business operations, moves to a new site,
merges with another enterprise, breaks up, winds up or makes
a change in any of the main entries of its registration, it
shall present the relevant documentation to, and go through
registration procedures of change or cancellation of its registration
with, the local tax authorities, after the relevant event
is registered or a change or cancellation in registration
has been made with the Industrial and Commercial Administration
Department.
Article 15 Enterprise Income Tax and local Income Tax shall
be calculated on an annual basis and paid in advance in quarterly
installments. These payments shall be made within 15 days
of the end of each quarter and the final settlement shall
be made within 5 months of the end of the tax year. Any excess
payment will be refunded and any deficiency shall be made
up.
Article 16 Any enterprise with foreign investment of a foreign
enterprise with an establishment of site in China for production
or business operations shall file its quarterly provisional
Income Tax returns with the local tax authorities within the
period for each advance payment of tax, and shall file an
annual Income Tax return together with the final accounting
statements within 4 months of the end of the tax year.
Article 17 Any enterprise with foreign investment and any
foreign enterprise with establishments or sites in China for
production or business operations, shall report its financial
and accounting systems to the local tax authorities for reference
purposes. All accounting records must be complete and accurate,
with legitimate vouchers as the basis for entries.
Where the financial and accounting procedures adopted by
an enterprise with foreign investment of organizations or
sites established by a foreign enterprise for production or
business operations, conflicts with relevant tax provisions
of State Council, the tax payment due shall be calculated
according to the relevant provisions of State Council.
Article 18 Where an enterprise with foreign investment goes
into liquidation, and where the net balance of its assets
or the balance or its property, after deduction of its undistributed
profits, various funds and liquidation expenses, exceeds the
enterprise's paid in capital, the excess shall be considered
liquidation income on which Income Tax shall be paid according
to provisions of this Law.
Back to top
|