Law of the People's Republic of China on Enterprise Income Tax
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Order of the President of the People's Republic of China
No.63
The Law of the People's Republic of China on Enterprise Income Tax, adopted at the Fifth Session of the Tenth National People's Congress of the People's Republic of China on March 16, 2007, is hereby promulgated and shall go into effect as of January 1, 2008.
Hu Jintao
President of the People's Republic of China
March 16, 2007
Law of the People's Republic of China on Enterprise Income Tax
(Adopted at the Fifth Session of the Tenth National People's Congress on March 16, 2007)
Contents
Chapter I General Provisions
Chapter II The Amount of Income Taxable
Chapter III The Amount of Tax Payable
Chapter IV Preferential Tax Policies
Chapter V Tax Withheld at Source
Chapter VI Adjustment of Special Tax Payment
Chapter VII Administration of Tax Levying and Collection
Chapter VIII Supplementary Provisions
Chapter I
General Provisions
Article 1 The enterprises and other organizations that are located within the People's Republic of China and earn income (hereinafter generally referred to as enterprises) are payers of enterprise income tax, which shall be paid in accordance with the provisions of this Law.
This Law is not applicable to individual proprietorship enterprises and partnerships.
Article 2 Enterprises are divided into resident enterprises and non-resident enterprises.
For the purposes of this Law, resident enterprises are enterprises which are set up in China in accordance with law, or which are set up in accordance with the law of a foreign country (region) but which are actually under the administration of institutions in China.
For the purposes of this Law, non-resident enterprises are enterprises which are set up in accordance with the law of a foreign country (region) and whose actual administrative institution is not in China, but which have institutions or establishments in China, or which have no such institutions or establishments but have income generated from inside China.
Article 3 A resident enterprise shall pay enterprise tax on its income generated from both inside and outside China.
A non-resident enterprise that has set up institutions or establishments in China shall pay tax on the income earned by its institutions or establishments from inside China and the income which is generated from outside China but which is actually relevant to the said institutions or establishments set up in China.
Where a non-resident enterprise has not set up any institutions or establishments in China, or it has done so but the income it earns is not actually relevant to the said institutions or establishments, it shall pay tax on the portion of its income generated from inside China.
Article 4 The rate of enterprise income tax shall be 25 per cent.
On the income earned by non-resident enterprises, as specified in the third paragraph of Article 3 of this Law, the applicable tax rate shall be 20 per cent.
Chapter II
The Amount of Income Taxable
Article 5 The amount of the income of an enterprise taxable in each tax year shall be the remainder of its gross income after the untaxed amount, the amount exempted from taxation, other deductions and the amount allowed to be used to make up the losses of the previous year are deducted.
Article 6 The income earned by an enterprise from various sources in monetary and non-monetary terms constitutes the gross income, which includes:
(1) income from sale of goods;
(2 )income from provision of labor services;
(3) income from transfer of property;
(4) benefits from equity investment, such as dividends and bonuses;
(5) interest income;
(6) rental income;
(7) income from royalties;
(8) income from donations; and
(9) income from other sources.
Article 7 The following of the gross income are untaxed income:
(1) government appropriations;
(2) administrative fees and government funds collected in accordance with law and placed under government control; and
(3) other untaxed income prescribed by the State Council.
Article 8 When calculating the amount of its income taxable, an enterprise may deduct its reasonable expenses which are actually incurred in relation to its income earned, including, among other items, the costs, fees, tax payments, and losses.
Article 9 When calculating the amount of its income taxable, an enterprise may deduct its expenses incurred due to donation for public welfare, provided that the portion involved is not more than 12 percent of the total amount of its annual profits.
Article 10 When calculating the amount of taxable income, the following expenses may not be deducted:
(1) monies from equity investment paid to investors, such as dividends and bonuses;
(2) payment of enterprise income tax;
(3) fines for delaying tax payment;
(4) losses caused by penalties, fines, and property confiscation;
(5) expenses due to donations other than what is specified in Article 9 of this Law;
(6) sponsorship expenses;
(7) non-verified reserves; and
(8) other expenses irrelevant to the income earned.
Article 11 When calculating the amount of its income taxable, an enterprise may deduct its depreciation of fixed assets which are calculated in accordance with relevant regulations.
When calculating depreciations for deduction, none of the following fixed assets may be induced:
(1) fixed assets other than the houses and structures that are not put to use;
(2) fixed assets leased from another person to sublet for profits;
(3) fixed assets rent to another person by way of financial leasing;
(4) fixed assets that have been depreciated in full but are still in use;
(5) fixed assets that are irrelevant to business activities;
(6) land which is separately evaluated and entered into an account book as fixed assets; and
(7) other fixed assets the depreciation of which may not be calculated for deduction.
Article 12 When calculating the amount of its income taxable, an enterprise may deduct the amortized expenses for the intangible assets calculated in accordance with relevant regulations.
When calculating the amortized expenses for deduction, none of the following intangible assets may be included:
(1) intangible assets the expenses for the independent development of which are deducted at the time when the amount of the taxable income is calculated;
(2) self-created reputation;
(3) intangible assets that are irrelevant to business activities; and
(4) other intangible assets the amortized expenses for which may not be calculated for deduction.
Article 13 When calculating the amount of its income taxable, an enterprise may deduct the following expenses to be incurred as anticipated long-term amortized expenses and to be amortized in accordance with relevant regulations:
(1) expenses for reconstruction of the fixed assets that are depreciated in full;
(2) expenses for reconstruction of the fixed assets leased from another person;
(3) expenses for major repairs of the fixed assets; and
(4) other expenses to be used as anticipated long-term amortized expenses.
Article 14 During the period when an enterprise invests outside, the cost of the investment in the form of assets may not be deducted when it calculates the amount of its income taxable.
Article 15 When calculating the amount of its income taxable, an enterprise may deduct the cost of the inventory to be used or sold, which is calculated in accordance with relevant regulations.
Article 16 Where an enterprise transfers its assets, it may deduct the net value of the said assets when calculating the amount of its income taxable.
Article 17 When an enterprise calculates its income tax on a basis, it may not offset the losses of its business institutions outside China by the profits of the business institutions inside China.
Article 18 An enterprise may carry over the losses it incurs in a tax year to the succeeding years, namely, it may have the losses made up by the income of the succeeding years, but the number of years for carrying over such losses may not exceed five years.
Article 19 With respect to the income earned as prescribed in the third paragraph of Article 3 of this Law, a non-resident enterprise shall calculate the amount of its income taxable according to the following methods:
(1) For income derived from equity investment such as dividends and bonuses, and from interest, rent and income from royalties, the total amount of such income shall be the amount of income taxable;
(2) For income derived from property transfer, the remainder of the total amount of the income minus the net value of the property shall be the amount of income taxable; and
(3) For other sources of income, the amount of the income taxable shall be calculated mutatis mutandis according to the methods specified in the preceding two Subparagraphs.
Article 20 The income, the specific scope and criteria for deduction and the methods for handling taxation affairs in respect of assets, as specified in this Chapter, shall be formulated by the departments in charge of finance and taxation under the State Council.
Article 21 Where in calculating the amount of income taxable, where financial and accounting methods of an enterprise are inconsistent with the provisions of the laws and administrative regulations governing taxation, the said amount shall be calculated in accordance with the provisions of such laws and administrative regulations.
Chapter III
The Amount of Tax Payable
Article 22 The amount of an enterprise's income taxable shall be the remainder of the amount of the income taxable multiplied by the applicable tax rate, minus the amount of tax reduced, exempted or offset pursuant to the preferential tax policies provided for by this Law.
Article 23 The amount of income tax paid outside China on the following income earned by an enterprise may offset the tax payable for the current period, the amount of tax quota for the offset being the amount of the tax to be paid on the said income, which is calculated in accordance with the provisions of this Law; the portion in excess of the said quota may be made up with the balance of the annual amount of tax to be offset in each current year within the next five years:
(1) taxable income generated outside China by a resident enterprise; and
(2) taxable income which is generated outside China by a non-resident enterprise that has institution or establishments in China but which is actually relevant to the said institutions or establishments.
Article 24 The portion of the income tax on the income from equity investment, such as dividends and bonuses, which is derived outside China by a resident enterprise from foreign enterprises that are under its direct or indirect control and which covered by the amount of the income tax actually paid outside China by the foreign enterprises, may offset, within the offset quota specified in Article 23 of this Law, the amount of income tax on the income earned outside China by the resident enterprise.
Chapter IV
Preferential Tax Policies
Article 25 The State implements preferential tax policies with respect to the industries and projects which have the major support of, and the development of which is encouraged by, the State.
Article 26 The following income of an enterprise shall be income exempted from tax:
(1) income from interest on government bonds;
(2) income from equity investment, such as dividends and bonuses, between qualified resident enterprises;
(3) income from equity investment, such as dividends and bonuses, which is received from a resident enterprise by a non-resident enterprise that has institutions or establishments in China, and which is actually relevant to the said institutions or establishments; and
(4) income of a qualified non-profit organization.
Article 27 Tax on the following income of an enterprise may be exempted or reduced:
(1) income earned from projects of farming, forestry, animal husbandry, and fisheries;
(2) income from investment in and operation of infrastructure projects which have the major support of the State;
(3) income earned from qualified projects of environmental protection or energy and water conservation;
(4) income from qualified technology transfer; and
(5) income as specified in the third paragraph of Article 3 of this Law.
Article 28 With respect to a qualified small enterprise earning low profits, the tax levied on its income shall be reduced at a rate of 20 percent.
With respect to a high and new technology enterprise that needs key support by the State, the tax levied on its income shall be reduced at a rate of 15 per cent.
Article 29 The autonomous authority of a national autonomous region may decide to reduce or exempt tax on the part of the enterprise income tax payable by an enterprise located at the said region, which is to be shared by the local authority of the region. Tax reduction or exemption decided on by an autonomous prefecture or county shall be subject to approval by the people's government of a province, autonomous region or municipality directly under the Central Government.
Article 30 Weighted deduction may be made for the following expenses when the amount of taxable income of an enterprise is calculated:
(1) expenses on research and development incurred for developing new technologies, products or techniques; and
(2) wages paid for job placement of the disabled and of other persons so encouraged by the State.
Article 31 An investment venture that invests in pioneering undertakings, which the State deems it necessary to give major support and encouragement may offset the amount of its income taxable at a certain ratio to the amount of its investment.
Article 32 Where accelerated depreciation of the fixed assets of an enterprise is really necessary due to technology advancement or other reasons, the number of years for their depreciation may be lessened, or accelerated depreciation may be made.
Article 33 The income earned by an enterprise from manufacturing, through comprehensive use of resources, products in conformity with the industrial policies of the State may be deducted when it calculates the amount of its taxable income.
Article 34 The amount of money an enterprise invest in the purchase of special equipment for environmental protection, energy and water conservation, and safe production may offset the amount of tax payable at a certain ratio.
Article 35 The specific preferential tax policies as provided for in this Law shall be formulated by the State Council.
Article 36 To meet the need of national economic and social development or the challenge of unexpected incidents, etc. which exert a major impact on the business activities of enterprises, the State Council may formulate special preferential policies with respect to enterprise income tax and submit them to the Standing Committee of the National People's Congress for the record.
Chapter V
Tax Withheld at Source
Article 37 The tax payable on the income earned by a non-resident enterprise, as specified in the third paragraph of Article 3 of this Law, shall be withheld at source, with the provider of the income serving as the withholding obligor. When making such a payment or when such payment is due, the withholding obligor shall withhold the income tax from such payment.
Article 38 With respect to the tax payable on the income earned by a non-resident enterprise from engineering operations and labor services in China, the taxation authority may designate the provider of money for engineering operation or labor services as the withholding obligor.
Article 39 Where with respect to the income tax that should be withheld in accordance with the provisions in Articles 37 and 38 of this Law, the withholding obligor fails to withhold tax in accordance with law, or can not perform the withholding obligation, the taxpayer shall pay the tax at the place where the income is generated. If the taxpayer fails to do so in accordance with law, the taxation authority may recover payment of the tax from the money to be paid to him for other projects in China by other providers.
Article 40 The withholding obligor shall turn the tax payment withheld in each installment to the Treasury within seven days from the date of withholding, and shall submit a withholding enterprise income tax return to the local taxation authority.
Chapter IV
Adjustment of Special Tax Payment
Article 41 Where a business transaction effected between an enterprise and its affiliate is at variance with the principle of arm's-length transaction but the taxable income or the amount of the income taxable of the enterprise or its affiliate is reduced, the taxation authority shall have the right to make adjustment in a reasonable manner.
The cost incurred by an enterprise and its affiliate in joint development or transfer of intangible assets, or in joint provision or acceptance of labor services shall be shared by them under the principle of independent transaction, when the amount of income taxable is calculated.
Article 42 An enterprise may make suggestions to the taxation authority as to the principle of pricing and the method of calculation for the transactions effected between itself and its affiliate. The taxation authority and the enterprise may, after consultation and confirmation, reach an advance pricing agreement.
Article 43 When an enterprise submits to the taxation authority its annual income tax return, it shall enclose a statement of its annual business transactions effected with its affiliate.
When the taxation authority conducts investigation on affiliated business, the enterprise and its affiliate, and other enterprises related to the investigation shall provide the relevant information in accordance with relevant regulations.
Article 44 Where an enterprise fails to provide the information of its business transactions effected with affiliate, or provides false or incomplete information which does not reflect the truthfully affiliated business transactions, the taxation authority shall have the right to verify and determine the amount of its income taxable in accordance with law.
Article 45 For an enterprises which is controlled by a resident enterprise or by both a resident enterprise and a Chinese resident but which is established in another country (region) where the actual tax burden is obviously lower than the tax rate specified in the first paragraph of Article 4 of this Law, if it does not distribute its profits or distributes the profits at a reduced rate for reasons other than reasonable business needs, the portion of the aforesaid profits that should go to the said resident enterprise shall be included in the income of the current period of the said resident enterprise.
Article 46 The expenses incurred by an enterprise for payment of interest, due to the fact that the ratio of the bond or equity investment it receives from its affiliates is in excess of the prescribed norm, may not be deducted when it calculates the amount of its income taxable.
Article 47 Where an enterprise earns less taxable income or amount of income because it implements plans other than the ones designed to achieve reasonable business objectives, the taxation authority shall have the right to make adjustment in a reasonable way.
Article 48 Where additional tax needs to be levied after a taxation authority makes adjustment to tax payment in accordance with the provisions of this Chapter, the additional tax shall be levied and additional interest shall be collected in accordance with the relevant regulations of the State Council.
Chapter VII
Administration of Tax Levying and Collection
Article 49 Apart from the provisions of this Law, administration of the levying and collection of enterprise income tax shall be exercised in accordance with the provisions of the Law of the People's Republic of China on the Administration of Tax Collection.
Article 50 Unless otherwise provided for by the laws and administrative regulations governing taxation, the place of registration for a resident enterprise is the place where it pays tax; if it registers outside China, the place where the actual administration institution is located shall be the place for it to pay tax.
Where a resident enterprise establishes a business institution that does not have the status of a legal person in China, it shall consolidate the calculation and payment of its income tax.
Article 51 A non-resident enterprise that earns income as specified in the second paragraph of Article 3 of this Law shall pay tax at the place where its institution or establishment is located. A non-resident enterprise that has two or more institutions or establishments in China may, upon examination and approval by the taxation authority, choose a main institution or establishment to pay the consolidated enterprise income tax.
A non-resident enterprise that earns income as specified in the third paragraph of Article 3 of this Law shall pay tax at the place where its withholding obligor is located.
Article 52 An enterprise may not pay consolidated enterprise income tax with another enterprise, unless otherwise prescribed by the State Council.
Article 53 Enterprise income tax shall be calculated on the basis of the tax year, which begins on January 1 and ends on December 31 of a calendar year.
If an enterprise commences business or terminates its business activities during a tax year, so that the actual period of business conducted in the tax year is less than 12 months, the actual period of business operation shall be deemed to be a tax year.
When an enterprise is being liquidated in accordance with law, the period of liquidation shall be deemed to be a tax year.
Article 54 Enterprise income tax shall be prepaid on a monthly or quarterly basis.
For prepayment of tax, an enterprise shall submit an enterprise income tax return for prepayment to the taxation authority within 15 days from the end of a month or quarter.
For consolidated tax payment, an enterprise shall submit an annual enterprise income tax return to the taxation authority within five months from the end of a tax year and settle the tax payable and refundable.
When submitting its enterprise income tax return, an enterprise shall enclose in it a financial statement and other relevant information according to relevant regulations.
Article 55 Where an enterprise terminates its business activities during a tax year, it shall, within 60 days from the date it actually terminates its business operation, settle its enterprise income tax of the current period on a consolidated basis with the taxation authority.
Before going through the procedure for cancellation of registration, an enterprise shall file with the taxation authority the return on the income settled and pay enterprise income tax in accordance with law.
Article 56 Enterprise income tax to be paid in accordance with this Law shall be calculated in terms of Renminbi. Where the income is calculated in a currency other than Renminbi, it shall be converted into Renminbi for tax payment.
Chapter VIII
Supplementary Provisions
Article 57 An enterprise set up upon approval prior to the promulgation of this Law that enjoys the preferential policy of a low tax rate in accordance with the laws and administrative regulations governing taxation of the time may, pursuant to the relevant regulations of the State Council, gradually go over to the tax rate prescribed by this Law within five years after this Law goes into effect; an enterprise that enjoys the preferential policy in the form of regular tax exemption or reduction may, pursuant to the relevant regulations of the State Council, continue enjoying such policy after this Law goes into effect, until the period for such policy expires; however, if it has not enjoyed such policy because it fails to make any profits, the period for such policy shall be calculated from the year this Law goes into effect.
High and new technology enterprises that are set up in a given zone in accordance with law for the purpose of developing economic cooperation and technological exchange with other countries and that are newly set up in an area where special policies adopted for the said zone are implemented, as prescribed by the State Council, -- all of which the State deems it necessary to give major support -- may enjoy transitional preferential taxation policies, and specific measures in this regard shall be formulated by the State Council.
Other enterprises of the encouraged type as much confirmed by the State may be enjoy the preferential policies for tax exemption or reduction in accordance with the relevant regulations of the State Council.
Article 58 Where provisions in the agreements on taxation concluded by the Government of the People's Republic of China with the governments of other countries are different from the ones in this Law, the provisions there shall prevail.
Article 59 The State Council shall, according to this Law, formulate regulations for implementation of this Law.
Article 60 This Law shall go into effect as of January 1, 2008. The Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises, which was adopted at the Forth Session of the Seventh National People's Congress on April 9, 1991, and the Interim Regulations of the People's Republic of China on Enterprise Income Tax, which was promulgated by the State Council on December 13, 1993, shall be repealed simultaneously.
(Source:npc.gov.cn)
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