Implementation Regulations for the Corporate Income Tax Law of the People's Republic of China
Decree of the State Council No. 512
6 December 2007
CHAPTER
1 — GENERAL PRINCIPLES
Article
1 These Regulations are formulated pursuant
to the provisions of the Corporate Income Tax Law of the People's Republic of
China (hereinafter referred to as the "Corporate Income Tax Law").
Article
2 Enterprises wholly-owned by an individual
and partnership enterprises referred to in Article 1 of the Corporate Income
Tax Law shall mean enterprises wholly-owned by an individual and partnership
enterprises established pursuant to the laws and administrative regulations of
China.
Article
3 Enterprises incorporated in China pursuant
to the law referred to in Article 2 of the Corporate Income Tax Law shall
include enterprises, institutions and social bodies and other organisations
established in China pursuant to the laws and administrative regulations of
China which derive income.
Enterprises
incorporated pursuant to the laws of foreign countries (regions) referred to in
Article 2 of the Corporate Income Tax Law shall include enterprises and other
organisations established pursuant to the laws of foreign countries (regions)
which derive income.
Article
4 Actual management organisations referred to
in Article 2 of the Corporate Income Tax Law shall mean organisations
implementing substantive and comprehensive management and control over the
production and business operations, staff, accounts and property etc. of an
enterprise.
Article
5 Offices and premises referred in the third
paragraph of Article 2 of the Corporate Income Tax Law shall mean organisations
engaging in production and business activities in China and premises where such
production and business activities are carried out, including:
(1) management
offices, business organisations and offices;
(2) factories, farms
and premises where exploration of natural resources is carried out;
(3) premises where
labour services are provided;
(4) premises where
construction, installation, assembly, repair and survey projects etc. are
carried out; and
(5) any other
organisations engaging in production and business activities and any other
premises where production and business activities are carried out.
Where a non-resident
enterprise entrusts a business agent to engage in production and business
activities in China on its behalf, including entrusting an organisation or an
individual to sign contracts frequently on its behalf or to handle storage or
delivery of goods etc.., such a business agent shall be deemed as an office or
premises established by the non-resident enterprise in China.
Article
6 Income referred to in Article 3 of the
Corporate Income Tax Law shall mean the income from sale of goods, income from
provision of labour services, income from transfer of property, income from
equity investments such as dividends and bonuses etc.., interest income, rental
income, income from royalties, income from donations and gifts and any other
income.
Article
7 Income sourced from China or overseas
referred to in Article 3 of the Corporate Income Tax Law shall be determined
pursuant to the following principles:
(1) income from sale
of goods shall be determined pursuant to the place where the transactions
occur;
(2) income from
provision of labour services shall be determined pursuant to the place where
the labour services occur;
(3) for income from
transfer of property, income from transfer of immovables shall be determined
pursuant to the location of the immovables and income from transfer of movables
shall be determined pursuant to the location of the enterprise, the office or
the premises making the transfer; income from equity investments shall be
determined pursuant to the location of the investee enterprise;
(4) income from
equity investments such as dividends and bonuses etc. shall be determined
pursuant to the location of the enterprise making the distribution of income;
(5) interest income,
rental income and income from royalties shall be determined pursuant to the
location of the enterprise, the office or the premises bearing or making
payment of the income or the place of residence of an individual bearing or
making payment of the income; and
(6) any other income
shall be determined by the finance and tax departments of the State Council.
Article
8 Actual liaison referred to in Article 3 of
the Corporate Income Tax Law shall mean that an organisation or office
established in China by a non-resident enterprise owns equity and creditor's
rights which derives income and owns, manages or controls property which
derives income.
CHAPTER 2 — TAXABLE AMOUNT OF INCOME
Section 1 — General Provisions
Article
9 Unless otherwise
stipulated in these Regulations or by the finance and tax departments of the
State Council, the computation of taxable amount of income of an enterprise
shall be based on the accrual principle and income and expenditure for the
current period shall be deemed as income and expenditure for the current period
regardless if the amount is received or paid; income and expenditure which
does not belong to the current period shall not be deemed as income and
expenditure for the current period even if the amount is received or paid in
the current period.
Article
10 Losses referred to in
Article 5 of the Corporate Income Tax Law shall mean that the balance after
deduction of non-taxable income, tax exempt income and various deductions from
the total income amount for each tax year by an enterprise pursuant to the
provisions of the Corporate Income Tax Law and these Regulations is a negative
amount.
Article
11 Income from liquidation
referred to in Article 55 of the Corporate Income Tax Law shall mean the
balance after deduction of net asset value of the property, liquidation
expenses and related taxes and fees from the realisable value or transaction
price of all the properties of an enterprise.
The part of
remaining assets distributed from a liquidated enterprise to an investing
enterprise which is distributed from the cumulative undistributed profit and
cumulative surplus reserve of the liquidated enterprise shall be determined as
dividend income; the part of the balance after deducting the aforesaid
dividend income from the remaining assets which exceeds or is less than the
investment cost shall be determined as income or loss from transfer of
investment properties.
Article
12 Income in currency form
derived by an enterprise referred to in Article 6 of the Corporate Income Tax
Law shall include cash, deposit, accounts receivable, notes receivable, bond
investment which is intended to be held to maturity and forfeiture of debts
etc..
Income in
non-currency form derived by an enterprise referred to in Article 6 of the
Corporate Income Tax Law shall include fixed assets, biological assets,
intangible assets, equity investments, inventory, bond investment which is not
intended to be held to maturity, labour services and the related interests
etc..
Article
13 The amount of income in
non-currency form derived by an enterprise referred to in Article 6 of the
Corporate Income Tax Law shall be determined according to the fair value.
The fair value
referred to in the preceding paragraph shall mean the value determined
according to market price.
Article
14 Income from sale of
goods referred in item (1) of Article 6 of the Corporate Income Tax Law shall
mean the income derived by an enterprise from sale of commodities, products,
raw materials, packaging materials, low-value consumables and any other
inventory.
Article
15 Income from provision of
labour services referred to in item (2) of Article 6 of the Corporate Income
Tax Law shall mean the income derived by an enterprise engaging in construction
and installation, repair, transportation, warehouse leasing, financial and
insurance, postal and telecommunications, consultancy and brokerage, culture
and sports, scientific research, technical services, education and training,
food and beverage and accommodation, intermediary and agency, healthcare,
community services, tourism, entertainment, processing and any other labour
services and activities.
Article
16 Income from transfer of
property referred to in item (3) of Article 6 of the Corporate Income Tax Law
shall mean the income derived by an enterprise from transfer of fixed assets,
biological assets, intangible assets, equity and creditor's rights etc..
Article
17 Gains from equity
investments such as dividends and bonuses etc.. referred to in item (4) of
Article 6 of the Corporate Income Tax Law shall mean the income derived by an
enterprise from an investee in relation to equity investment.
Unless otherwise
stipulated by the finance and tax departments of the State Council, the
realisation of income from gains from equity investments such as dividends and
bonuses etc.. shall be determined according to the date of the investee's
decision to distribute profits.
Article
18 Interest income referred
to in item (5) of Article 6 of the Corporate Income Tax Law shall mean the
income derived by an enterprise through provision of funds to others which do
not constitute equity investment or through funds of the enterprise used by
others, including interest on deposits, loan interest, bond interest and
arrears interest etc..
Interest income
shall be realised on the date on which interest is payable by the debtor
pursuant to contractual provisions.
Article
19 Rental income referred
to in item (6) of Article 6 of the Corporate Income Tax Law shall mean the
income derived by an enterprise through provision of the right of use of fixed
assets, packaging materials or any other tangible assets.
Rental income
shall be realised on the date on which rental is payable by the lessee pursuant
to contractual provisions.
Article
20 Income from royalties
referred to in item (7) of Article 6 of the Corporate Income Tax Law shall mean
the income derived by an enterprise through provision of the right of use of
patent rights, non-patented technologies, trademark rights, copyright and any
other concession rights.
Income from
royalties shall be realised on the date on which concession right fee is
payable by the user pursuant to contractual provisions.
Article
21 Income from gifts and
donations referred to in item (8) of Article 6 of the Corporate Income Tax Law
shall mean the income in currency form and non-currency form received by an
enterprise from an enterprise, organisation or individual for free.
Income from
donation or gift shall be realised on the date of receipt of the donation or
gift.
Article
22 Any other income
referred to in item (9) of Article 6 of the Corporate Income Tax Law shall mean
any other income derived by an enterprise other than income stipulated in item
(1) to item (8) of Article 6 of the Corporate Income Tax Law, including
enterprise asset overage, overdue unrefunded security deposit income, accounts
payable in arrears, accounts receivables collected after write-off as bad debt,
debt restructuring income, subsidy income, default penalty income and exchange
gain etc..
Article
23 The following income
from the following production and business activities of an enterprise may be
realised in phases:
(1) for sale of
goods for payment under an installment plan, the income shall be realised on
the dates of receipt of payment pursuant to contractual provisions; and
(2) for enterprises
entrusted to process or manufacture large machinery equipment, vessel, aircraft
and enterprises engaging in construction, installation, assembly businesses or
provision of labour services, the income shall be realised according to the
completed work schedule or workload within a tax year if the project is ongoing
for more than 12 months.
Article
24 Where income is derived
through product sharing, the income shall be realised on the date of
distribution of products to the enterprise and the income amount shall be
determined according to the fair value of the products.
Article
25 Unless otherwise
stipulated by the finance and tax departments of the State Council, where an
enterprise exchanges non-currency assets and donates goods, property or labour
services or use goods, property or labour services for debt settlement,
sponsorship, fund raising, advertisement, samples, staff welfare or profit
distribution purposes, it shall be deemed as sale of goods, transfer of
property or provision of labour services.
Article
26 Unless otherwise
stipulated by the State Council or the finance and tax departments of the State
Council, financial allocation referred to in item (1) of Article 7 of the
Corporate Income Tax Law shall mean the funds allocated by various levels of
people's governments to institutions and social organisations etc.. which are
under budget administration.
Administrative and
institutional expenses referred to in item (2) of Article 7 of the Corporate
Income Tax Law shall mean the expenses collected from specific targets in the
course of implementation of public administration and provision of public
services to citizens, legal persons or other organisations pursuant to the
relevant provisions of laws and regulations and as approved by the stipulated
procedures of the State Council and such funds collected are under treasury
administration.
Government funds
referred to in item (2) of Article 7 of the Corporate Income Tax Law shall mean
government funds collected by enterprises for specific purposes pursuant to the
relevant provisions of laws and administrative regulations on behalf of the
government.
Other non-taxable
income stipulated by the State Council referred to in item (3) of Article 7 of
the Corporate Income Tax Law shall mean government funds obtained by
enterprises to be used for specific purposes as stipulated by the finance and
tax departments of the State Council and as approved by the State Council.
Article
27 Related expenditure
referred to in Article 8 of the Corporate Income Tax Law shall mean the
expenditure that is directly related to income derived.
Reasonable
expenditure referred to in Article 8 of the Corporate Income Tax Law shall mean
the necessary and normal expenditure which complies with the norms of
production and business activities and which should be included in the profit
and loss in the current period or in the relevant asset costs.
Article
28 Expenditure incurred by
an enterprise shall be classified as revenue expenditure and capital
expenditure. Revenue expenditure shall be deducted directly for the period in
which it occurs; capital expenditure shall be deducted for different
periods or be included in the relevant asset costs and shall not be deducted
directly for the period in which it occurs.
The expenses or
property arising from the application of the non-taxable income of an
enterprise to expenditure shall not be deductible or be used for computation of
deduction for the corresponding depreciation and amortisation.
Unless otherwise
stipulated in the Corporate Income Tax Law and these Regulations, costs,
expenses, taxes, losses and any other expenditure incurred by an enterprise
shall be deducted only once.
Article
29 Costs referred to in
Article 8 of the Corporate Income Tax Law shall mean the selling cost, cost of
sales, business expenditure and any other consumption incurred by an enterprise
in the production and business activities.
Article
30 Expenses referred to in
Article 8 of the Corporate Income Tax Law shall mean the selling expenses,
management expenses and financial expenses incurred by an enterprise in
production and business activities, except for those related expenses which
have been included in costs.
Article
31 Taxes referred to in
Article 8 of the Corporate Income Tax Law shall mean all taxes and surcharges
incurred by an enterprise other than Corporate Income Tax and deductible
value-added tax.
Article
32 Losses referred to in
Article 8 of the Corporate Income Tax Law shall mean loss, damage, scrap loss
of fixed assets and inventory, loss from transfer of property, loss from
doubtful debt, loss from bad debt, loss incurred due to force majeure such as
natural disaster and any other losses incurred by an enterprise in the course
of production and business activities.
The balance
amount after deducting compensation from the liable party and insurance
compensation from the losses incurred by an enterprise shall be deductible
pursuant to the provisions of the finance and tax departments of the State
Council.
Where an
enterprise has treated an asset as loss but recovers all or part of the asset
in a subsequent tax year, the income from such recovery shall be included in
the income for current period.
Article
33 Any other expenditure
referred to in Article 8 of the Corporate Income Tax Law shall mean reasonable
expenditure relating to production and business activities incurred by an
enterprise in production and business activities other than costs, expenses,
taxes and losses.
Article
34 Reasonable expenditure
of wages and salaries incurred by an enterprise shall be deductible.
Wages and
salaries referred to in the preceding paragraph shall mean all labour
remuneration in cash form or non-cash form paid by an enterprise in each tax
year to its existing employees, including basic wage, bonus, subsidies,
allowances, year-end wage increment, overtime wage and any other expenditure
relating to the employment of existing employees.
Article
35 Basic social security
insurance premiums and basic housing provident funds such as basic pension
insurance premiums, basic medical insurance premiums, unemployment insurance
premiums, work injury insurance premiums, family planning insurance premiums
contributed by an enterprise for its employees pursuant to the scope and
standards stipulated by the relevant departments of the State Council or the
provincial people's government shall be deductible.
Supplementary
pension insurance premiums and supplementary medical insurance premiums paid by
an enterprise for its investors or employees within the scope and standards
stipulated by the finance and tax departments of the State Council shall be
deductible.
Article
36 Except for personal
safety insurance premiums stipulated by the State and any other commercial
insurance premiums stipulated by the finance and tax departments of the State
Council paid by an enterprise for its employees holding special job positions,
commercial insurance premiums paid by an enterprise for its investors or
employees shall not be deductible.
Article
37 Reasonable borrowing
expenses incurred by an enterprise in production and business activities which
need not be capitalised shall be deductible.
Where an
enterprise makes borrowings for procurement or construction of fixed assets,
intangible assets and inventory which attains saleable status after a
construction period of 12 months or more, the borrowing expenses incurred
during the procurement or construction period of the relevant assets shall be
included in the costs of the relevant assets as capital expenditure and shall
be deductible pursuant to the provisions of these Regulations.
Article
38 The following interest
expenditure incurred by an enterprise in production and business activities
shall be deductible:
(1) interest
expenditure for borrowings made by a non-financial enterprise from a financial
enterprise, interest expenditure for all deposits and interest expenditure for
interbank borrowings of a financial enterprise and interest expenditure for
approved bonds issued by an enterprise;
(2) interest
expenditure for borrowings made by a non-financial enterprise from a
non-financial enterprise which does not exceed the amount computed according to
the interest rate for same type of loans of a financial enterprise during the
same period.
Article
39 Exchange loss incurred
by an enterprise in currency trading and from conversion of
non-Renminbi-denominated monetary assets and debts at the end of a tax year
into Renminbi using the middle price of spot exchange rate for Renminbi shall
be deductible except for the portion which has been included in the costs of
the relevant assets or which relates to profit distribution to owners.
Article
40 Staff welfare
expenditure incurred by an enterprise which does not exceed 14% of the total
amount of wages and salaries shall be deductible.
Article
41 Labour union expenditure
allocated by an enterprise which does not exceed 2% of the total amount of
wages and salaries shall be deductible.
Article
42 Unless otherwise
stipulated by the finance and tax departments of the State Council, vocational
training expenditure incurred by an enterprise which does not exceed 2.5% of
the total amount of wages and salaries shall be deductible; the excess portion
shall be carried forward to subsequent tax years for deduction.
Article
43 Business entertainment
expenditure relating to production and business activities incurred by an
enterprise shall be deductible based on 60% of the incurred amount and the maximum
deduction shall not exceed 0.5% of the sales (business) revenue of the current
year.
Article
44 Unless otherwise
stipulated by the finance and tax departments of the State Council, advertising
fee and business promotion expenditure incurred by an enterprise which satisfy
the requirements and do not exceed 15% of the sales (business) revenue of the
current year shall be deductible; the excess portion shall be carried
forward to subsequent tax years for deduction.
Article
45 Special funds allocated
by an enterprise for environmental protection and ecological restoration etc..
pursuant to the relevant provisions of laws and administrative regulations
shall be deductible. Where the aforesaid special funds are used for a different
purpose after allocation, such funds shall not be deductible.
Article
46 Premiums paid by an
enterprise for property insurance pursuant to the provisions shall be
deductible.
Article
47 Lease fees paid by an
enterprise for lease of fixed assets required for production and business
activities shall be deductible as follows:
(1) lease fee
expenditure incurred in lease of fixed assets by way of a business lease shall
be deducted equally over the lease period; and
(2) depreciation
expenses shall be allocated for the portion of lease fee expenditure incurred
in lease of fixed assets by way of a finance lease which constitutes the value
of fixed assets on finance lease pursuant to the provisions and deducted over
several periods.
Article
48 Reasonable labour
protection expenditure incurred by an enterprise shall be deductible.
Article
49 Management fees paid
between enterprises, rental and royalties paid between internal business units
of an enterprise and interest paid between the internal business units of a
non-bank enterprise shall not be deductible.
Article
50 Where an office or
premises established in China by a non-resident enterprise is able to show
documentary proof of the scope of expenses consolidation, quota, basis and
method of distribution etc.. issued by the head office in respect of the
expenses incurred by the overseas head office in relation to the production and
business activities of the office or premises and such expenses can be
reasonably shared, the expenses shall be deductible.
Article
51 Charitable donations
referred to in Article 9 of the Corporate Income Tax Law shall mean charitable
donations made by an enterprise to charitable causes stipulated in the Law of
the People's Republic of China on Charitable Donations through charitable
bodies or People's Governments of county level and above and their departments.
Article
52 A charitable body
referred to in Article 51 of these Regulations shall mean a social organisation
such as a fund or a charitable organisation which satisfies the following
conditions:
(1) it is duly
registered and qualifies as a legal person;
(2) it is
non-profit oriented and established for charitable causes;
(3) all its assets
and appreciation thereof are owned by the legal person;
(4) the gains and
operational balances are mainly used for charitable causes which comply with
the objective for establishment of the legal person;
(5) the remaining
property after termination shall not belong to any individual or
profit-oriented organisation;
(6) it shall not
engage in businesses which are unrelated to the objective of its establishment;
(7) it has a proper
financial accounting system;
(8) the donors do
not participate in distribution of the property of the social organisation in
any manner; and
(9) it satisfies
any other conditions stipulated by the finance and tax departments of the State
Council in consultation with the civil affairs department etc. of the State
Council.
Article
53 Charitable donation
expenditure incurred by an enterprise which does not exceed 12% of the total
annual profit shall be deductible.
Total annual
profit shall mean the annual accounting profit computed by an enterprise
pursuant to the unified accounting system of the State.
Article
54 Sponsorship expenditure
referred to in item (6) of Article 10 of the Corporate Income Tax Law shall
mean all non-advertisement expenditure incurred by an enterprise which is
unrelated to production and business activities.
Article
55 Expenditure out of
capital reserves that has yet been audited and determined referred to in item
(7) of Article 10 of the Corporate Income Tax Law shall mean expenditure out of
capital reserves such as asset impairment provision and risk provision which
does not comply with the provisions of the finance and tax departments of the
State Council.
Section 4 — Tax Treatment for Assets
Article
56 Tax computation for all
assets of an enterprise, including fixed assets, biological assets, intangible
assets, long-term deferred expenses, investment assets and inventory etc..
shall be based on historical cost.
Historical cost
referred to in the preceding paragraph shall mean the actual expenditure
incurred by an enterprise at the time of obtaining the asset.
Where there is
asset appreciation or impairment during the holding period of various assets,
the tax base of such assets shall not be adjusted except where the finance and
tax departments of the State Council stipulate that the losses or gains may be
determined.
Article
57 Fixed assets referred to
in Article 11 of the Corporate Income Tax Law shall mean non-monetary assets
held or used by an enterprise for more than 12 months for the purpose of
manufacturing of products, provision of labour services, lease or business
management, including houses, buildings, machines, machinery, transport
vehicles and equipment, apparatuses and tools etc. relating to production and
business activities.
Article
58 Tax bases for fixed
assets shall be determined as follows:
(1) for fixed
assets purchased from external parties, the tax base shall be the purchase
price and the related taxes and fees paid and any other expenditure which
directly contributes to the attainment of the expected purpose of use of the
assets;
(2) for
self-constructed fixed assets, the tax base shall be the expenditure incurred
before completion settlement;
(3) for fixed
assets on a finance lease, the tax base shall be the total amount of payment
stipulated in the lease contract and the related expenses incurred by the
lessee in the course of execution of the lease contract; where the total
amount of payment is not stipulated in the lease contract, the tax base shall
be the fair value of the assets and the related expenses incurred by the lessee
in the course of execution of the lease contract;
(4) for inventory
gains in fixed assets, the tax base shall be the full replacement value of the
same type of fixed assets;
(5) for fixed
assets obtained through donation, gift, investment, exchange of non-monetary
assets, debt restructuring etc., the tax base shall be the fair value of the
assets and related taxes and fees paid; and
(6) for fixed
assets which are altered, the tax base shall include the alteration expenditure
incurred in the course of alteration, except for expenditure stipulated in item
(1) and item (2) of Article 13 of the Corporate Income Tax Law.
Article
59 Straight-line
depreciation of fixed assets shall be deductible.
Depreciation of
fixed assets shall commence in the month following the commencement of
use; for fixed assets which cease to be used, depreciation shall cease in
the month following the cessation of use.
An enterprise
shall determine the estimated net residual value of a fixed asset reasonably
according to the nature and usage of the fixed asset. The estimated net
residual value of a fixed asset, once determined, shall not be changed.
Article
60 Unless otherwise
stipulated by the finance and tax departments of the State Council, the minimum
period of depreciation of fixed assets shall be as follows:
(1) 20 years for
houses and buildings;
(2) 10 years for
aircrafts, trains, vessels, machines, machinery and other production equipment;
(3) five years for
apparatuses, tools and furniture etc.. related to production and business
activities;
(4) four years for
transport vehicles other than aircrafts, trains and vessels; and
(5) three years for
electronic devices.
Article
61 For enterprises engaging
in exploration of mineral resources such as petroleum and natural gases etc..,
the expenses incurred before commencement of commercial production and the
depletion and depreciation of the relevant fixed asset shall be separately
formulated by the finance and tax departments of the State Council.
Article
62 Tax bases for biological
assets shall be determined as follows:
(1) for biological
assets used in production which are purchased from external parties, the tax
base shall be the purchase price and the related taxes and fees paid; and
(2) for biological
assets used in production which are obtained through donation, gift, exchange
of non-monetary assets, debt restructuring etc.., the tax base shall be the
fair value of the assets and the related taxes and fees paid.
Biological assets
used in production referred to in the preceding paragraph shall mean biological
assets held by an enterprise for the purpose of production of agricultural products,
provision of labour services or lease etc.., including economic forest,
firewood forest, animal husbandry and draught animals etc..
Article
63 Straight-line
depreciation of biological assets used in production shall be deductible.
Depreciation of
biological assets used in production shall commence in the month following the
commencement of use; for biological assets used in production which cease
to be used, depreciation shall cease in the month following the cessation of
use.
An enterprise
shall determine the estimated net residual value of biological assets used in
production reasonably according to the nature and usage of the biological
assets used in production. The estimated net residual value of biological
assets used in production, once determined, shall not be changed.
Article
64 The minimum period of
depreciation for biological assets used in production shall be as follows:
(1) 10 years for
biological assets used in production in the forest category; and
(2) three years for
biological assets used in production in the animal category.
Article
65 Intangible assets
referred to in Article 12 of the Corporate Income Tax Law shall mean long-term
non-currency assets in non-tangible form held by an enterprise for the purpose
of production of products, provision of labour services, lease or business
management, including patent rights, trademark rights, copyright, land use
right, non-patented technologies, goodwill etc..
Article
66 The tax base of
intangible assets shall be determined as follows:
(1) for intangible
assets purchased from external parties, the tax base shall be the purchase
price and the related taxes and fees paid and any other expenditure which
directly contributes to the attainment of the expected purpose of use of the
assets;
(2) for
self-developed intangible assets, the tax base shall be the expenditure
incurred in the course of development from the assets' satisfaction of
capitalisation conditions up to the assets' attainment of the expected purpose
of use; and
(3) for intangible
assets obtained through donation, gift, exchange of non-monetary assets, debt
restructuring etc.., the tax base shall be the fair value of the assets and the
related taxes and fees paid.
Article
67 Straight-line
amortisation expenses of intangible assets shall be deductible.
The amortisation
period of intangible assets shall not be less than 10 years.
For intangible
assets which are invested or transferred and the period of use is stipulated in
the relevant laws or the contract, the intangible assets may be amortised
pursuant to the stipulated or agreed period of use.
Expenditure
incurred in externally purchased goodwill shall be deductible at the time of
whole transfer or liquidation of an enterprise.
Article
68 Alteration expenditure
of fixed assets referred to in item (1) and item (2) of Article 13 of the
Corporate Income Tax Law shall mean the expenditure incurred in the alteration
of the structure of houses or buildings or extension of the period of use etc..
Expenditure
stipulated in item (1) of Article 13 of the Corporate Income Tax Law shall be
amortised over the estimated remaining useful life of the fixed
assets; expenditure stipulated in item (2) shall be amortised over the
remaining lease term stipulated in the contract.
Except for the
provisions of item (1) and item (2) of Article 13 of the Corporate Income Tax
Law, the depreciation period shall be extended accordingly if the useful life
of a fixed asset is extended after alteration.
Article
69 Overhaul expenditure of
fixed assets referred to in item (3) of Article 13 of the Corporate Income Tax
Law shall mean expenditure which satisfies the following conditions:
(1) where the
repair expenditure reaches 50% or more of the tax base at the time of obtaining
the fixed assets; and
(2) where the
useful life of the fixed assets is extended by two years or more after the
repair.
Expenditure
stipulated in item (3) of Article 13 of the Corporate Income Tax Law shall be
amortised over the remaining useful life of the fixed assets.
Article
70 Other expenditure to be
treated as long-term deferred expenses stipulated in item (4) of Article 13 of
the Corporate Income Tax Law shall be amortised with effect from the following
month upon incurring the expenditure; the amortisation period shall not be
less than three years.
Article
71 Investment assets
referred to in Article 14 of the Corporate Income Tax Law shall mean the assets
arising from equity investments and debt securities investments made by an
enterprise in external parties.
The costs of
investment assets shall be deductible at the time of transfer or disposal of
investment assets by an enterprise.
The costs of
investment assets shall be determined as follows:
(1) for investment
assets which are acquired with cash payment, the cost shall be the purchase
price; and
(2) for investment
assets which are not acquired with cash payment, the cost shall be the fair
value of the assets and the related taxes and fees paid.
Article
72 Inventory referred to in
Article 15 of the Corporate Income Tax Law shall mean products held by an
enterprise for sale, work-in-progress, materials consumed in the course of
production or provision of labour services.
The costs of
inventory shall be determined as follows:
(1) for inventory
acquired with cash payment, the cost shall be the purchase price and the
related taxes and fees paid;
(2) for inventory
not acquired with cash payment, the cost shall be the fair value of the
inventory and the related taxes and fees paid; and
(3) for
agricultural products derived from biological assets used in production, the
cost shall be the requisite expenditure such as the cost of materials, labour
cost and shared indirect expenses etc. incurred in the course of output or
harvesting.
Article
73 Enterprises may choose a
cost accounting method for inventory in use or for sale among the first-in
first-out method, weighted average method, specific-unit-cost method and shall
not make any changes arbitrarily once the costing method is chosen.
Article
74 Net asset value referred
to in Article 16 of the Corporate Income Tax Law and net value of property
referred to in Article 19 shall mean the balance after deducting depreciation,
depletion, amortisation, provision etc.. from the tax base of the relevant
assets and property pursuant to the provisions.
Article
75 Unless otherwise
stipulated by the finance and tax departments of the State Council, an
enterprise shall determine the income or loss from transfer of asset at the
time of transaction in the course of restructuring; the tax base for the
relevant assets shall be re-determined according to the transaction price.
CHAPTER 3 — TAX AMOUNT PAYABLE
Article
76 The formula for
computation of tax amount payable stipulated in Article 22 of the Corporate
Income Tax Law shall be:
Tax amount payable
= taxable amount of income × applicable tax rate - tax relief - tax credit
The
tax relief and tax credit in the formula shall mean the tax amount payable
after reduction, exemption and relief pursuant to tax incentives stipulated in
the Corporate Income Tax Law and by the State Council.
Article
77 Income tax amount paid
overseas referred to in Article 23 of the Corporate Income Tax Law shall mean
that an enterprise has paid the Corporate Income Tax for income sourced outside
China payable pursuant to overseas tax laws and the relevant provisions.
Article
78 Tax set-off limit
referred to in Article 23 of the Corporate Income Tax Law shall mean the tax
amount payable on income of an enterprise sourced outside China computed
pursuant to the provisions of the Corporate Income Tax Law and these
Regulations. Unless otherwise stipulated by the finance and tax departments of
the State Council, such tax set-off limit shall be computed by country (region)
and not by tax items; the formula shall be as follows:
Tax set-off limit =
total taxable amount of income for income sourced in China and overseas
computed pursuant to the provisions of the Corporate Income Tax Law and these
Regulations × taxable amount of income sourced in a particular country (region)
÷ the total taxable amount of income sourced in China and overseas
Article
79 The five-year period
referred to in Article 23 of the Corporate Income Tax Law shall mean that five
tax years have elapsed since the year following the year in which the Corporate
Income Tax paid by an enterprise overseas for income sourced overseas exceeded
the tax set-off limit.
Article
80 Direct control referred
to in Article 24 of the Corporate Income Tax Law shall mean that a resident
enterprise holds 20% or more of the foreign enterprise by direct shareholding.
Indirect control
referred to in Article 24 of the Corporate Income Tax Law shall mean that a
resident enterprise holds 20% or more of the shares of a foreign enterprise
through indirect shareholding; the specific identifying measures shall be
separately formulated by the finance and tax departments of the State Council.
Article
81 When an enterprise sets
off Corporate Income Tax pursuant to the provisions of Article 23 and Article
24 of the Corporate Income Tax Law, it shall provide the relevant tax payment
proof issued by the overseas tax authorities for the tax year in respect of the
tax amount.
Article
82 Interest income from
treasury bonds referred to in item (1) of Article 26 of the Corporate Income
Tax Law shall mean the interest income derived by an enterprise through holding
of treasury bonds issued by the finance department of the State Council.
Article
83 Gains from equity
investment between resident enterprises which satisfy the requirements referred
to in item (2) of Article 26 of the Corporate Income Tax Law shall mean
investment gains derived by a resident enterprise through direct investment in
another resident enterprise. Gains from equity investments such as dividends
and bonuses etc.. referred to in item (2) and item (3) of Article 26 of the
Corporate Income Tax Law shall exclude investment gains obtained for holding
listed and circulating shares issued by a resident enterprise for less than 12
months consecutively.
Article
84 A non-profit
organisation which satisfies the requirements referred to in item (4) of
Article 26 of the Corporate Income Tax Law shall mean an organisation which
satisfies the following requirements:
(1) it has
performed the registration formalities for non-profit organisations pursuant to
the law;
(2) it engages in
charitable or non-profit activities;
(3) except for
reasonable expenditure incurred in relation to the organisation, its revenue is
used entirely on registered charitable or non-profit causes stipulated in its
articles of association;
(4) its property
and yield thereof are not used for distribution;
(5) the remaining
property following its cancellation is used for charitable or non-profit causes
pursuant to the registration or the provisions of the articles of association
or donated by the registration authorities to an organisation of similar nature
and objective and a public announcement shall be made;
(6) the
contributor(s) shall not retain or enjoy any property right of property
contributed to the organisation; and
(7) the wage and
welfare expenditure of its staff shall be kept within the stipulated ratio and
the property of the organisation shall not be distributed under any pretext.
The method of
identifying and administration of non-profit organisations stipulated in the
preceding paragraph shall be formulated by the finance and tax departments of
the State Council in consultation with the relevant departments of the State
Council.
Article
85 Unless otherwise
stipulated by the finance and tax departments of the State Council, the income
of non-profit organisations which satisfy the requirements referred to in item
(4) of Article 26 of the Corporate Income Tax Law shall exclude income derived
by the non-profit organisation from profitable activities.
Article
86 The income of
enterprises referred to in item (1) of Article 27 of the Corporate Income Tax
Law derived from agricultural, forestry, husbandry and fishing projects may be
subject to exemption or reduction of Corporate Income Tax as follows:
(1) The income of
an enterprise derived from the following projects shall be exempted from
Corporate Income Tax:
(i) cultivation
of vegetables, cereals, potatoes, fuels, beans, cotton, linen, sugar, fruit,
nuts;
(ii) breeding of
new crop varieties;
(iii) cultivation
of Chinese medical herbs;
(iv) cultivation
of forest trees;
(v) livestock
husbandry and poultry farming;
(vi) gathering of
forest products;
(vii)
agricultural, forestry, husbandry and fishery projects such as irrigation,
primary processing of agricultural products, veterinarian, promotion of
agricultural technology, operations and repair and maintenance of agricultural
machinery etc..; and
(2) The income of
an enterprise derived from the following projects shall be subject to 50%
reduction of Corporate Income Tax:
(i) cultivation
of flowers, teas and other beverage crops and spices crops; and
(ii) mariculture
and inland aquaculture.
Enterprises
engaging in restricted and prohibited projects stipulated by the State shall
not enjoy the Corporate Income Tax incentives stipulated in this Article.
Article
87 Key public
infrastructure projects supported by the State referred to in item (2) of
Article 27 of the Corporate Income Tax Law shall mean harbour port, airport,
railway, highway, urban public transportation, power, water projects etc.
stipulated in the Catalogue of Corporate Income Tax Incentives for Public
Infrastructure Projects.
Income derived by
an enterprise investing and operating a key public infrastructure project
supported by the State shall be exempted from Corporate Income Tax for the
first year to the third year with effect from the tax year in which the first
sum of production and business revenue is derived from the project and be
subject to Corporate Income Tax at 50% reduction for the fourth year to the
sixth year.
Contracted business
projects, contracted construction projects and self-constructed projects for
own use of an enterprise under this Article shall not enjoy the Corporate
Income Tax incentives stipulated in this Article.
Article
88 Environmental protection
and energy and water conservation projects which satisfy the requirements
referred to in item (3) of Article 27 of the Corporate Income Tax Law shall
include public sewage treatment, public garbage treatment, comprehensive
development and utilisation of biogas, technological transformation for energy
saving and reduced emissions and desalination etc.. The specific requirements
and scope of the projects shall be formulated by the finance and tax
departments of the State Council in consultation with the relevant departments
of the State Council and submitted to the State Council for approval before
promulgation and implementation.
Income derived by
an enterprise engaging in an environmental protection or energy and water
conservation project which complies with the conditions stipulated in the
preceding paragraph shall be exempted from Corporate Income Tax for the first
year to the third year with effect from the tax year in which the first sum of
production and business revenue is derived from the project and be subject to
Corporate Income Tax at 50% reduction for the fourth year to the sixth year.
Article
89 Where a project which is
entitled to the tax reduction and exemption incentives stipulated in Article 87
and Article 88 of these Regulations is transferred within the tax exemption and
reduction period, the transferee shall enjoy the stipulated tax reduction and
exemption incentives during the remaining term with effect from the date of transfer; where
a project is transferred after the tax exemption and reduction period has
expired, the transferee shall not be entitled to tax reduction and exemption
incentives for the project.
Article
90 Exemption and reduction
of Corporate Income Tax on income from transfer of technology which satisfies
the requirements referred to in item (4) of Article 27 of the Corporate Income
Tax Law shall mean that the income from technology transfer of a resident
enterprise within a tax year does not exceed RMB5 million shall be exempted
from Corporate Income Tax; the part which exceeds RMB5 million shall be
subject to Corporate Income Tax at 50% reduction.
Article
91 Income stipulated in
item (5) of Article 27 of the Corporate Income Tax Law derived by a non-resident
enterprise shall be subject to Corporate Income Tax at a reduced tax rate of
10%.
The following
income may be exempted from Corporate Income Tax:
(1) interest income
derived by foreign governments from provision of loan to the Chinese
government;
(2) interest income
derived by international financial institutions from provision of preferential
loan to the Chinese government and resident enterprises; and
(3) any other
income approved by the State Council.
Article
92 Qualified small profit
enterprises referred to in the first paragraph of Article 28 of the Corporate
Income Tax Law shall mean enterprises in industries which are not restricted or
prohibited by the State and satisfy the following conditions:
(1) industrial
enterprises with annual taxable amount of income below RMB300,000, less than
100 employees and total assets below RMB30 million; and
(2) other
enterprises with annual taxable amount of income below RMB300,000, less than 80
employees and total assets below RMB10 million.
Article
93 Key advanced and new
technology enterprises supported by the State referred to in the second
paragraph of Article 28 of the Corporate Income Tax Law shall mean enterprises
which own core independent intellectual property and satisfy the following
conditions:
(1) the products
(services) shall fall under the scope stipulated in the Key Advanced and New
Technology Industries Supported by the State;
(2) the ratio of
research and development expenses to the sales revenue shall not be lower than
the stipulated ratio;
(3) the ratio of
revenue from advanced and new technology products (services) to total revenue
of the enterprise shall not be lower than the stipulated ratio;
(4) the ratio of
technical personnel to all employees of the enterprise shall not be lower than
the stipulated ratio; and
(5) satisfy any
other conditions stipulated in the identifying and administration measures for
advanced and new technology enterprises.
The Key Advanced
and New Technology Industries Supported by the State and the identifying and administration
measures for advanced and new technology industries shall be formulated by the
science and technology, finance and tax departments of the State Council in
consultation with the relevant departments of the State Council and submitted
to the State Council for approval before promulgation and implementation.
Article
94 Ethnic autonomous region
referred to in Article 29 of the Corporate Income Tax Law shall mean autonomous
districts, autonomous prefectures and autonomous counties implementing ethnic
autonomy pursuant to the provisions of the Ethnic Autonomy Law of the People's
Republic of China.
Enterprises in
restricted and prohibited industries in ethnic autonomous regions shall not
enjoy reduction or exemption of Corporate Income Tax.
Article 95 Deduction of research and development expenses referred to in item (1)
of Article 30 of the Corporate Income Tax Law shall mean that where an
enterprise has incurred research and development expenses in the development of
new technologies, new products and new processes but intangible assets are yet
to be formed and included in the profit and loss for the current period, 50% of
the research and development expenses shall be deducted on the basis of actual
deduction pursuant to the provisions; where intangible assets are formed,
150% of the cost of intangible assets shall be amortised.
Article
96 Deduction of wage
payments for placement arrangements of disabled employees referred to in item
(2) of Article 30 of the Corporate Income Tax Law shall mean that where an
enterprise makes placement arrangements for disabled employees, 100% of the
wage payments to disabled employees shall be deducted on the basis of actual
deduction. The relevant provisions of the Law of the People's Republic of China
on Protection of Disabled Persons shall apply to the scope of disabled
employees.
The deduction
measures for wages paid by an enterprise to other employees as encouraged by
the State referred to in item (2) of Article 30 of the Corporate Income Tax Law
shall be separately formulated by the State Council.
Article
97 Set off of taxable
amount of income referred to in Article 31 of the Corporate Income Tax Law
shall mean that where a venture capital enterprise invests in non-listed small
and medium advanced and new technology enterprises by way of equity investment
for two years or more, the taxable amount of income of the venture capital
enterprise may be set off against 70% of the investment amount in the year when
the equity has been held for two years; the balance after set off may be
carried forward to subsequent tax years for set off.
Article
98 Fixed assets which may
adopt a shorter depreciation period or the accelerated depreciation method
referred to in Article 32 of the Corporate Income Tax Law shall include:
(1) fixed assets
subject to technological advancement and faster product updates; and
(2) fixed assets
which are always subject to strong vibrations and high corrosion.
Where a fixed asset
adopts a shorter depreciation period, the minimum depreciation period shall not
be less than 60% of the depreciation period stipulated in Article 60 of these
Regulations; where a fixed asset adopts the accelerated depreciation, it
may adopt the double declining balance method or the sum-of-years depreciation
method.
Article
99 Deduction of income
referred to in Article 33 of the Corporate Income Tax Law Article shall mean
that 90% of the income derived by an enterprise which uses the resources
stipulated in the Catalogue for Corporate Income Tax Incentives for Comprehensive
Utilisation of Resources as key raw materials to manufacture products which are
not restricted or prohibited by the State and which comply with the relevant
standards of the State and the industry shall be include in the total income
amount.
The ratio of raw
materials to the materials used in production of products shall not be lower
than the standard stipulated in the Catalogue for Corporate Income Tax
Incentives for Comprehensive Utilisation of Resources.
Article
100 Set off against tax
amount referred to in Article 34 of the Corporate Income Tax Law shall mean
that where an enterprise has purchased special equipment for use in
environmental protection, energy and water conservation and work safety
purposes etc.. stipulated in the Catalogue of Corporate Income Tax Incentives
for Special Equipment for Environmental Protection, the Catalogue of Corporate
Income Tax Incentives for Special Equipment for Energy and Water Conservation,
the Catalogue of Corporate Income Tax Incentives for Special Equipment for Work
Safety, 10% of the amount invested in the special equipment may be set off
against the enterprise's tax amount payable for the current year; the
balance after set off may be carried forward to the following five tax years.
An enterprise
which enjoys Corporate Income Tax incentives stipulated in the preceding
paragraph must have actually purchased and used the special equipment
stipulated in the preceding paragraph; where an enterprise which has
purchased the aforesaid special equipment transfers or leases the special
equipment within five years, it shall cease to enjoy the Corporate Income Tax
incentives and make good Corporate Income Tax which has been set off.
Article
101 The catalogue of
Corporate Income Tax incentives stipulated in Article 87, Article 99 and
Article 100 of this Chapter shall be formulated by the finance and tax
departments of the State Council in consultation with the relevant departments
of the State Council and submitted to the State Council for approval before
announcement and implementation.
Article
102 Where an enterprise
engages in projects which are subject to different Corporate Income Tax
treatment, income shall be computed for preferential projects individually and
period expenses of the enterprise shall be reasonably shared; where the
income of the projects is not computed individually, the enterprise shall not
enjoy Corporate Income Tax incentives.
CHAPTER 5 — DEDUCTION AT SOURCE
Article
103 Where Corporate Income
Tax to be paid by a non-resident enterprise is to be withheld at source
pursuant to the Corporate Income Tax Law, the taxable amount of income shall be
computed pursuant to the provisions of Article 19 of the Corporate Income Tax
Law.
Total amount of
income referred to in Article 19 of the Corporate Income Tax Law shall mean all
prices and other expenses collected by a non-resident enterprise from payors.
Article
104 A payor referred to in
Article 37 of the Corporate Income Tax Law shall mean an organisation or
individual which bears direct obligation to pay the relevant amount to a
non-resident enterprise pursuant to the relevant provisions of the laws or
contractual provisions.
Article
105 Payment referred to in
Article 37 of the Corporate Income Tax Law shall include payment in currency or
non-currency form such as cash payment, payment by remittance, fund transfer
and payment of consideration for interests etc..
Due and payable
amounts referred to in Article 37 of the Corporate Income Tax Law shall mean
amounts payable by a payor which shall be included in the relevant costs and
expenses pursuant to the accrual principle.
Article
106 The circumstances where
a withholding agent may be appointed pursuant to the provisions of Article 38
of the Corporate Income Tax Law include:
(1) where the
expected project period or period for provision of labour services is less than
a tax year, and there is proof of declaration of non-performance of tax payment
obligations;
(2) where tax
registration or provisional tax registration formalities have not been completed
and the taxpayer has not appointed an agent in China to perform tax payment
obligations on its behalf;
(3) where the tax
return for Corporate Income Tax or tax return for prepayment has not been filed
within the stipulated period.
A withholding
agent stipulated in the preceding paragraph shall be appointed by tax
authorities of county level and above and the withholding agent shall be
notified of the computation basis for tax withholding, computation method,
withholding period and withholding method.
Article
107 The place where income
is derived referred to in Article 39 of the Corporate Income Tax Law shall mean
the place where income is determined pursuant to the principle stipulated in
Article 7 of these Regulations. Where income is derived in multiple locations
in China, the taxpayer shall select one of the locations to be the venue for
filing of tax return and payment of Corporate Income Tax.
Article
108 Other income of a
taxpayer in China referred to in Article 39 of the Corporate Income Tax Law shall
mean income from any other sources derived in China by a taxpayer.
Tax authorities
recovering tax payable from a taxpayer shall notify the taxpayer of the reason
for recovery, amount to be recovered, payment period and method etc..
CHAPTER 6 — SPECIAL TAX ADJUSTMENT
Article
109 An interested party
referred to in Article 41 of the Corporate Income Tax Law shall mean an
enterprise, organisation or individual related to an enterprise in the
following manner:
(1) direct or
indirect control over funds, operations, procurement and sales etc..;
(2) under direct
or indirect control by the same third party; and
(3) any other
interested party relationships.
Article
110 Independent transaction
principle referred to in Article 41 of the Corporate Income Tax Law shall mean
the principle of business dealings according to fair transaction price and
business norms between unrelated transaction parties.
Article
111 Reasonable methods
referred to in Article 41 of the Corporate Income Tax Law shall include:
(1) comparable
uncontrolled price method where unrelated transaction parties fix the price
according to the price of an identical or similar business transaction;
(2) resale price
method where the price is fixed according to the resale price of goods
purchased from an interested party and sold to an unrelated transaction party
less the gross sales margin for an identical or a similar business transaction;
(3) cost plus
method where the price is fixed according to costs plus reasonable expenses and
profits;
(4) transaction
profit method where the profit is determined according to the net profit
derived by unrelated transaction parties in an identical or a similar business
transaction;
(5) profit split
method where distribution of the consolidated profit or loss is made between an
enterprise and its interested party(ies); and
(6) any other
method which complies with the independent transaction principle.
Article
112 An enterprise may
conclude a cost sharing agreement on sharing the costs with its interested
party(ies) pursuant to the provisions of the second paragraph of Article 41 of
the Corporate Income Tax Law and according to the independent transaction
principle.
An enterprise and
its interested party(ies) shall share costs pursuant to the principle of
matching costs and forecast gains; the relevant information required by
the tax authorities shall be submitted to the tax authorities within the period
stipulated by the tax authorities.
Where the cost
sharing between an enterprise and its interested party(ies) violates the
provisions of the first and second paragraphs of this Article, the shared costs
shall not be deducted for computation of the taxable amount of income.
Article
113 Predetermined pricing
arrangements referred to in Article 42 of the Corporate Income Tax Law shall
mean that the application submitted by an enterprise to the tax authorities in
respect of its pricing principle and computation method for interested party
transactions in subsequent years and the agreement reached between the
enterprise and the tax authorities following negotiation and pursuant to the
independent transaction principle.
Article
114 Relevant materials
referred to in Article 43 of the Corporate Income Tax Law shall include:
(1) the standards,
computation method and explanatory notes on formulation of prices and expenses
pertaining to business dealings with interested party(ies) for the relevant
period;
(2) information
pertaining to the resale (transfer) prices or final selling (transfer) prices
of property, property use rights, labour services etc. involved in business
dealings with interested party(ies);
(3) information
pertaining to comparable product prices, pricing method and profit margin etc..
of the enterprise under investigation which should be provided by other enterprises
relating to the investigation on interested party transactions; and
(4) any other
information pertaining to business dealings with interested party(ies).
Other enterprises
related to the interested party business dealing under investigation referred to
in Article 43 of the Corporate Income Tax Law shall mean enterprises that have
identical or similar production and business operations as the enterprise under
investigation.
An enterprise
shall provide information on the standards, computation method and explanatory
notes on formulation of prices and expenses pertaining to business dealings
with interested party(ies) within the period stipulated by the tax authorities.
The interested party(ies) and other enterprises related to the interested party
business dealing under investigation shall provide the relevant information
within the period as agreed with the tax authorities.
Article
115 The tax authorities may
adopt the following methods for assessment of the taxable amount of income of
an enterprise pursuant to the provisions of Article 44 of the Corporate Income
Tax Law:
(1) assessment
based on the profit margin of identical or similar enterprises;
(2) assessment
based on costs plus reasonable expenses and profit of the enterprise;
(3) assessment
based on the reasonable ratio of the overall profit of the interested
enterprise group; and
(4) assessment
based on any other reasonable method.
An enterprise
which disagrees with the taxable amount of income assessed by the tax
authorities based on the aforesaid methods stipulated in the preceding
paragraph shall provide the relevant evidence and the tax authorities shall
adjust the assessed taxable amount of income upon verification.
Article
116 A Chinese resident
referred to in Article 45 of the Corporate Income Tax Law shall mean an
individual who pays individual income tax in China pursuant to the Individual
Income Tax Law of the People's Republic of China for income derived by him/her
in China or overseas.
Article
117 Control referred to in
Article 45 of the Corporate Income Tax Law shall include:
(1) where a
resident enterprise or a Chinese resident directly or indirectly holds 10% or
more of voting shares solely in a foreign enterprise, and jointly holds 50% or
more of the shares in the foreign enterprise; and
(2) where the
shareholding percentage of a resident enterprise or a resident enterprise and a
Chinese resident has yet to attain the standard stipulated in item (1) but
it/they has/have substantive control over the foreign enterprise in terms of shares,
funds, operation and procurement and sale etc..
Article
118 The actual tax burden is
clearly lower than that stipulated in the first paragraph of Article 4 of the
Corporate Income Tax Law referred to in Article 45 of the Corporate Income Tax
Law shall mean that the actual tax burden is less than 50% of the tax rate
stipulated in the first paragraph of Article 4 of the Corporate Income Tax Law.
Article
119 Debt securities
investment referred to in Article 46 of the Corporate Income Tax Law shall mean
financing obtained by an enterprise directly or indirectly from an interested
party which requires the enterprise to repay principal and pay interest or make
compensation via any other method which calls for payment of interest.
Debt securities
investments obtained by an enterprise from an interested party indirectly shall
include:
(1) debt
securities investments provided by an interested party through an unrelated
third party;
(2) debt
securities investments provided by an unrelated third party and the interested
party provides guarantee and bears joint and several liability; and
(3) any other debt
securities investments obtained from an interested party indirectly.
Equity investments
referred to in Article 46 of the Corporate Income Tax Law shall mean investments
accepted by an enterprise where principal repayment and interest payment are
not required and the investor owns the enterprise's net assets.
Standards referred
to in Article 46 of the Corporate Income Tax Law shall be separately formulated
by the finance and tax departments of the State Council.
Article
120 Arrangements with no
reasonable commercial objectives referred to in Article 47 of the Corporate
Income Tax Law shall mean that the key objectives are the reduction, waiver or
postponement of tax payment.
Article
121 Where the tax
authorities make special tax adjustment for an enterprise pursuant to the
provisions of tax laws and administrative regulations, interest shall accrue
daily on the tax to be made good during the period from 1 June of the year
following the tax year in respect of the tax amount to the date of
retrospective tax payment.
The interest
accrued in the preceding paragraph shall not be deducted for computation of
taxable amount of income.
Article
122 Interest referred to in
Article 48 of the Corporate Income Tax Law shall be computed using the Renminbi
loan benchmark interest rate announced by the People's Bank of China in the tax
year in respect of the tax amount for the same period as the retrospective tax
payment period plus five percentage points.
An enterprise
which provides the relevant information pursuant to the provisions of Article
43 of the Corporate Income Tax Law and these Regulations may compute interest
using the benchmark interest rate for Renminbi loan stipulated in the preceding
paragraph.
Article
123 Where a business dealing
between an enterprise and its interested party(ies) does not comply with the
independent transaction principle or the enterprise has made other arrangements
with no reasonable commercial objectives, the tax authorities shall have the
right to make tax adjustment within 10 years from the tax year in which the
business dealing occurs.
CHAPTER 7 — ADMINISTRATION OF LEVYING AND COLLECTION
Article
124 The place of
incorporation of an enterprise referred to in Article 50 of the Corporate
Income Tax Law shall mean the place of incorporation of the enterprise pursuant
to the relevant provisions of the State.
Article
125 An enterprise which
computes and pays Corporate Income Tax on a consolidated basis shall compute
its taxable amount of income on a consolidated basis; the detailed
measures shall be separately formulated by the finance and tax authorities of
the State Council.
Article
126 The main office or
premises referred to in Article 51 of the Corporate Income Tax Law shall
satisfy the following conditions:
(1) it shall bear
supervision and management responsibilities for the production and business
activities of the other offices and premises; and
(2) it shall set
up complete accounts and vouchers and must accurately reflect the revenue,
costs, expenses and profit and loss of various offices and premises.
Article
127 Examination and approval
by the tax authorities referred to in Article 51 of the Corporate Income Tax
Law shall mean examination and approval by the common higher-level tax
authorities of the tax authorities at the locations of various offices and
premises.
Where a
non-resident enterprise which has obtained approval for payment of Corporate
Income Tax on a consolidated basis subsequently needs to set up new offices or
premises, merge, relocate or close down offices or premises or to cease
business activities of an office or premises, its main office or premises
responsible for filing tax return for and payment of Corporate Income Tax on a
consolidated basis shall report to the tax authorities at the location of the
main office or premises in advance; where there is a need to change the
main office or premises responsible for filing of tax return and payment of
Corporate Income Tax on a consolidated basis, the formalities stipulated in the
preceding paragraph shall be completed.
Article
128 Monthly or quarterly
prepayment of Corporate Income Tax shall be assessed by the tax authorities.
An enterprise
which makes monthly or quarterly prepayment of Corporate Income Tax pursuant to
the provisions of Article 54 of the Corporate Income Tax Law shall make
prepayment according to the actual profit amount of the month or
quarter; where there is difficulty in making prepayment according to the
actual profit of the month or quarter, prepayments may be made according to the
average monthly or quarterly amount of the taxable amount of income in the
preceding tax year, or according to any other method approved by the tax
authorities. The prepayment method, once confirmed, shall not be changed
arbitrarily within the tax year.
Article
129 Regardless of profit or
loss in a tax year, an enterprise shall submit to the tax authorities the tax
return form for prepayment of Corporate Income Tax, annual tax return for
Corporate Income Tax, financial accounting reports and any other relevant
materials stipulated by the tax authorities within the period stipulated in
Article 54 of the Corporate Income Tax Law.
Article
130 Where the income of an enterprise
is not computed in Renminbi, the enterprise shall compute the taxable amount of
income in Renminbi using the middle price of the Renminbi exchange rate on the
last day of the month or the quarter when making prepayment of Corporate Income
Tax. At the time of year-end final settlement, the enterprise is not required
to re-compute monthly or quarterly prepaid tax amounts but shall use the middle
price of Renminbi exchange rate on the last day of the tax year to convert
unpaid corporate income tax in the tax year into Renminbi for computation of
the taxable amount of income in Renminbi.
Upon checking and
confirmation by the tax authorities, where the income stipulated in the
preceding paragraph is under-computed or over-computed by the enterprise, the
enterprise shall use the middle price of Renminbi exchange rate on the last day
of the preceding month of the checking and confirmation of tax to be made good
or tax refund to convert the under-computed or over-computed income into
Renminbi for computation of taxable amount of income before computation of the
tax amount to be made good or refunded.
CHAPTER 8 — SUPPLEMENTARY PROVISIONS
Article
131 Enterprises approved and
established before the promulgation of this Law referred to in the first
paragraph of Article 57 of the Corporate Income Tax Law shall mean enterprises
which have completed registration before the promulgation of the Corporate
Income Tax Law.
Article
132 The relevant provisions
of the second and third paragraphs of Article 2 of the Corporate Income Tax Law
shall apply by reference to enterprises established in the Hong Kong Special
Administrative Region, Macau Special Administrative Region and Taiwan.