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Income Tax Law of the People’s Republic of China for Enterpr
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Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises

(Adopted at the Fourth Session of the  Seventh  National  People"sCongress on April 9, 1991, promulgated by Order No. 45 of the President ofthe People"s Republic of China on April 9, 1991 and effective as  of  July1, 1991)

 

Important Notice: In case of discrepancy, the original version in Chinese shall prevail.

 

Whole document

Article 1           

Income tax shall be paid in accordance with the provisions of this Law  by enterprises with foreign investment within the territory of  the  People"s Republic of China  on  their  income  derived  from  production,  business operations and other sources.  Income tax shall be paid in accordance with the provisions of this Law by foreign enterprises on their income  derived from  production,  business  operations  and  other  sources  within   the territory of the People"s Republic of China.

Article 2

"Enterprises with  foreign  investment"  referred  to  in  this  Law  mean Chinese-foreign equity joint ventures, Chinese-foreign  contractual  joint ventures and foreign-capital enterprises that are established in China. "Foreign enterprises" referred to in  this  Law  mean  foreign  companies, enterprises and other economic organizations which have establishments  or places in China and engage  in  production  or  business  operations,  and which, though without establishments or places in China, have income  from sources within China.

Article 3

Any enterprise with foreign investment which establishes its  head  office in China shall pay its income tax  on  its  income  derived  from  sources inside and outside China. Any foreign enterprise shall pay its income  tax on its income derived from sources within China.

Article 4

The taxable income  of  an  enterprise  with  foreign  investment  and  an establishment or a place set up  in  China  to  engage  in  production  or business operations by a foreign enterprise, shall be the amount remaining from its gross income in a tax year after the costs, expenses  and  losses have been deducted.

Article 5

The income tax on enterprises with foreign investment and the  income  tax which shall be  paid  by  foreign  enterprises  on  the  income  of  their establishments or places set up  in  China  to  engage  in  production  or

business operations shall be computed on the taxable income at the rate of thirty percent, and local income tax shall  be  computed  on  the  taxable income at the rate of three percent.

Article 6

The State shall, in accordance with the  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 greater part of their products.

Article 7

The income tax on  enterprises  with  foreign  investment  established  in Special Economic Zones, foreign enterprises which have  establishments  or places in  Special  Economic  Zones  engaged  in  production  or  business operations, and on enterprises with foreign  investment  of  a  production nature in Economic and Technological Development Zones, shall be levied at the reduced rate of fifteen percent. 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 twenty-four percent. The income tax on enterprises with foreign investment in coastal  economic open zones, in the  old  urban  districts  of  cities  where  the  Special Economic Zones or the Economic and  Technological  Development  Zones  are located or in 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  fifteen  percent.  The specific measures shall be drawn up 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  ten  years  shall,  from  the  year beginning to make profit, be exempted from income tax  in  the  first  and second years and allowed a fifty percent reduction in the third  to  fifth years.  However,  the  exemption  from  or  reduction  of  income  tax  on 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  exempted  or  reduced already.

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 competent department  for  tax  affairs  under  the  State Council of an application filed by the enterprise, be allowed a fifteen to thirty percent reduction of the amount of income tax payable for a  period of another ten 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

The exemption from or reduction of local income tax on any enterprise with foreign investment which operates in an industry or undertakes  a  project encouraged by the State 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 obtained from the enterprise  directly  into that enterprise by increasing its registered capital, or uses  the  profit as  capital  investment  to  establish  other  enterprises  with   foreign investment to operate for a period of not less than five years shall, upon approval by the tax authorities of an application filed by  the  investor, be refunded forty percent 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 its reinvestment before the expiration of a  period  of

five years, it shall repay the refunded tax.

Article 11

Losses incurred in a tax year by any enterprise  with  foreign  investment and by an establishment or a place set up in China by a foreign enterprise to engage in production or business operations  may  be  made  up  by  the income of the following tax year. Should the income of the  following  tax year be insufficient to make up for the said losses, the  balance  may  be made up by its income of the further subsequent year, and so  on,  over  a

period not exceeding five years.

Article 12

Any enterprise with foreign investment shall be  allowed,  when  filing  a consolidated income tax return, to 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 deductible amount shall,  however, not exceed the amount of income tax otherwise payable under  this  Law  in respect of the income derived from sources outside China.

Article 13

The payment or receipt of charges or fees in business transactions between an enterprise with foreign investment or an establishment or a  place  set up in China by a foreign enterprise to engage in  production  or  business operations, and its associated enterprises, shall  be  made  in  the  same manner  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  manner  as  in  business transactions between independent enterprises and results in a reduction of the taxable income, the tax authorities  shall  have  the  right  to  make reasonable adjustment.

Article 14

Where an enterprise with foreign investment or an establishment or a place set up in China by  a  foreign  enterprise  to  engage  in  production  or business operations is established, 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  or  a  change  or   cancellation   in registration with the local tax authorities after the  relevant  event  is registered, or a change or cancellation in registration is made  with  the administrative agency for industry and commerce.

Article 15

Income tax on enterprises and local income tax shall  be  computed  on  an annual basis and paid in advance in quarterly instalments.  Such  payments shall be made within fifteen days from the end of  each  quarter  and  the final settlement shall be made within five months from the end of each tax year. Any excess payment shall be refunded and  any  deficiency  shall  be repaid.

Article 16

Any enterprise with foreign investment and any establishment or place  set up in China by a foreign enterprise to engage in  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  four months from the end of the tax year.

Article 17

Any enterprise with foreign investment and any establishment or place  set up in China by a foreign enterprise to engage in  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. If the financial and  accounting  bases  adopted  by  an  enterprise  with foreign investment and an establishment or a place set up in  China  by  a foreign  enterprise  to  engage  in  production  or  business   operations contradict the relevant regulations on  tax  of  the  State  Council,  tax payment shall be computed 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

Any foreign enterprise which has no establishment or place  in  China  but derives profit, interest, rental, royalty and other income from sources in China, or though it has an establishment or a place  in  China,  the  said income is not effectively connected  with  such  establishment  or  place, shall pay an income tax of twenty percent on such income.  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  five days, turn the amount of taxes withheld on each payment over to the  State Treasury and submit a withholding income  tax  return  to  the  local  tax authorities.

Income tax shall be exempted or reduced on the following income:

(1) the profit derived by a  foreign  investor  from  an  enterprise  with foreign investment shall be exempted from income tax;

(2) income from interest on  loans  made  to  the  Chinese  government  or Chinese State banks by  international  financial  organizations  shall  be exempted from income tax;

(3) income from interest on loans made at a preferential interest rate to Chinese State banks by foreign banks shall be exempted from income tax; and

(4) income tax of the royalty 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  technologies  may, upon approval by the competent department for tax affairs under the  State

Council, be  levied  at  the  reduced  rate  of  ten  percent.  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 respect of reduction of  or  exemption  from  income  tax  on profit, interest, rental, royalty and other income is required,  it  shall be regulated by the State Council.

Article 20

The tax authorities  shall  have  the  right  to  inspect  the  financial, accounting and tax affairs of  enterprises  with  foreign  investment  and establishments or places set up in China by foreign enterprises to  engage in production or business operations, and have the right  to  inspect  tax withholding of the withholding agent and its payment of the  withheld  tax

into the State Treasury. The entities and the withholding agents being so inspected must report the facts and provide relevant information. They may not refuse to report or conceal any facts. When making an inspection, the tax officials shall produce their identity documents and be responsible for confidentiality.

Article 21

Income tax payable according to this Law shall be  computed  in  terms  of Renminbi (RMB).  Income  in  foreign  currency  shall  be  converted  into Renminbi according to the exchange  rate  quoted  by  the  State  exchange control authorities for purposes of tax payment.

Article 22

If any taxpayer fails to pay tax within the prescribed time limit,  or  if the withholding agent fails to turn  over  the  tax  withheld  within  the prescribed time limit, the tax authorities shall, in addition to setting a new time limit for tax payment, impose a surcharge  for  overdue  payment, equal to 0.2 percent 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  five  thousand  yuan  or less on any taxpayer or withholding agent which fails to  go  through  tax registration or make a change or cancellation in registration with the tax authorities within the prescribed time limit, or fails  to  submit  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  ten thousand yuan or less on the taxpayer or  withholding  agent  which  again fails to meet the time limit for going through registration  or  making  a change in registration with the tax authorities, or for submitting  income tax return, final accounting statements or withholding income  tax  return to the tax authorities. Where the circumstances  are  serious,  the  legal

representative and the person directly responsible shall  be  investigated for criminal responsibility by applying mutatis mutandis the provisions of Article 121 of the Criminal Law.

Article 24

Where the withholding agent fails to fulfil its obligation to withhold tax as provided in this Law, and does not withhold or withholds an amount less than that 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 up to but not exceeding one hundred percent  of  the amount of tax that should have been withheld.  Where the withholding agent fails to turn the tax withheld over  to  the  State  Treasury  within  the prescribed time limit, the tax authorities shall  set  a  time  limit  for turning over the taxes and may impose a fine of five thousand yuan or less

on the withholding agent; if the withholding agent fails to meet the  time limit again, the tax authorities shall pursue the taxes according  to  law and may impose a fine of ten thousand 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 by applying mutatis mutandis 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 pursued the payment of tax, 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  up  to  but not exceeding five hundred percent of the amount of tax which should  have been paid.  Where 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 26

Any enterprise with foreign investment, foreign enterprise or  withholding agent, in case of a dispute with the tax authorities on  payment  of  tax, must pay tax according to the relevant regulations first. Thereafter,  the taxpayer or withholding agent may, within sixty  days  from  the  date  of receipt of the tax payment certificate  issued  by  the  tax  authorities, apply to the tax authorities at the next higher level for reconsideration. The higher tax authorities shall make a decision within sixty  days  after receipt of  the  application  for  reconsideration.  If  the  taxpayer  or withholding agent is not satisfied with the  decision,  it  may  institute

legal proceedings in the people"s court within fifteen days from the  date of receipt of the notification on decision made after reconsideration. If the party concerned is not satisfied with the decision on punishment by the tax authorities, it may, within fifteen days from the date of  receipt

of the notification on punishment, apply for reconsideration  to  the  tax authorities at the next higher level than that which made the decision  on punishment. Where the party is not satisfied with the decision made  after reconsideration, it may institute legal proceedings in the people"s  court within fifteen days from the date of receipt of the  decision  made  after reconsideration. The party  concerned  may,  however,  directly  institute legal proceedings in the people"s court within fifteen days from the  date of receipt of the notification  on  punishment.  If  the  party  concerned neither applies for reconsideration to the  higher  tax  authorities,  nor institutes legal proceedings in the people"s court within the time  limit, nor complies with the decision on punishment, the  tax  authorities  which made the decision on punishment  may apply  to  the  people"s  court  for compulsory execution.

Article 27

Where any enterprise with foreign investment which was established  before the promulgation of this Law would, in accordance with the  provisions  of this Law,  otherwise  be  subject  to  higher  tax  rates  or  enjoy  less preferential treatment of tax exemption or reduction than before the entry into force of this Law, in respect to 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 measures shall be drawn up by the State Council.

Article 28

Where the provisions of a tax agreement concluded between  the  government of the People"s Republic of China and a foreign government  are  different from the provisions of this Law, the provisions  of  the  agreement  shall prevail.

Article 29

Rules for implementation shall be  formulated  by  the  State  Council  in accordance with this Law.

Article 30

This Law shall enter into force on 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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