(April 9, 1997)
Recently, the tax authorities in various localities have repeated inquiries about the issue on how to determine the tax rate applicable to the branches established by enterprises with foreign investment in different tax rate regions within the territory of our country in accordance with the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise (hereinafter referred to as Tax Law). According to the provisions of Article5 and Article 7 in Tax Law and Article 71 in the Detailed Rules for the Implementation of Tax Law, the above mentioned issue shall be handled by differentiating the following circumstances:
1. For a branch which is established within the territory of our country to engage in producing of products, commodity trade, service provision, etc., the enterprise income tax rate applicable to the enterprise in the same line of business in the locality where this branch is located shall be applicable to its income from production and business operations, and its head office shall pay its income tax on a consolidated basis.
2. Where an enterprise with foreign investment produces products or sells self-produced products within the territory of our country, regardless of whether the sale is conducted by establishing a sale institution and what accounting method the sale institution adopts, the enterprise income tax rate applicable to its profits from producing and selling self-produced products, and its head office shall pay its income tax on a consolidated basis.
3. Where there is any inconsistency between the previous handling and the provisions of this Circular, an adjustment shall be made based on the provisions of this Circular as of the calendar year of 1996.
