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Order of the President [2007] No.63
16 March, 2007
(Adopted at the 5th Session of the 10th National People¡¯s Congress on 16
March 2007, promulgated by Order No. 63 of the President of the People¡¯s
Republic of China and effective as of 1 January 2008)¡¡
Table of Content
Chapter I General Provisions
Chapter II Taxable Income
Chapter III Payable Tax
Chapter IV Preferential Tax Treatment
Chapter V Tax Withheld at Source
Chapter VI Special Tax Payment Adjustment
Chapter
VII Administration of Tax Levying and Collection
Chapter VIII Supplementary Provisions
Chapter I General Provisions
Article 1 Taxpayers of enterprise income tax shall be enterprises and other
organizations that obtain income within the People¡¯s Republic of China
(hereinafter referred to as ¡°Enterprises¡±) and shall pay enterprise income
tax in accordance with the provisions of this Law.
This Law shall not apply to wholly individually-owned enterprises and
partnership enterprises.
Article 2 Enterprises are divided into resident enterprises and
non-resident enterprises.
For the purposes of this Law, the term ¡°resident enterprises¡± shall refer to
Enterprises that are set up in China in accordance with the law, or that are
set up in accordance with the law of the foreign country (region) whose
actual administration institution is in China.
For the purposes of this Law, the term ¡°non-resident enterprises¡± shall
refer to Enterprises that are set up in accordance with the law of the
foreign country (region) whose actual administration institution is outside
China, but they have set up institutions or establishments in China or they
have income originating from China without setting up institutions or
establishments in China.
Article 3 Resident enterprises shall pay enterprise income tax originating
both within and outside China.
Non-resident enterprises that have set up institutions or premises in China
shall pay enterprise income tax in relation to the income originating from
China obtained by their institutions or establishments, and the income
incurred outside China but there is an actual relationship with the
institutions or establishments set up by such enterprises.
Where non-resident enterprises that have not set up institutions or
establishments in China, or where institutions or establishments are set up
but there is no actual relationship with the income obtained by the
institutions or establishments set up by such enterprises, they shall pay
enterprise income tax in relation to the income originating from China.
Article 4 The rate of enterprise income tax shall be 25%.
Non-resident enterprises that have obtained income in accordance with the
provisions of Paragraph Three of Article 3 hereof, the applicable tax rate
shall be 20%. TOP
Chapter II Taxable Income
Article 5 The balance derived from the total income in each taxable year of
Enterprises, after deduction of the non-taxable income, tax exempted income,
other deductions and the making up of losses of previous years shall be the
taxable income.
Article 6 Income obtained by Enterprises from various sources in
monetary and non-monetary terms shall be the total income, including
1.income from sale of goods;
2.income from provision of labour services;
3.income from transfer of property;
4.income from equity investment such as dividend and bonus;
5.interest income;
6.rental income;
7.income from royalties;
8.income from donations; and
9.other income.
Article 7 The following income from the total income shall not be
taxable
1.financial funding;
2.administrative fees and government funds obtained and included in
financial management in accordance with the law; and
3.other non-taxable income prescribed by the State Council.
Article 8 Reasonable expenses that are relevant to the income actually
incurred and obtained by Enterprises, including costs, fees, tax payments,
losses and other fees may be deducted from the taxable income.
Article 9 In relation to the expenses from charitable donations incurred by
Enterprises, the portion within 12% of the total annual profit may be
deducted from the taxable income.
Article 10 The following expenses may not be deducted from the taxable
income
1.income from equity investment paid to investors such as dividend and
bonus;
2.payment of enterprise income tax;
3.late payment fines;
4.penalties; fines and losses from confiscated property;
5.expenses from donations other than those prescribed in Article 9 hereof;
6.sponsorship fees;
7.expenses for non-verified provisions; and
8.other expenses irrelevant to the income obtained.
Article 11 Where Enterprises compute the taxable income, the depreciation
of fixed assets calculated in accordance with provisions may be deducted.
No depreciation may be deducted for the following fixed assets
1.fixed assets other than premises and buildings that have not yet been
used;
2.fixed assets leased from other parties by means of business lease;
3.fixed assets leased to other parties by means of lease financing;
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 credited as fixed assets after independent price valuation;
7.other fixed assets whose depreciation may not be calculated.
Article 12 In Enterprises compute the taxable income, the amortization of
intangible assets calculated in accordance with provisions may be deducted.
The amortization of the following intangible assets may not be deducted
1.the fees for self development of intangible assets that have been deducted
from the taxable income;
2.self-created goodwill;
3.intangible assets that are irrelevant to business activities; and
4.other intangible assets whose amortization fee may not be calculated.
Article 13 Where Enterprises calculate taxable income, the following
expenses incurred by Enterprises as long-term fees to be amortized and that
are amortized in accordance with provisions may be deducted
1.reconstruction expenses for fixed assets that have been depreciated in
full;
2.reconstruction expenses for fixed assets leased from other parties;
3.heavy repair expenses of fixed assets; and
4.other expenses that shall be treated as long-term amortization fees.
Article 14 During the period when Enterprises invest outside the territory,
the cost of investment in assets may not be deducted from the taxable
income.
Article 15 The inventory used or sold by Enterprises whose cost is
calculated in accordance with provisions may be deducted from the taxable
income.
Article 16 Where Enterprises transfer assets, the net value thereof may be
deducted from the taxable income.
Article 17 Where Enterprises compute the consolidated enterprise income
tax, the losses of business institutions outside the territory may not be
offset by the profits of business institutions inside the territory.
Article 18 Where there is a loss in a taxable year of Enterprises, it may
be brought forward to the succeeding years and made up by the income of
succeeding years, but the limit of bringing forward may not exceed five
years.
Article 19 Where non-resident enterprises obtain income provided in
Paragraph Three of Article 3 hereof, the taxable income shall be calculated
in accordance with the following methods
1.income from equity investment such as dividend and bonus and interest
income, rental income and royalties, the total income shall be the taxable
income;
2.income from property transfer, the balance derived from the deduction of
net asset value from the total income shall be the taxable income;
3.other income whose taxable income shall be calculated with reference to
the previous two methods.
Article 20 The income, specific scope and standard of deduction and the
specific method of taxation treatment of assets prescribed in this Chapter
shall be provided by the departments in charge of finance and taxation under
the State Council.
Article 21 In computing the taxable income, where financial and accounting
treatment methods of Enterprises are inconsistent with tax laws and
administrative regulations, such taxable income shall be computed in
accordance with tax laws and administrative regulations.
TOP
Chapter III Payable Tax
Article 22 The taxable income of Enterprises shall be the balance derived
from the taxable income of Enterprises multiplies the applicable rate and
minus the tax amount of tax reduction and exemption pursuant to the
preferential tax treatment hereof.
Article 23 The income tax that has been paid outside the territory for
the following income obtained by Enterprises may be offset from the payable
tax of the current period. The offset limit is the payable tax calculated in
accordance with provisions hereof in respect of the income of such item, the
portion in excess of the offset limit may be made up by the balance of the
offset amount of the current year out of the annual offset limit within the
next five years
1.The taxable income originating outside China by resident enterprises;
2.The taxable income incurred outside China that is obtained by institutions
or establishments of non-resident enterprises set up in China with an actual
relationship with such institution or establishment.
Article 24 Where income from equity investment such as dividend and bonus
originating outside the territory of China is shared by foreign enterprises
directly or indirectly controlled by resident enterprises, the portion
undertaken by foreign enterprises in the actual income tax actually paid
outside the territory by foreign enterprises may be offset in the offset
limit prescribed in Article 23 hereof as the income tax that may be offset
outside the territory by such resident enterprises.
TOP
Chapter
IV Preferential Tax Treatment
Article 25 The industries and projects with key support and under
encouraged development by the State may be given preferential enterprise
income tax treatment.
Article 26 The following income of Enterprises shall be tax-exempted
income
1.income from interests on government bonds;
2.income from equity investment income such as dividend and bonus between
qualified resident enterprises;
3.income from equity investment such as dividend and bonus obtained from
resident enterprises by non-resident enterprises that have set up
institutions or establishments in China with an actual relationship with
such institutions or establishments;
4.income of qualified non-profit organizations.
Article 27 The following income may be subject to exempted or reduced
enterprise income tax
1.income from engaging in projects of agriculture, forestry, animal
husbandry and fisheries by Enterprises;
2.income from investment and operation of infrastructure projects with key
state support such as habour, pier, airport, railway, highway, electricity
and hydroelectricity by Enterprises;
3.income from engaging in qualified projects of environmental protection and
energy and water conservation;
4.income from qualified transfer of technology by Enterprises; and
5.income prescribed by Paragraph Three of Article 3 hereof.
Article 28 Small-scale Enterprises with minimal profits that are qualified
are subject to the applicable enterprise income tax rate with a reduction of
20%.
High and new technology Enterprises that require key state support are
subject to the applicable enterprise income tax rate with a reduction of
15%.
Article 29 The autonomous authority of ethnic autonomous locality may
decide on the reduction or exemption of the portion of enterprise income tax
shared by the locality that shall be paid by Enterprises of the ethnic
autonomous locality. Where an autonomous prefecture or autonomous county
decides on the reduction or exemption, they must report to the people¡¯s
government of province, autonomous region or municipality directly under the
central government for approval.
Article 30 Weighted deduction may be computed in taxable income for
the following expenses of Enterprises
1.research and development fees incurred by Enterprises in the development
of new technology, new products and new skills; and
2.the wages paid by Enterprises for job placement of the disabled and of
other personnel encouraged by the State.
Article 31 Venture investment enterprises that engage in venture investment
requiring key state support and encouragement may offset the taxable income
at a certain ratio of the investment amount.
Article 32 Where the fixed assets of Enterprises actually require
accelerated depreciation due to technology advancement, the years of
depreciation may be shortened or the accelerated depreciation method may be
adopted.
Article 33 The income obtained by Enterprises from the production of
products in line with state industrial policies through comprehensive use of
resources may be deducted from the taxable income.
Article 34 The investment by Enterprises on procurement of special
facilities for environmental protection, energy and water conservation and
safe production may be subject to an offset tax amount at a certain ratio.
Article 35 The specific measures of preferential tax treatment prescribed
by this Law shall be formulated by the State Council.
Article 36 Where there is a significant impact on the business activities
of Enterprises pursuant to the needs of national economy and social
development, or due to unexpected public incidents, the State Council may
formulate the special preferential policy of enterprise income tax and
report to the Standing Committee of the National People¡¯s Congress for the
record. TOP
Chapter
V Tax Withheld at Source
Article 37 The payable income tax from income obtained by non-resident
enterprises in accordance with Paragraph Three of Article 3 hereof shall be
subject to tax withheld at source, with the payer as the withholding agent.
The tax payment shall be withheld from the amount paid or the payable amount
due from each tax payment and payable amount of the withholding agent.
Article 38 In respect of the payable income tax from income obtained by
non-resident enterprises from project works and labour services in China,
the tax authority may designate the payer of project price or labour fee as
withholding agent.
Article 39 In respect of the income tax that shall be withheld in
accordance with Articles 37 and 38 hereof, where the withholding agent has
not withheld or fails to perform the withholding obligation in accordance
with the law, the taxpayer shall pay in the place where the tax is incurred.
Where the taxpayer does not pay in accordance with the law, the tax
authority may pursue the payable tax amount of such taxpayer from the amount
payable by the payer of other income projects in China of such taxpayer.
Article 40 The withholding agent shall turn the tax payment withheld to the
treasury within 7 days from the day of withholding, and submit a statement
of withholding enterprise income tax to the tax authority of the place where
it is located. TOP
Chapter VI Special Tax Payment Adjustment
Article 41 The business transactions between Enterprises and their
affiliates that reduce the taxable income or income of such Enterprises and
their affiliates not in compliance with independent transaction principle,
the taxation authority has the right to make an adjustment in accordance
with reasonable methods.
The cost incurred in joint development and transfer of intangible assets, or
joint provision and acceptance of labour services by Enterprises and their
affiliates shall be shared under the independent transaction principle in
computing the taxable income.
Article 42 Enterprises may report to the tax authority the pricing
principle and calculation method of the transactions between their
affiliates. Upon negotiation and confirmation with the Enterprises, the tax
authority may reach the advance pricing arrangement.
Article 43 Where Enterprises submit to the tax authority the annual
enterprise income tax return, they shall enclose a statement of the annual
business transactions between affiliates in respect of the business
transactions of the Enterprises and their affiliates.
Where the tax authority conducts affiliated business investigation,
Enterprises and their affiliates, and other enterprises relevant to the
affiliated business investigation shall provide the relevant information in
accordance with provisions.
Article 44 Where Enterprises fail to provide the information of business
transactions of affiliates, or provide false and incomplete information that
cannot faithfully reflect the actual affiliated business transaction, the
tax authority has the right to verify its taxable income.
Article 45 Where Enterprises controlled by resident enterprises or resident
enterprises and Chinese residents in the country (region) where the actual
tax burden is obviously lower than the tax rate prescribed by Paragraph One
of Article 4 hereof, and profits are not distributed or distributed at a
reduced rate due to reasons other than reasonable business needs, the
portion of the above profits belonged to such resident enterprises shall be
included in the income of such resident enterprises of the current period.
Article 46 The interest fee incurred in excess of the prescribed standard
obtained by Enterprises from the loan investment and equity investment of
their affiliates may not be deducted from the taxable income.
Article 47 Where Enterprises implement other arrangement without reasonable
business objectives to reduce the payable income or income, the tax
authority has the right to adjust in accordance with reasonable methods.
Article 48 Where tax payment requires to be levied additionally by tax
authority in respect of the tax payment adjustment made in accordance with
the provisions of this Chapter, such tax payment shall be levied
additionally and interest shall be levied in accordance with the provisions
of the State Council. TOP
Chapter
VII Administration of Tax Levying and Collection
Article 49 The administration of levy and collection of enterprise income
tax shall follow the provisions hereof in addition to the Law of the
People¡¯s Republic of China on the Administration of Levying and Collection
of Tax.
Article 50 Unless otherwise specified by tax laws and administrative
regulations, resident enterprises whose place of tax payment is the place of
registration of the Enterprise but the place of registration is outside the
territory, the place of tax payment shall be the place where the actual
administration institution is located.
Where resident enterprises establish business institutions in China without
legal person qualification, it shall consolidate the calculation and payment
of enterprise income tax.
Article 51 In respect of non-resident enterprises that obtain the income
prescribed in Paragraph Two of Article 3 hereof, the place of tax payment
shall be the place where the institution or the establishment is located.
Non-resident enterprises that set up two or more institutions or
establishments in China may, upon the examination and approval of the tax
authority, select its main institution or establishment to pay the
consolidated enterprise income tax.
Where non-resident enterprises obtain the income prescribed in Paragraph
Three of Article 3 hereof, the place of tax payment shall be the place where
the withholding agent is located.
Article 52 Enterprises may not pay consolidated enterprise income tax
unless otherwise prescribed by the State Council.
Article 53 Enterprise income tax shall be calculated in accordance with the
taxable year which starts from 1 January to 31 December of a calendar year.
If an Enterprise commences business or terminates its business activities
during the taxable year and the actual business period of such taxable year
is less than 12 months, the actual business period shall be treated as a
taxable year.
Where the Enterprise is liquidated in accordance with the law, the
liquidation period shall be a taxable year.
Article 54 Enterprise income tax shall be prepaid on a monthly or quarterly
basis.
Enterprises shall submit a prepaid enterprise income tax return to the tax
authority within 15 days of the completion of the month or the quarter to
make tax prepayment.
Enterprises shall submit an annual enterprise income tax return to the tax
authority within five months of the completion of the year and make the
settlement of the payable and refundable tax payment.
Enterprises that submit the enterprise income tax return shall enclose a
financial report and other relevant information in accordance with
provisions.
Article 55 Where Enterprises terminate business activities in the interim
of the year, they shall handle with the tax authority the settlement and
payment of enterprise income tax of the current period within 60 days from
the actual termination of business.
Enterprises shall, prior to handling registration cancellation, file a
return of the income settled and pay enterprise income tax in accordance
with the law.
Article 56 Enterprise income tax paid in accordance with this Law shall be
calculated in Renminbi. Where the income is calculated in a currency other
than Renminbi, it shall be converted into Renminbi for tax payment.
TOP
Chapter
VIII Supplementary Provisions
Article 57 Enterprises set up with approval prior to the promulgation of
this Law that enjoy low preferential tax rate in accordance with the tax
laws and administrative regulations at the current period may, pursuant to
the provisions of the State Council, gradually transit to the tax rate
provided herein within five years of the implementation of this Law. Where
such enterprises enjoy regular tax exemption and reduction, the treatment
continues to apply until expiry after the implementation of this Law.
However, those that fail to be entitled to this treatment by reason of not
making any profits, the preferential period shall be calculated from the
year this Law is implemented.
High and new technology enterprises that are set up in a specific zone in
accordance with the law for the purpose of external economic cooperation and
technology exchange and that are newly set up and require key state support
in the region of special policy of such region specified by the State
Council may eligible for transitional treatment and the specific measures
shall be provided by the State Council.
Other enterprises under the encouraged category confirmed by the state may
eligible for tax exemption and reduction in accordance with the provisions
of the State Council.
Article 58 Where agreements on taxation concluded by the People¡¯s Republic
of China and foreign governments contain different provisions, such
agreements shall prevail.
Article 59 The implementing regulations shall be formulated by the State
Council on the basis of this Law.
Article 60 This Law shall come into effect as of 1 January 2008. The Law of
the People¡¯s Republic of China on the Enterprise Income Tax of
Foreign-invested Enterprises and Foreign Enterprises adopted at the 4th
session of the 7th National People¡¯s Congress on 9 April 1991 and the
Tentative Regulations of the People¡¯s Republic of China on Enterprise Income
Tax promulgated by the State Council on 13 December 1993 shall be repealed
simultaneously.
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