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With Foreign Investment and Foreign Enterprises
Adopted at the Fourth Session of the Seventh National People's
Congress on April 9, 1991, promulgated by Order No. 45 of the President
of the People's Republic of China on April 9, 1991.
ZHU XI LING [45] 1991.4.9
Article 1 Enterprises with foreign investment who earn
income from production, business operation and other sources within
the borders of the People's Republic of China, shall pay Income
Tax according to the provisions of this Law.
Foreign enterprises who earn income from production, business operation
and other sources within the borders of the People's Republic of
China, shall pay Income Tax according to the provisions of this
Law.
Article 2 "Enterprises with foreign investment"
in this Law refers to Chinese-foreign equity joint ventures, Chinese-foreign contractual joint
ventures and wholly foreign-funded enterprises established within
the borders of the People's Republic of China.
"Foreign enterprises" in this Law refers to foreign companies,
enterprises and other economic organizations which have established
organizations or sites within the borders of the People's Republic
of China and engage in production or business operations, and those
which, though not having established organizations or sites in China,
have income from sources within the borders of China.
Article 3 Any enterprise with foreign investment which
establishes its head office in China shall pay Income Tax on its income derived from sources
inside and outside China. Any foreign enterprise shall pay Income
Tax on its income derived from sources within China.
Article 4 For enterprises with foreign investment and foreign
enterprises with establishments or sites in China, the amount of
taxable income on the total income each year from those establishments
and sites, shall be the amount remaining from gross income for that
year after costs, expenses and losses have been deducted.
Article 5 The Enterprise Income Tax of enterprises with
foreign investment and the Income Tax which shall be paid by foreign
enterprises on the income of their organizations or sites in China
for production or business purposes, shall be calculated on taxable
income at a rate of 30%; Local Income Tax shall be calculated on
taxable income at a rate of 3%.
Article 6 The State shall, in accordance with its industrial
policies, guide the orientation of foreign investment and encourage the establishment of
enterprises with foreign investment which adopt advanced technology
and equipment and export all or the greater part of their production.
Article 7 The Income Tax on enterprises with foreign investment established in
Special Economic Zones, foreign enterprises which have establishments or
sites in Special Economic Zones engaged in production or business
operations, and enterprises with foreign investment of a production
nature in Economic and Technological Development Zones shall be
levied at the reduced rate of 15%.
The Income Tax on enterprises with foreign investment of a production
nature established in coastal economic open zones or in the old urban
districts of cities where the Special Economic Zones or the Economic and
Technological Development Zones are located, shall be levied at the
reduced rate of 24%.
The Income Tax on enterprises with foreign investment in coastal economic
open zones, old urban districts of cities where the Special Economic
Zones or the Economic and Technological Development Zones are located,
or other regions defined by the State Council within the scope of
energy, communications, harbour, wharf or other projects encouraged
by the State, may be levied at the reduced rate of 15%. The specific
rules shall be formulated by the State Council.
Article 8 Any enterprise with foreign investment of a production
nature scheduled to operate for a period of not less than 10 years shall, from the year
in which it begins to make profit, be exempted from Income Tax in the first and second
years and allowed a 50% reduction in the third to fifth years. However, the exemption from or reduction of Income
Tax for enterprises with foreign investment engaged in the exploitation
of resources such as petroleum, natural gas, rare metals, and precious
metals shall be regulated separately by the State Council. Enterprises
with foreign investment which have actually operated for a period
of less than ten years shall repay the amount of income tax already
exempted or reduced.
The relevant regulations, promulgated by the State Council before the
entry into force of this Law, which provide preferential treatment of
exemption from or reduction of income tax on enterprises engaged in
energy, communications, harbour, wharf and other major projects
of a production nature for a period longer than that specified in
the preceding paragraph, or which provide preferential treatment
of exemption from or reduction of income tax on enterprises engaged
in major projects of a non- production nature, shall remain applicable after
this Law enters into force.
Any enterprise with foreign investment which is engaged in agriculture,
forestry or animal husbandry and any other enterprise with foreign
investment which is established in remote underdeveloped areas may, upon
approval, by the responsible department for tax affairs under the
State Council, of an application filed by the enterprise, be allowed
a 15% to 30% reduction of the amount of Income Tax payable for a
period of 10 years following the expiration of the period for tax
exemption or reduction as provided for in the preceding two paragraphs.
After this Law enters into force, any modification to the provisions
of the preceding three paragraphs of this Article on the exemption
from or reduction of income tax on enterprises shall be submitted by the State
Council to the Standing Committee of the National People's Congress for
decision.
Article 9 For any enterprise with foreign investment which
operates in an industry or undertakes a project encouraged by the
State, the exemption from or reduction of local Income Tax shall,
in accordance with the actual situation, be at the discretion of
the People's Government of the relevant province, autonomous region
or municipality directly under the Central Government.
Article 10 Any foreign investor of an enterprise with foreign investment which
reinvests its share of profit from the enterprise directly into
that enterprise by increasing its registered capital, or which uses the profit
as capital investment to establish other enterprises with foreign
investment to operate for a period of not less than 5 years shall,
upon approval by the tax authorities of an application filed by the investor,
be refunded 40% of the Income Tax already paid on the reinvested
amount. Where regulations of the State Council provide otherwise in
respect of preferential treatment, such provisions shall apply. If the investor
withdraws his reinvestment before the expiration of a period of
5 years, he shall repay the refunded tax.
Article 11 The losses incurred in a tax year by any enterprise with foreign investment
and by the organizations or sites established by a foreign enterprise
in China for production or business operations, may be offset against
the income of the following tax year. Where the income of the following tax
year is not sufficient to offset those losses, the balance may be
offset against income of the subsequent years, and so on, over a
period not exceeding five years.
Article 12 Enterprises with foreign investment may, when
filing a consolidated income tax return, deduct from the amount
of tax payable the foreign income tax already paid abroad in respect of the income
derived from sources outside China. The amount deducted, however,
may not exceed the amount of income tax otherwise payable under this Law with
respect to the income derived from sources outside China.
Article 13 In business transactions between an enterprise
with foreign investment or the establishments or sites set up in
China by a foreign enterprise for production or business operations,
and its associated enterprises, the payment or receipt of charges
or fees shall be made in the same way as the payment or receipt of charges or fees in business
transactions between independent enterprises. Where the payment
or receipt of charges or fees is not made in the same way as in business
transactions between independent enterprises and results in a reduction
of the taxable income, the tax authorities have the right to make
appropriate adjustment.
Article 14 Where an enterprise with foreign investment
or an establishment or site in China for production or business
operations, moves to a new site, merges with another enterprise,
breaks up, winds up or makes a change in any of the main entries
of registration, it shall present the relevant documents to, and go through tax registration procedures
or change or cancellation of its registration with the local tax
authorities, after the relevant event is registered, or a change
or cancellation in registration has been made with the Industrial
and Commercial Administration Department.
Article 15 Enterprise Income Tax and local Income Tax shall be calculated on an
annual basis and paid in advance in quarterly installments. Such payments
shall be made within 15 days from the end of each quarter and the
final settlement shall be made within 5 months from the end of each
tax year. Any excess payment shall be refunded and any deficiency
shall be made up.
Article 16 Any enterprise with foreign investment and any
establishment or site set up in China by a foreign enterprise for production or business
operations shall file its quarterly provisional income tax return in
respect of advance payments with the local tax authorities within the
period for each advance payment of tax, and it shall file an annual
income tax return together with the final accounting statements within 4
months from the end of the tax year.
Article 17 Any enterprise with foreign investment and any
establishment or site set up in China by a foreign enterprise for
production or business operations shall report its financial and
accounting systems to the local tax authorities for reference. All
accounting records must be complete and accurate, with legitimate
vouchers as the basis for entries.
Where the financial and accounting procedures adopted by an enterprise with
foreign investment and an establishment or a site set up in China by a
foreign enterprise for production or business operations contradict
the relevant regulations on tax of the State Council, tax payment
due shall be calculated in accordance with the relevant regulations
on tax of the State Council.
Article 18 When any enterprise with foreign investment goes
into liquidation, and if the balance of its net assets or the balance of its remaining property
after deduction of the enterprise's undistributed profit, various funds
and liquidation expenses exceeds the enterprise's paid-in capital, the
excess portion shall be liquidation income on which income tax shall be
paid in accordance with the provisions of this Law.
Article 19 Where a foreign enterprise has no established
organization or site in China but derives profits, interest, rental,
royalties and other income from sources in China, or where it has
such established organizations or sites within China but the above
types of income it earns are not really connected with those organizations
or sites, such an enterprise shall pay Income Tax on that income
at a rate of 20%.
For the payment of income tax in accordance with the provisions of the preceding
paragraph, the income beneficiary shall be the taxpayer and the payer shall
be the withholding agent. The tax shall be withheld from the amount
of each payment by the payer. The withholding agent shall, within 5 days,
remit the amount of taxes withheld on each payment to the State
Treasury and submit a withholding income tax return to the local
tax authorities.
Income Tax shall be exempted from or reduced for the following
income:
A. The profit derived by a foreign investor from an enterprise with foreign
investment shall be exempted from Income Tax;
B. Income from interest on loans made to the Chinese Government or
Chinese State banks by international financial organizations shall be
exempted from Income Tax;
C. The interest income derived by a foreign bank from loans made to
Chinese State Banks at preferential interest rates shall be exempted
from Income Tax; and
D. Income Tax on royalties received for the supply of technical know-how
in scientific research, exploitation of energy resources, development
of the communications industries, agricultural, forestry and animal
husbandry production, and the development of important technology may,
upon approval by the responsible department for tax affairs under
the State Council, be levied at the reduced rate of 10%. Where the
technology supplied is advanced or the terms are preferential, exemption
from Income Tax may be allowed.
Apart from the aforesaid provisions of this Article, if preferential
treatment in the formof reduction of or exemption from Income Tax on
profits, interest, rental, royalties and other income is required,
it shall be decided by the State Council.
Article 20 The tax authorities have the right to inspect the financial,
accounting and tax affairs of enterprises with foreign investment and
foreign enterprises with establishments or sites in China for production
and business operations, and have the right to inspect tax withholding
activity of the withholding agents and its payment of the withheld tax into
the State Treasury. The entities and the withholding agents being
inspected must report the facts and provide relevant information.
They may not conceal or refuse to report any facts.
When making an inspection, the tax officials shall produce their identity
documents and shall maintain confidentiality.
Article 21 Income Tax payable according to this Law shall
be calculated in Renminbi (RMB). Income in foreign currency shall be converted into
Renminbi for purposes of tax payment, according to the exchange
rate quoted by the State Foreign Exchange Control Authorities.
Article 22 If any taxpayer fails to pay tax within the
prescribed time limit, or if the withholding agent fails to remit the tax withheld within the prescribed
time limit, the tax authorities shall, in addition to setting a
new time limit for tax payment, also impose a surcharge for overdue payment,
equal to 0.2% of the overdue tax for each day in arrears, starting
from the first day the payment becomes overdue.
Article 23 The tax authorities shall set a new time limit for registration or
submission of documents and may impose a fine of up to 5000 yuan or
less on any taxpayer or withholding agent which fails to register
for tax purposes or to make a change or cancellation in registration
with the tax authorities within the prescribed time limit; who fails to submit an
Income Tax Return, final accounting statements or Withholding Income Tax Return
to the tax authorities within the prescribed time limit, or fails to
report its financial and accounting systems to the tax authorities for
reference.
Where the tax authorities have set a new time limit for registration
or submission of documents, they shall impose a fine of up to 10000
yuan or less on the taxpayers or withholding agents who again fail
to meet the time limit for registering or making a change in registration
with the tax authorities, or for submitting an Income Tax Return,
final accounting statements or Withholding Income Tax Return to
the tax authorities. Where the circumstances are serious, the legal
representatives and the person directly responsible shall be investigated for
criminal responsibility in accordance with the provisions of Article
121 of the Criminal Law.
Article 24 Where the withholding agent fails to carry out
his obligations to withhold tax as provided in this Law, and does
not withhold or withholds an amount less than that which should
have been withheld, the tax authorities shall set a time limit for
the payment of the amount of tax that should have been withheld,
and may impose a fine of up to but not exceeding 100% of the amount
of tax not withheld.
Where the withholding agent fails to remit the tax withheld to the State Treasury within the
prescribed time limit, the tax authorities shall set a time limit for
remitting the taxes and may impose a fine of up to 5000 yuan or
less on the withholding agent; if the withholding agent fails to
meet the time limit again, the tax authorities shall recover the
taxes according to law and may impose a fine of up to 10000 yuan or less on the withholding
agent. If the circumstances are serious, the legal representative
and the person directly responsible shall be investigated for
criminal responsibility in accordance with the provisions of Article
121 of the Criminal Law.
Article 25 Where any person evades tax by deception or
concealment or fails to pay tax within the time limit prescribed by this Law and, after the tax
authorities have reminded the taxpayer of the payment of tax, he
fails again to pay it within the prescribed time limit, the tax authorities shall, in addition to
recovering the tax which should have been paid, impose a fine of up to but
not exceeding 5 times the amount of tax in default. Where the circumstances
are serious, the legal representatives and the person directly responsible
shall be investigated for criminal responsibility in accordance
with the provisions of Article 121 of the Criminal Law.
Article 26 In a dispute with the tax authorities on payment of tax,
any enterprise with foreign investment, foreign enterprise or withholding
agent, must pay tax according to the relevant regulations first.
Thereafter, the taxpayer or withholding agent may, within 60 days from the date of
receipt of the tax payment certificate issued by the tax authorities,
apply to the tax authorities at a higher level for reconsideration.
The higher tax authorities shall make a decision within 60 days after
receipt of the application for reconsideration. If the taxpayer or
withholding agent is still not satisfied with the decision, he may institute
legal proceedings in the People's Court within 15 days from the
date of receipt of the notification on decision made after reconsideration
of his case.
If the taxpayer concerned is not satisfied with the decision on
the penalties imposed by the tax authorities, he may, within 15
days from the date of receipt of the notification on punishment,
apply for reconsideration to the tax authorities at the level above
that which made the penalty decision. Where the party is not satisfied
with the decision made after reconsideration, he may institute legal
proceedings in the People's Court within 15 days from the date of
receipt of the decision made after reconsideration. The taxpayer concerned may, however, directly institute
legal proceedings in the People's Court within 15 days from the date of
receipt of the notification on penalties. If the party concerned
does not applies for reconsideration to the higher tax authorities
and does not institutes legal proceedings in the People's Court
within the time limit, and if the decision on penalties is not
fulfilled, the tax authorities which made the decision on penalties
may apply to the People's Court for compulsory enforcement of their
decision.
Article 27 Where any enterprise with foreign investment
which was established before the promulgation of this Law would
otherwise, in accordance with the provisions of this Law, be subject to higher tax rates or enjoy less
preferential treatment in the form of tax exemption or reduction
than before the entry into force of this Law, in respect of such
enterprise, within its approved period of operation, the Law and
relevant regulations of the State Council in effect before the entry
into force of this Law shall apply. If any such enterprise has no
approved period of operation, the Law and relevant regulations of
the State Council in effect before the entry into force of this
Law shall apply within the period prescribed by the State Council.
Specific rules shall be stipulated by the State Council.
Article 28 Where the provisions of a tax agreements concluded
between the Government of the People's Republic of China and foreign
governments are different from the provisions of this Law, the provisions
of the agreement shall prevail.
Article 29 The Detailed Rules for implementation shall
be formulated by the State Council in accordance with this Law.
Article 30 This Law shall take effect as of July 1, 1991.
The Income Tax Law of the People's Republic of China for Chinese-Foreign
Equity Joint Ventures and the Income Tax Law of the People's Republic of China for Foreign Enterprises
shall be annulled as of the same date.
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