(Effective on July 1, 1991)
Contents
Chapter I General Provisions
Chapter II Computation of Taxable Income
Chapter III Tax Treatment of Assets
Chapter IV Business Dealings between Associated Enterprises
Chapter V Withholding at Source
Chapter VI Tax Reference
Chapter VII Tax Credit
Chapter VIII Tax Administration
Chapter IX Supplementary Rules
Chapter I General Provisions
Article 1
These Detailed Rules and Regulations are formulated in accordance with the provisions of Article 29 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises (hereinafter referred to as the tax law).
Article 2
"Income from production and business operations" referred to in Article 1 paragraph 1 & 2 of the Tax Law means income from production and business operations in manufacturing, mining, communications and transportation construction and installation, agriculture, forestry, animal husbandry, fishery, water conservancy, commerce, finance, service industry, exploration and exploitation, and in other trades.
"Income from other sources" referred to in Article 1 Paragraph 1 & 2 of the Tax Law covers profit (dividend), interest income, rental income, income from lease or alienation of property, income from provision or transfer of patents, proprietary technology, trademark interests, copyright, other non-business income, etc..
Article 3
"Enterprises with foreign investment" referred to in Article 2 Paragraph 1 of the Tax Law, and "foreign companies, enterprises and other economic organizations which have establishments or places in China engaged in production and business operations" referred to in Article 2 Paragraph 2 of the Tax Law are generally referred to as "Enterprise(s)" in these Regulations unless particularly specified.
"Establishments or places" mentioned in Article 2 Paragraph 2 of the Tax Law refer to management organizations, business organizations, representative offices and factories, places where natural resources are exploited, places where contracted projects of construction, installation, assembly and exploration are operated, places where labor services are provided, and business agents.
Article 4
"Business agents" mentioned in Article 3 Paragraph 2 of these Regulations refer to the operating companies, enterprises and other economic organizations or individuals that are engaged as agents of foreign enterprises in any of the following manners:
1. Represent the principal on a regular basis in arranging, signing purchase contracts and purchasing goods or commodities on the principal's behalf;
2. Entering into an agency agreement or contract with the principal, storing the products or commodities owned by the principal on a regular basis, and delivering such products or commodities to other parties on the principal's behalf;
3. Having the authority to represent the principal on a regular basis in signing sales contracts or accepting purchase orders.
Article 5
"Head Office" mentioned in Article 3 of the Tax Law refers to the central organization of any enterprise with foreign investment formed in China as an independent legal entity pursuant to the laws of China that is in charge of the management, operation and control of the enterprise.
The incomes derived from production, business operation and other sources by the branches of an enterprise with foreign investment inside or outside China shall be consolidated by its head office in paying income tax.
Article 6
The "income derived from sources inside China" as mentioned in Article 3 of the Tax Law refers to:
1. The income derived from the production or business operation of enterprises with foreign investment and foreign enterprises which have establishments or places in China, and profits (dividends), interest, rentals, royalties and other incomes derived inside or outside China that are effectively connected with those establishments or places.
2. The following income earned by foreign enterprises which have no establishments or places in China:
a. Profits (dividends) earned by Enterprises in China;
b. Interest on deposits or loans, on bonds, on payments made provisionally for others, and on deferred payments derived inside China;
c. Rentals, on properties rented to and used by persons in China;
d. Royalties obtained from the provision of various patents, proprietary technology, copyright and trademark interests for use in China;
e. Gains from the alienation of properties, such as houses, buildings, structures and their attached facilities located in China, or from the assignment of the right to the use of sites in China;
f. Other incomes derived in China and specified as taxable by the Ministry of Finance.
Article 7
For Chinese - foreign contractual joint ventures which do not constitute a legal entity, each partner may assess and pay its income tax separately in accordance with the relevant tax laws and regulations of the State. Otherwise, the enterprise may, upon approval by the local tax authorities of its application, consolidate the assessment and payment of income tax in accordance with the provisions of the Tax Law.
Article 8
The "tax year" referred to in Article 4 of the Tax Law starts from January 1 and ends on December 31 under the Gregorian Calendar.
A foreign enterprise that has difficulty in computing its taxable income according to the tax year as stipulated in the Tax Law may apply to the local tax authorities for approval to use its own 12-month fiscal year as the tax year.
An enterprise which commences its business in the middle of the tax year, or has actually operated for less than 12 months in any tax year due to merger, close-down, etc. shall treat the actual operating period as the tax year.
An enterprise which goes through liquidation shall take the liquidation period as the tax year.
Article 9
The "competent authority for tax affairs under the State Council" mentioned in Article 8 Paragraph 3 and Article 19 Paragraph 3 Item 4 of the Tax Law and Article 72 of these Regulations refers to the Ministry of Finance and the State Administration for Taxation.
Chapter II Computation of Taxable Income
Article 10
The "taxable income" referred to in Article 4 of the Tax Law shall be computed according to the following formulas:
1. Manufacturing industry:
a. Taxable income = Profit on sales of products + profit from other operations + non - business income - non-business expenditure
b. Profit on sales of products = Net sales of the product - costs of products sold - tax on sales of products - (selling expenses + administrative expenses + financial expenses)
c. Net sales of products = Gross sales of the product - (sales returns + sales discounts and allowances)
e. Costs of products sold = Costs of products manufactured for the period + product inventory at the beginning of the period - product inventory at the end of the period.
f. Costs of products manufactured for the period = Manufacturing costs for the period + inventory of semi-finished products and products in progress at the beginning of the period - inventory of the semi-finished products and products in progress at the end of the period
g. Manufacturing costs for the period = Direct material consumption in production of the period + direct wages + manufacturing expenses
2. Commerce:
(1) Taxable income = Profit on sales + profit from other operations + non - business income - non - business expenditures
(2) profit on sales = Net sales - costs of sales - tax on sales - (selling expenses + administrative expenses + financial expenses)
(3) Net sales = Gross sales - (sales return + sales discounts and allowances)
(4) Costs of sales = Inventory of merchandise at the beginning of the period +[purchases of the period -(purchase returns + purchase discounts and allowances) + purchase expenses] - inventory of merchandise at the end of the period
3. Service industry:
(1) Taxable income = Net business income + non - business income - non -business expenditure
(2) Net business income = gross business income - (tax on business income + operating expenses + administrative expenses + financial expenses)
4. Other trades:
Computation shall be made with reference to the above formulas.
Article 11
The taxable income of an Enterprise shall in principle be computed on accrual basis.
The following operational and business incomes of an Enterprise may be determined on a period basis and the taxable income may be computed accordingly:
1. Products or commodities sold under installment sales may have the sales income realized according to the invoice date of the products or commodities being delivered. The sales income may also be realized according to the date of payment to be made by the buyer as stipulated in the contract;
2. For construction, installation and assembly projects and provision of labor services that last beyond one year, the realization of the business income may be determined according to the progress of the contracted project or the amount of labor services completed;
3. For the processing or manufacturing of large machinery equipment and ships for other enterprises that lasts beyond one year, the realization of the income may be determined according to the progress or the amount of work completed.
Article 12
Partners of Chinese - foreign contractual joint ventures operating on the basis of sharing products shall be considered as receiving incomes when they obtain their share of the products, and the amount of their income shall be computed according to the prices at which the products are sold to a third party, or with reference to the prevailing market prices of the products.
Enterprises engaged in cooperative exploration of petroleum resources shall be considered as receiving incomes when they receive their share of crude oil, and the amount of their income shall be computed according to the prices which are regularly adjusted with reference to the international market prices of crude oil of equal quality.
Article 13
In the case in which any income obtained by an Enterprise is in the form of non-monetary assets, or rights and interests, the income shall be computed or assessed with reference to the prevailing market prices.
Article 14
The "exchange rate quoted by the state exchange control authorities" mentioned in Article 21 of the Tax Law refers to the buying rates quoted by the State Administration of Exchange Control.
Article 15
When paying the income tax in quarterly installments pursuant to Article 15 of the Tax Law, Enterprises with income in foreign currencies shall convert the income into Renminbi in computing the taxable income, according to the exchange rates quoted on the last day of the quarter. The final settlement can be made after the end of the tax year without reconverting the taxable foreign currency income, on which the tax has already been pre-paid on a quarterly basis. Only that part of the foreign currency income over the whole year on which the tax has not been paid shall be converted into RMB in assessment according to the exchange rates quoted on the last day of the year.
Article 16
If an Enterprise is unable to provide complete and accurate evidences of costs and expenses and can not work out its taxable income correctly, the local tax authorities shall determine its profit rate with reference to the profit level of other enterprises of the same or similar trade and assess its taxable income. If an Enterprise is unable to provide complete and accurate evidences of receipts and can not report its income correctly, the local tax authorities shall assess its income by using the method of costs (expenses) plus reasonable profits, etc..
When the tax authorities assess the profit rate or income in accordance with the provisions of the preceding paragraph, whereas there are other provisions in the laws, regulations and rules elsewhere, these other provisions shall be applicable.
Article 17
For foreign air transportation and ocean shipping enterprises engaged in international transportation and shipping business, the taxable income shall be assessed at 5% of the gross income generated from transport and shipping services for passengers and cargoes loaded in China.
Article 18
For an enterprise with foreign investment investing in another enterprise inside China, the profits (dividends) obtained from the enterprise under investment may be excluded from the taxable income of the said enterprise with foreign investment. But the expenses and losses incurred in the above - mentioned investment shall not be deducted from the taxable income of the said enterprise.
Article 19
Unless otherwise provided by the state, the following items shall not be listed as costs, expenses or losses in computing the taxable income:
1. Expenditure on the acquisition or construction of fixed assets;
2. Expenditure on the acquisition or development of intangible assets;
3. Interest on capital;
4. Various income tax payments;
5. Penalties on unlawful operations and losses sustained from confiscation of property;
6. Various tax overdue surcharges and penalties;
7. The portion of losses from natural calamities or accidents covered by insurance indemnity;
8. Donations and contributions other than those utilized in China for public welfare or relief purposes;
9. Royalties paid to the head office; and
10. Other expenditure not related to production or business operation.
Article 20
Reasonable overhead expenses that are relevant to production and business operation paid to the head office by a foreign enterprise which has establishments or places in China may be listed as expenses on the condition that the said expenses are backed up by supporting documents issued by the head office certifying the scope of overhead categorization, the total amount, the sharing basis and methods, together with a verification report signed by a certified public accountant, and examined and approved by the local tax authorities.
Enterprises with foreign investment shall share with their branches appropriate overhead expenses related to the production and business operation of the branches.
Article 21
Enterprises are permitted to list as expenses the reasonable interests actually incurred on loans related to production and business operation, provided that the loans and interest payments are supported by certifying documents and have been examined and approved by the local tax authorities.
For the loans obtained by an Enterprise to finance the expenditure on the acquisition or construction of fixed assets, or the acquisition or development of intangible assets, the interest paid before the assets are put into use shall be included in the original value of the assets.
"Reasonable interest" mentioned in the first paragraph of this article refers to interest computed at a rate not higher than the normal commercial lending rates.
Article 22
Entertainment expenses incurred in relation to production and business operation by an enterprise shall be backed up by reliable records or vouchers, and are permitted to be listed as expenses within the following respective limits:
1. For an enterprise with its annual net sales coming to RMB 15 million yuan or less, the entertainment expenses shall not exceed 0.5% of the net sales; the entertainment expenses for the portion in excess of RMB 15 million yuan shall not exceed 0.3% of the said portion.
2. For an enterprise with its annual total business income coming to RMB 5 million yuan or less, the entertainment expenses shall not exceed 1% of the total business income; for those with annual total business income coming to more than RMB 5 million yuan, the entertainment expenses for the portion in excess of RMB 5 million yuan shall not exceed 0.5% of the said portion.
Article 23
Unless otherwise provided by the state, any exchange gain or loss incurred due to differences in exchange rates during an enterprise's preparatory or construction period, or during the period of production and business operation, shall be listed appropriately as profit or loss in the respective period.
Article 24
Wages, benefits and allowances paid to employees can be listed as expenses by the enterprises upon the examination and approval of the pay scale and its supporting documents and information by the local tax authorities.
Enterprises shall not list as expenses any foreign social insurance premiums for employees working inside China.
Article 25
Enterprises engaged in the credit and leasing business etc. may, according to their actual needs and after the approval of the local tax authorities, provide year by year for doubtful debts at not exceeding 3% of the year-end balances of their loans (not including inter - bank loans) or of their accounts receivable, notes receivable and other receivables, and deduct the provision from the taxable income of that year.
If the actual amount of bad debt losses incurred by an enterprise runs in excess of the bad debt provision of the preceding year, the balance can be listed as losses of the current year. The amount in deficiency of the provision of the preceding year shall be included in the taxable income of the current year.
Bad debt losses incurred by an enterprise shall be reported to the local tax authorities for examination and confirmation.
Article 26
"Bad debt losses" mentioned in Article 25 Paragraph 2 of these Regulations refer to the following accounts receivable:
1. Due to the bankruptcy of the debtor, the amount due is not collectible even after the Court's judgment of liquidation;
2. Due to the death of the debtor, the debtor's estate remain insufficient to repay the debts in full;
3. The debtor has failed to repay the debts for over two years and the debt is still not collectible;
Article 27
Where accounts receivable already itemized as bad debt losses but are recovered in full or in part by an enterprise in subsequent years, the amount recovered shall be included in the taxable income of the recovering year.
Article 28
Unless otherwise provided by the state, foreign enterprises which have establishments or places in China may itemize as deductible expenses the foreign income tax already paid on the profits (dividends), interest, rentals, royalties and other incomes sourced outside China, which are effectively connected with such establishments or places in China.
Article 29
"Net assets or remaining property" mentioned in Article 18 of the Tax Law refer to the balance of all assets or property upon the liquidation of an enterprise after deducting various liabilities and losses.
Chapter III Tax Treatment of Assets
Article 30
The fixed assets of enterprises refer to any houses, building, machinery, mechanical apparatus, means of transportation and other equipment. appliance and tools related to production and business operation with a useful life of one year or more. Articles which are not major equipment in production and business operation with a unit value of RMB 2,000 yuan or less, or with a useful life of 2 years of less, may be itemized as expenses according to the actual amount used.
Article 31
Fixed assets shall be assessed according to their original value.
For purchased fixed assets, the original value shall be the purchase price plus freight, installation expense and other related expenses incurred before they are put into use.
For self-made or self-built fixed assets, the original value shall be the actual expenditure incurred in the course of manufacture or construction.
For fixed assets treated as investments, the original value shall be the reasonable prices stipulated in the contract according to the wear and tear condition, or determined with reference to the relevant market price information, plus the relevant expenses incurred before the fixed assets are put into use.
Article 32
Depreciation on the fixed assets of an enterprise shall be computed starting from the month following that in which the assets are put into use. Depreciation shall cease to be computed starting from the month following that month in which the fixed assets cease to be used.
For enterprise engaged in exploiting petroleum resources, all the investments made at the stage of exploration shall be accumulated and counted as capital expenditure with the oil (gas) field as a unit, Depreciation shall be computed starting from the month following that in which the oil (gas) field goes into commercial production.
Article 33
In computing depreciation on fixed assets, the residual value shall be assessed and deducted from the original value. The residual value shall not be less than 10 per cent of the original value. Any need to retain a lower residual value, or not to retain any residual value, need to be reported to local tax authorities for approval.
Article 34
Depreciation on fixed assets shall be computed by the straight-line method, In case of any need to use other depreciation methods, an application shall be made by the relevant enterprise to the local tax authorities for examination, which shall then be reported level by level up to the State Administration for Taxation for approval.
Article 35
The minimum depreciation periods for different kinds of fixed assets are as follows:
1. Premises, buildings and structures: 20 years;
2. Trains, ships, machinery, mechanical apparatus and other production equipment: 10 years;
3. Electronic equipment, means of transportation other than trains and ships, as well as appliances, tools and furniture related to production and business operation: 5 year.
Article 36
Depreciation of fixed assets resulting from investments made during and after the stage of development by enterprises engaged in exploiting petroleum resources may be computed by a composite life method, without retaining the residual value, and the depreciation period shall not be less than 6 years.
Article 37
"Premises, buildings and structures" referred to in Article 35 Paragraph 1 of these Regulations mean premises, buildings and structures and their attached facilities used for production and operation or as living quarters or service centers for employees.
Premises and buildings include factory buildings, business centers, office buildings, storages, living quarters, canteens, other housing facilities, etc..
Structures include all kinds of towers, ponds troughs, wells, racks, sheds (not including such simple facilities as make-shift work sheds, vehicle sheds, etc.), fields, roads, bridges, platforms, piers, docks, culverts and gas stations as well as all kinds of pipes, chimneys, and enclosing walls, etc. that are detached from buildings, machines and equipment.
Facilities attached to premises, buildings and structures refer to auxiliary facilities inseparable from premises, buildings and structures, the value of which is not assessed separately, e. g. ventilation and drainage system, oil pipes, telecommunication and power transmission lines, elevators, and sanitary equipment in premises, buildings and structures.
Article 38
The definitions of "trains, ships, machinery and other production equipment" as referred to in Article 35 Paragraph 1 Item 2 of these Regulations are as follows:
Trains include all kinds of locomotives, passenger coaches, freight trains, and all kinds of auxiliary train facilities, the value of which is not assessed separately;
Ships include different kinds of motor ships and auxiliary facilities on the ships, the value of which is not assessed separately;
Machinery and other production equipment include all kinds of machines, mechanical apparatus, machinery units, production lines and their accessory equipment, different kinds of power, transportation, transmission and conduction equipment, etc.
Article 39
The definitions of "Electronic equipment, means of transportation other than trains and ships" as referred to in Article 35 Paragraph 1 Item 3 of these Regulations are as follows:
Electronic equipment means equipment mainly composed of integrated circuits, transistors, vacuum tubes and other electronic component parts, with the main function of bringing into play all kinds of electronic technology (including software), e. g. computers, computerized robots, numerical or program controlled systems, etc.;
Means of transportation other than trains and ships include airplanes, motor vehicles, trams, tractors, motor cycles (boats), motor sailboats, junks, and other means of transportation.
Article 40
Where the period of depreciation on the fixed assets of an enterprise needs to be shortened due to special reasons, an application shall be made by the said enterprise to the local tax authorities for examination, which shall then be reported level by level up to the State Administration for Taxation for approval.
Fixed assets, the depreciation period of which needs to be shortened due to special reasons, as mentioned in the preceding paragraph, include:
1. Machinery and equipment that are subject to strong corrosion by acid or alkali, and factory buildings and structures that are constantly subject to shakes or vibration;
2. Machinery and equipment that are constantly running round-the-clock for the purpose of raising the utilization rate or increasing the intensity of usage; and
3. Fixed assets of a Chinese-foreign Contractual joint venture with the period of cooperation shorter than the depreciation periods as specified in Article 35 of these Regulations, which will be left with the Chinese party upon the termination of cooperation.
Article 41
Used fixed assets acquired by an enterprise, with the remaining useful life shorter than the depreciation period specified in Article 35 of these Regulations, may be depreciated over the remaining useful life upon the approval after examination of the relevant supporting evidence by the local tax authorities.
Article 42
In the case where expenditures arise from expansion, replacement, renovation and technical innovation of fixed assets in use result in the increase in their value, the original value of the fixed assets shall rise; for those fixed assets whose useful life can be prolonged, their depreciation periods shall be prolonged properly, and the depreciation thereon shall be adjusted accordingly.
Article 43
No depreciation shall be allowed for fixed assets which remain in use after the full depreciation period.
Article 44
The balance of the proceeds from the alienation or disposal of a fixed asset by an enterprise, after deduction of the net undepreciated value, or the residual value of the asset and the handling fees, shall be entered into the profit and loss account for the current year.
Article 45
Enterprises that have accepted any fixed asset as a gift may assess depreciation based on a reasonable valuation.
Article 46
Patents, proprietary technology, trademark interests, copyright, right to the use of sites and other intangible assets of enterprises shall be assessed according to the original value.
For an acquired intangible asset, the original value shall be the actual payment based on a reasonable price.
For a self - developed intangible asset, the original value shall be the actual expenditure incurred in the course of the development.
For an intangible asset put in as investment, the original value shall be the reasonable price stipulated in agreement or contract.
Article 47
Amortization of intangible assets shall be computed by the straight - line method.
Intangible assets, put in as investment or acquired with the right to use, may be amortized according to the stipulated time-limit, if a time limit for the usage is provided for in the agreement or contract. Intangible assets without such a stipulated time-limit, or being self-developed, shall be amortized over a period of not less than 10 years.
Article 48
Reasonable exploration expenses incurred by an enterprise engaged in exploitation of petroleum resources may be amortized from the revenues generated from the oil (or gas) field that has gone into commercial production, but the amortization period shall not be less than one year.
If a contract area owned by a foreign oil company terminates its operation due to its failure to find any oil (or gas) of commercial value, and if it does not continue to own any contract area for exploitation of oil (or gas) resources, nor does it maintain any oil (or gas) exploitation operation or management organization or office in China, the reasonable exploration expenses already incurred in the terminated contract area, upon the examination and confirmation of the expenses and after issuance of a certifying document by the relevant tax authorities, may be amortized from the production income generated from any newly owned contract area, where a new oil (or gas) cooperative exploitation contract is signed within ten years after the termination of the old contract.
Article 49
Expenses incurred during the period of preparation for an enterprise to be established shall be amortized starting from the month following that in which it goes into production or business operation, but the amortization period shall not be less than 5 years.
The "period of preparation" mentioned in the preceding paragraph refers to the period starting from the date on which the preparation for the establishment of an Enterprise is approved, up to the date when the Enterprise goes into production or operation (including trial production or operation).
Article 50
Inventory of commodities, finished products, products-in-progress, semi-finished products, and raw materials of an enterprise shall be valued according to the cost.
Article 51
For computation of the actual cost for delivery and consumption of inventory, enterprises may choose one of the following methods, first - in, first - out, moving average, weighted average and last-in, first-out.
No change shall be made willfully once the method of inventory pricing is adopted. In case a change in the method of inventory pricing is truly necessary, it shall be reported to the local tax authorities for approval before the beginning of the next tax year.
Chapter IV Business Dealings between Associated Enterprises
Article 52
"Associated enterprises" mentioned in Article 13 of the Tax Law refer to any one of the following association between an enterprise and a company, enterprise or other economic organization:
1. Direct or indirect ownership or controls in respect of capital, business operation, purchasing, selling, etc.;
2. Direct or indirect ownership or control by a common third party;
3. Any other association with mutual benefits.
Article 53
"Business transactions between independent enterprises" mentioned in Article 13 of the Tax Law refer to business dealings between unrelated enterprises carried out according to the arm's length prices and common business practice.
An enterprise is obligated to provide to the local tax authorities the relevant information on the business dealings between itself and its associated enterprises concerning prices, charge rates, etc..
Article 54
If the buying and selling between an enterprise and its associated enterprise is not prices at arm's length, the tax authorities may select an appropriate method according to the following sequence to make adjustments:
1. According to the pricing of the same or similar business activities amongst unassociated enterprises;
2. According to the profit level obtainable from resale to unassociated third parties;
3. According to the costs plus reasonable expenses and profit margin;
4. According to any other appropriate methods.
Article 55
For the interest paid or received on financing between an enterprise and its associated enterprise, if the interest is higher of lower than the amount that can be agreeable between unassociated parties, or if the interest rate is higher or lower than the normal rate of similar lending business, the local tax authorities may adjust according to the normal interest rates.
Article 56
In the case in which the labor services provided between an enterprise and its associated enterprise are not charged or paid according to the rates for business dealings between unassociated enterprise, the local tax authorities may make adjustment with reference to the normal charge rates of similar labor service activities between unassociated parties.
Article 57
In the case in which the alienation of property or the provision of property rights between an enterprise and its associated enterprise is not priced, charged or paid according to the rates for business dealings between unassociated enterprises, the tax authorities may make adjustments with reference to the amount that may be agreeable between unassociated parties.
Article 58
An enterprise shall not list as expense overhead charges paid to its associated enterprises.
Chapter V Withholding at Source
Article 59
"Profit, interest, rental, royalty and other income" referred to in Article 19 Paragraph 1 of the Tax Law shall be assessed as income taxable on its full amount, unless otherwise provided by the state.
The gross royalties obtained from the provision of patents and proprietary technology include the drawings and information fee, technical service fee, personnel training fee and other relevant fee in relation to the provision of patents and proprietary technology by the government.
Article 60
"Profit" mentioned in Article 19 of the Tax Law refers to income derived according to the ratio of investment contributions or shares and other non-debt profit sharing rights.
Article 61
"Other income" referred to in Article 19 Paragraph 1 and Paragraph 4 of the Tax Law includes gains from alienation of properties including houses, buildings, structures and their attached facilities located in China or from the assignment of right to use of sites.
"Gains from alienation of properties" referred to in the preceding paragraph means the balance of the transfer proceeds after deduction of the original value of the said property. In the event that proper evidence on the original value of the property cannot be provided by a foreign enterprise, the local tax authorities shall assess the original value of the property according to the specific conditions.
Article 62
The "payment" mentioned in Article 19 Paragraph 2 of the Tax Law refers to payments in cash, by remittance, or through transfer accounts, as well as payment made in the forms of non-monetary assets or rights and interests for an equivalent amount of money.
Article 63
"Profit obtained by a foreign investor from an enterprise with foreign investment "referred to in Article 19 Paragraph 3 Item 1 of the Tax Law means the profit made by an enterprise with foreign investment after deduction of the payment of income tax or the reduced income tax, or the profit which is exempted from the income tax, in accordance with the stipulations of the Tax Law.
Article 64
"International financial organizations" mentioned in Article 19 Paragraph 3 Item 2 of the Tax Law refer to financial institutions like International Monetary Fund, the World Bank, the Asian Development Bank, the International Development Association, the International Fund for Agricultural Development, etc..
Article 65
"Chinese state banks" mentioned in Article 19 Paragraph 3 Item 2 and Item 3 of the Tax Law refer to the People's Bank of China, the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of Communications of China, the Investment Bank of China, and other financial institutions authorized by the State Council to be engaged in the business of foreign exchange deposits and loans, etc. for foreign clients.
Article 66
Reduction or exemption of income tax on royalties as provided for in Article 19 Paragraph 3 Item 4 of the Tax Law is applicable to the following areas:
1. Royalties obtained from the provision of the following proprietary technology in the production of farming, forestry, animal husbandry and fishery:
a. Technology provided to improve soil and grassland, to reclaim and develop barren hills, and to fully utilize the natural conditions;
b. Technology to nurture new species and varieties of fauna and flora and to produce high efficiency but low toxic agricultural chemicals; and
c. Technology to provide farming, forestry, animal husbandry and fishery with scientific production and management, to preserve the ecological balance, and to increase the capability of fighting natural disasters.
2. Royalties obtained from the provision of proprietary technology to academies of sciences, colleges and universities, and other institutions of higher learning and scientific research to conduct, or to cooperate in the conduct of, scientific research or scientific experiments.
3. Royalties obtained from the provision of proprietary technology for the exploitation of energy resources and the development of communications and transportation.
4. Royalties obtained from the provision of proprietary technology in energy conservation and the prevention and control of environmental pollution.
5. Royalties obtained from the provision of the proprietary technology in the development of the following important fields of technology:
a. Important advanced technology in the production of mechanical and electronic equipment;
b. Nuclear power technology;
c. Technology in the production of large scale integrated circuits;
d. Technology in the production of photo-integration micro-wave semi-conductors and micro-wave integrated circuits and micro-wave tube;
e. Technology in the manufacturing of high-speed electronic computers and micro-processors;
f. Optical telecommunications technology;
g. Remote ultra - high voltage direct current electricity transmission technology; and
h. Technology in the liquefaction, gasification and integrated utilization of coal.
Article 67
For incomes earned by foreign enterprises engaged in projects in China, such as construction, installation, assembly and exploration, and through provision of services, such as consultation, management, training and other labor services, the tax authorities may appoint the payers of the contract sums or service fees to be income tax withholding agents.
Chapter VI Tax Reference
Article 68
Pursuant to Article 6 of the Tax Law, foreign investment enterprises encouraged by the State which request preferential treatments in relation to enterprise income tax shall be treated in accordance with the relevant laws and administrative regulations promulgated by the State.
Article 69
"Special Economic Zones" mentioned in Article 7 Paragraph 1 of the Tax Law refer to the Special Economic Zones in Shenzhen, Zhuhai, Shantou and Xiamen and Hainan Special Economic Zone, established according to relevant legislations or with the approval of the State Council. "Economic and Technological Development Zones" mentioned in the same paragraph refer to the Economic and Technological Development Zones in the Coastal Port Cities, established with the approval of the State Council.
Article 70
"Coastal Open Economic Zones" mentioned in Article 7 Paragraph 2 of the Tax Law refer to the cities, counties and districts established as the Coastal Open Economic Zones with the approval of the State Council.
Article 71
Assessment of enterprise income tax at the reduced rate of 15% mentioned in Article 7 Paragraph 1 of the Tax Law is limited to incomes obtained by the Enterprises from production or business operation in the respective areas as specified in Article 7 Paragraph 1 of the Tax Law. Assessment of enterprise income tax at the reduced rate of 24% mentioned in Article 7 Paragraph 2 of the Tax Law is limited to incomes obtained by the Enterprises from production or business operation in the respective areas as specified in Article 7 Paragraph 2 of the Tax Law.
Article 72
"Enterprises of a production nature" mentioned in Article 7 Paragraphs 1 and 2 and Article 8 Paragraph 1 of the Tax Law refer to the Enterprises engaged in the following industries:
1. Machine-building and electronics industries;
2. Energy industries (not including oil and natural gas exploitation);
3. Metallurgical, chemical and building material industries;
4. Light, textiles and packaging industries;
5. Medical apparatus and pharmaceutical industries;
6. Agriculture, forestry, animal husbandry, fishery, and water conservancy;
7. Construction industry;
8. Communications and transportation industries (not including passenger transportation ).
9. Development of science and technology, geological survey and industrial information consultancy that are directly at the service of production, and maintenance and repair service for production equipment and precision instruments.
10. Other industries that are recognized by the competent department for tax affairs under the State Council.
Article 73
Assessment of enterprise income tax at the reduced rate of 15% mentioned in Article 7 Paragraph 3 of the Tax Law is applicable to the following projects:
1. Enterprises with foreign investment of a production nature established in the Coastal Open Economic Areas, the Special Economic Zones, or in the old urban district of cities where the Economic and Technological Development Zones are located, and engaged in the following projects:
a. Technology intensive or knowledge intensive projects;
b. Projects with foreign investment of US $ 30 million and more, and with long pay back period; and
c. Energy, transportation and port construction projects;
2. Chinese - foreign equity joint ventures engaged in port and dock construction.
3. Foreign banks, branches of foreign banks, banks with Chinese and foreign joint investment, and other financial institutions established in the Special Economic Zones and other areas approved by the State Council, with the capital put up by the foreign investor or operating funds appropriated by the head office coming to US $ 10 million and more; and with the period of operation exceeding ten years.
4. Production enterprises with foreign investment established in Shanghai Pudong New Area, and Enterprises with foreign investment engaged in energy and transport construction projects such as airport, port, railway, highway and power station.
5. Enterprises with foreign investment recognized as new and high-technology enterprises, which are established in the new and high - technology industrial development zones approved by the State Council; and Enterprises with foreign investment recognized as new - technology enterprises established in the Beijing New-technology Industrial Development Experimental Zones;
6. Enterprises with foreign investment engaged in projects encouraged by the State and established in other areas designated by the State Council.
Enterprises with foreign investment engaged in industries that fall under Item 1 of this Article shall, after applying to the State Administration for Taxation for approval, pay enterprise income tax at the reduced rate of 15%.
Article 74
The "period of operation" mentioned in Article 8 Paragraph 1 of the Tax Law refers to the period starting from the day an enterprise actually goes into production and operation (including test production or operation) to the day the enterprise terminates its production and operation.
An Enterprise applying for exemption from and reduction in the enterprise income tax according to the provisions of Article 8 Paragraph 1 shall file with the local tax authorities its line of business, the names of its major products and the period of operation, for examination and approval. Prior to such examination and approval, no exemption or reduction of enterprise income tax shall be allowed.
Article 75
"The relevant regulations promulgated by the State Council before the entry into force of this Law mentioned in Article 8 Paragraph 2 of the Tax Law refer to the following regulations concerning the exemption and reduction of enterprise income tax promulgated by the State Council:
1. Chinese foreign equity joint ventures engaged in port and dock construction and with the operation period exceeding 15 years may, upon the approval of their applications by the tax authorities at the level of the province, autonomous region or municipality directly under the administration of the central government, in which the enterprises are located, enjoy exemption from enterprise income tax from the first profit-making year to the fifth year, and reduction in enterprise income tax by 50% from the sixth to the tenth year.
2. Enterprises with foreign investment established in the Hainan Special Economic Zone and engaged in the construction of such infrastructural projects as airport, port, dock, railway, highway, power station, coal mine, water conservancy. etc. or in the development and operation of agriculture, and with the operation period exceeding 15 years may, upon approval of their applications by the Hainan Provincial Tax Authorities, enjoy exemption from enterprise income tax starting from the first profit-making year to the fifth year, and reduction in enterprise income tax by 50% from the sixth to the tenth year.
3. Enterprises with foreign investment established in the Shanghai Pudong New Area and engaged in the construction of such energy and transportation projects as airport, port, railway, highway and power station, etc. and with the operation period exceeding 15 years may, upon approval of their applications by the Shanghai Municipal Tax Authorities, enjoy exemption from enterprise income tax from the first profit - making year to the fifth year, and reduction in enterprise income tax by 50% from the sixth to the tenth year.
4. Enterprises with foreign investment established in the Special Economic Zones and engaged in service industries, and with the foreign investment exceeding US $ 5 million and the operation period exceeding 10 years may, upon approval of their applications by the relevant Special Economic Zone tax authorities, enjoy exemption from enterprise income tax for the first profit-making year, and reduction in enterprise income tax by 50% for the second and third year.
5. Foreign banks, branches of foreign banks, banks with Chinese and foreign joint investment, and other financial institutions established in the Special Economic Zones and other areas approved by the State Council, with the capital put in by foreign investors, or the operating funds appropriated by the head offices of foreign banks to their branches, exceeding US $ 10 million, and with the operation period lasting 10 years and more may, upon approval of their applications by the relevant tax authorities, enjoy exemption from enterprise income tax for the first profit-making year and reduction in enterprise income tax by 50% for the second and third years.
6. Chinese-foreign equity joint ventures recognized as new and high - technology enterprises and established in new and high-technology industrial development zones approved by the State Council, with the operation period exceeding 10 years may, upon approval of their applications by the local tax authorities, enjoy exemption from enterprise income tax for the first and second profit - making years. For Enterprises with foreign investment established in the Special Economic Zones and the Economic and Technological Development Zones, the preferential tax provisions of the Special Economic Zones and the Economic and Technological Development Zones shall remain applicable. For enterprises with foreign investment established in the Beijing New - technology Industrial Development Experimental Zone, the preferential tax provisions of the Beijing New - technology Industrial Development experimental Zone shall be applicable.
7. Export - oriented enterprises with foreign investment may, upon the expiration of the tax exemption and reduction period as provided for in the Tax Law, further enjoy a 50% reduction in enterprise income tax based on the rate stipulated by the Tax Law, if the value of their export products of the year exceeds 70% of the total value of products of the year. But for the Special Economic Zones and the Economic and Technological Development Zones and other export - oriented enterprises where income tax has already been reduced to 15% and the above requirements are met, the enterprise income tax shall be levied at 10%.
8. Technologically advanced enterprises with foreign investment may, upon the expiration of the enterprise income tax exemption and reduction period as stipulated by the Tax Law further enjoy a 50% reduction in enterprise income tax for three years based on the rate stipulated by the Tax Law, if they remain to be technologically advanced enterprises.
9. Other regulations relation to the exemption and reduction of enterprise income tax having been promulgated, or having been approved to promulgate, by the State Council.
In applying for enterprise income tax exemption/reduction pursuant to the provisions of Item 6, Item 7 and Item 8 of this Article, Enterprises with foreign investment shall submit the relevant certifying documents issued by the Department responsible for examination and confirmation to the local tax authorities for examination and approval.
Article 76
"The first profit-making year" mentioned in Article 8 Paragraph 1 of the Tax Law and in Article 75 of these Regulations refers to the first profit - making tax year after an enterprise goes into production and operation. An enterprise sustaining losses in the initial stage of its operation may carry them over and make them up in the next year in accordance with the provisions of Article 11 of the Tax Law. Its first profit-making year may be the year in which the Enterprise begins to make profit after the losses are made up.
The period of enterprise income tax exemption and reduction, as stipulated in Article 8 Paragraph 1 of the Tax Law and Article 75 of these Regulations, shall be counted consecutively from the first profit making year, and shall not be deferred due to losses incurred during the period.
Article 77
For an Enterprise which goes into operation in the middle of the year, if it makes profit in the same year while the actual period of operation is less than six months, it may choose to take the following year as the year to start enjoying exemption from or reduction in enterprise income tax. However, income tax shall be levied in accordance with the Tax Law on the taxable income earned by the Enterprise in that year.
Article 78
Unless otherwise provided by the State Council, the tax incentives of Article 8 Paragraph 1 of the Tax Law are not applicable to Enterprises engaged in the exploitation of such natural resources as petroleum, natural gas, rare metals, and precious metals.
Article 79
Enterprises that have enjoyed income tax exemption and reduction pursuant to the provision of Article 8 Paragraph 1 of the Tax Law and Article 75 of these Regulations, but whose actual operation falls short of the prescribed period, shall repay the exempted and reduced enterprise income tax, except for those having sustained huge losses caused by natural disasters or accidents.
Article 80
"Reinvest its share of profit directly" as referred to in Article 10 of the Tax Law means that the profits earned by a foreign investor before being drawn from an Enterprise with foreign investment shall be used directly to increase the registered capital, or to make direct capital investment in another Chinese-foreign joint venture after such profits are appropriated.
In assessing the refundable tax amount in accordance with the provisions of Article 10 of the Tax Law, the said foreign investor shall provide a supporting document certifying the attributable year of the profit used for reinvestment. In the case in which no supporting document can be provided, the local tax authorities shall determine the year by appropriate methods.
Foreign investors shall, within one year from the date the fund is actually injected, apply to the original tax collecting authorities for tax refund and submit a document certifying the amount and duration of the added or new capital investment.
Article 81
"Where other preferential provisions are provided by the State Council, such provisions shall apply" as mentioned in Article 10 of the Tax Law refers to the case in which a foreign investor, who makes direct re-investment in establishing or expanding an export-oriented enterprise or a technologically advanced enterprise in China or who reinvest profit from enterprise in Hainan Special Economic Zone directly into enterprises engaged in infrastructure and agricultural development in Hainan Special Economic Zone, may get a full refund of enterprise income tax paid on the re-invested amount, according to the relevant regulations of the State Council.
In applying for tax refund on reinvestment pursuant to the preceding paragraph, the said foreign investor shall, besides going through the procedures as provided for in Article 80 Paragraph 2 and 3 of these Regulations, submit a document issued by the relevant examination and confirmation department, certifying the relevant newly established or expanded enterprise as being an export-oriented or technologically advanced enterprise.
In the case in which the newly established or expanded enterprise, in which the said foreign investor makes reinvestment, fails to meet the standards of an export-oriented enterprises, or is no longer recognized as a technologically advanced enterprise within three years after it goes into production or operation, the said foreign investor shall pay back 60% of the tax refunded.
Article 82
"Refund of the income tax paid on the reinvested amount" mentioned in Article 10 of the Tax Law and Article 81 Paragraph 1 of these Regulations shall be computed according to the following formula:
Tax refundable = Reinvested amount/(1-[the original enterprise income tax rate + local income tax rate applicable to the enterprise]) X Original enterprise income tax rate applicable to the enterprise x refund rate.
Chapter VII Tax Credit
Article 83
The "income tax paid abroad" mentioned in Article 12 of the Tax Law refers to the income tax actually paid by an enterprise with foreign investment outside China on the income sourced outside China. It does not include any tax paid but later compensated, or any tax borne by others.
Article 84
"The income tax payable under this law in respect of the income derived from sources outside China", as mentioned in Article 12 of the Tax Law, refers the tax payable computed based on the taxable income arrived at from the income derived outside China by the enterprise with foreign investment after deduction of the costs, expenses and losses that are attributable to the obtaining of the income and allowed in accordance with the relevant provisions of the Tax Law and these Regulations. That tax payable shall be the credit limit, which shall be computed country by country but not item by item. The computation formula is as follows:
Credit limit for tax on income derived from sources outside China = Total tax sourced inside and outside China computed in accordance with the Tax Law X Income sourced from a foreign country / Total income sourced inside and outside China
Article 85
When the income tax actually paid on the income derived outside China by an Enterprise with foreign investment is less than the credit limit computed pursuant to Article 84 of these Regulations, the foreign income tax actually paid outside China can be credited against the tax payable. If it exceeds the credit limit, the excess portion shall not be allowed as credit against the tax payable, nor shall it be listed as expense, but the balance of the foreign tax paid may be used to offset against the multilized credit limit in subsequent years. The carry - over, however, shall not exceed five year at the maximum.
Article 86
The provisions of Articles 83 to 85 of these Regulations shall be applicable only to enterprises with foreign investment which have their head offices established in China. Enterprises with foreign investment applying tax credit pursuant to Article 12 of the Tax Law shall submit the original tax payment certificates of the same year issued by the relevant tax authorities outside China. Duplicates, or tax payment certificates of different tax years, shall not be acceptable as supporting documents for tax credit.
Chapter VIII Tax Administration
Article 87
Enterprises shall go to the local tax authorities for tax registration within thirty days after the completion of their registration with the State Administration for Industry and Commerce. When an Enterprise with foreign investment establishes or terminates a branch outside China, it shall make supplementary tax registration, change of registration or de-registration with the local tax authorities within thirty days after the establishment or termination.
In going through the registration mentioned in this Article, the enterprises shall submit the relevant documents, licenses and information.
Article 88
Enterprises that experience change of address, restructuring, merger, spin - off, termination, or change in such major registered items as capital sum and scope of business, etc. shall submit the relevant approval documents to the local tax authorities for change of registration, or de-registration within thirty days after the completion of change of registration or before the de-registration with the State Administration for Industry and Commerce.
Article 89
Foreign enterprises which have two or more business establishment set up in China may select one establishment for consolidated tax filing and payment. However, that establishment shall meet the following requirements:
1. It shall assume the supervisory and management responsibility over the business of other establishments.
2. It shall keep complete accounting records and vouchers that correctly reflect the income, costs, expenses, profits and losses of other business establishments.
Article 90
For a foreign enterprise which chooses to consolidate its income tax filing and payment pursuant to Article 89 of these Regulations, application shall be made by a business establishment selected by it to the local tax authorities for examination and then submitted for approval according to the following provisions.
1. If all the business establishments involved in the consolidated tax filing are located in the same province, autonomous region, or municipality directly under the administration of the central government, the application is subject to approval by the tax authorities of that province, autonomous region or municipality.
2. If they are located in two or more different provinces, autonomous regions or municipalities directly under the administration of the central government, the application is subject to approval by the State Administration for Taxation.
Once the consolidated tax filing of a foreign enterprise is approved, any establishment of new business organizations, merger, change of address, termination, close-down etc. shall be reported by the business establishment in charge of consolidated tax in advance of the occurrence of any of the above situation, to the local tax authorities. Any change in the business establishments involved in the consolidated tax filing, shall be treated in accordance with the provisions of the preceding paragraph.
Article 91
When different tax rates are applicable to different business establishments of a foreign enterprise involved in consolidated tax filing, the taxable income of different establishments shall be computed separately on a reasonable basis, and income tax shall be paid according to the different rates.
When both profit and loss incurred in the different business establishments mentioned in the preceding paragraph and there is a net profit after the profits and losses and offset against each other, income tax shall be levied at a rate applicable to the profit making establishments. For those establishments sustaining losses, income tax shall be levied at a rate applicable to such establishments when they become profitable after the losses have been made up against the income in subsequent years; income tax on the amount of profits which have been used to make up the losses shall be levied at a rate applicable to those establishments which help the loss establishments to make up losses.
Article 92
Notwithstanding the provisions of Article 91 of these Regulations, when a business establishment in charge of consolidated tax filing cannot compute the taxable income of different establishments appropriately on a separate basis, the local tax authorities may make a reasonable apportionment of the taxable income among these business establishments, with reference to their respective proportion of business income, costs and expenses, assets, and the number of staff and workers, or the amount of wages.
Article 93
Enterprises with foreign investment which have branches in China shall handle their consolidated tax filing with reference to the provisions of Article 91 and Article 92 of these Regulations.
Article 94
Income tax to be paid in advance in quarterly installments as stipulated in Article 15 of the Tax Law shall be computed according to the actual profit for that quarter. Enterprises that have difficulty in computing advance payment based on the actual quarterly profit may pay the tax based on one - fourth of the taxable income of the preceding year, or by adopting other formulas approved by the local tax authorities.
Article 95
Enterprises shall file their income tax returns and final accounting statements with the local tax authorities within the time limit as prescribed in Article 16 of the Tax Law, irrespective of making profits or sustaining losses in the tax year. Unless otherwise provided by the state, enterprises shall submit at the same time audit reports signed by a certified public accountant registered in China upon submission of the final accounting statements.
In the event that an enterprise cannot submit the income tax returns and the final accounting statements within the time limit prescribed by the Tax Law due to special reasons, an application shall be made to the local tax authorities within the filing time limit for approval of appropriate extension.
Article 96
Branches or business establishments shall submit a copy of their final accounting statements to the local tax authorities, at the same time as they submit them to their respective head office, or to the business establishment in charge of consolidated tax filing.
Article 97
An enterprise which is merged, spun off or terminated during the year shall, within sixty days, settle the income tax liability for that period with the local tax authorities, with the excess payment refunded or deficiency made good.
Article 98
Where an enterprise, which converted its foreign currency income into RMB according to the official exchange rate in paying tax, has excess tax refundable, it shall convert the refundable RMB tax amount into the original foreign currency according to the exchange rate of the day when the tax was first paid, and then convert the sum back to RMB, according to the exchange rate of the day when the tax refund voucher is issued. Where there is balance of tax payable, the balance of tax payable shall be converted into RMB according to the exchange rate of the day when the tax payment certificate is issued.
Article 99
When an enterprise with foreign investment goes through liquidation, it shall file its income tax return with the local tax authorities prior to its de-registration with the State Administration for Industry and Commerce.
Article 100
Unless otherwise provided by the state, enterprises shall keep inside China their account books and accounting records and other supporting documents that enable proper computation of taxable income.
Vouchers, account books and accounting statements of the enterprises shall be completed in Chinese language, or in both Chinese and foreign languages.
Enterprises using electronic computers for book - keeping shall treat the accounting records in computer storage or output as account books. Magnetic tapes and diskettes shall be kept properly before hard copies are printed.
Vouchers, account books and accounting statements of the enterprises shall be kept for at least 15 years.
Article 101
Sales invoice and business receipts of the enterprises shall be submitted to the local tax authorities for approval before they are printed and put into use. The controlling mechanism over the printing and use of sales invoice and business receipts shall be formulated by the State Administration for Taxation.
Article 102
All enterprise income tax returns and tax payment certificates shall be printed by the State Administration for Taxation.
Article 103
If the final due dates for tax filing and tax payment of enterprises fall upon Sunday or an official public holiday, the day following the public holiday shall be treated as the final due date.
Article 104
The relevant tax authorities may pay to tax withholding agents, as provided for in Article 19 Paragraph 2 of the Tax Law and Article 67 of these Regulations, withholding handing fees computed at a certain percentage of the tax withheld. Detailed procedures shall be formulated by the State Administration for Taxation.
Article 105
In the event that any taxpayer or withholding agent fails to accept the examination of the tax authorities in accordance with the relevant provisions, or fails to pay the surcharge for overdue payment within the time limit prescribed by the tax authorities, the local tax authorities may, according to the seriousness of the case, impose a fine of not more than RMB 5000 yuan.
Article 106
In the event that any enterprise violates the provisions of Article 87, Article 90 Paragraph 2, Article 95, Article 96, Article 97, Article 99, Article 100 and Article 101 of the these Regulations the tax authorities may, according to the seriousness of the case, impose a fine of RMB 5000 yuan or less.
Article 107
"Tax evasion" mentioned in Article 25 of the Tax Law refers to unlawful activities deliberately carried out by a taxpayer in violation of the provisions of the Tax Law, such as altering, forging or destroying bills, accounting vouchers or account books; falsifying or overstating costs and expenses; concealing or understating the amount of taxable income or revenue; dodging tax payments, or defrauding back the paid taxes.
Article 108
The tax authorities shall serve notices of contravention on the relevant parties for cases involving penalty in accordance with the relevant provisions of the Tax Law and these Regulations.
Article 109
All units and individuals have the right to provide information and assistance to report offenders or offenses against the Tax Law. The tax authorities shall keep confidential the identities of the informers and rewarding them according to the relevant regulations.
Chapter IX Supplementary Rules
Article 110
Where an enterprise with foreign investment which were registered with the State Administration for Industry and Commerce before the promulgation of the Tax Law would have a higher tax burden based on the rate stipulated in the Tax Law than that incurred before the enforcement of the Tax Law, the original applicable tax rate may be adopted during the approved operation period. If there is no agreed period of operation, the original tax rate will apply within 5 years from the date the Tax Law enters into force. However, if the tax liability of a particular year during the aforesaid period is higher than that assessed at the rate stipulated in the Tax Law, the tax rate stipulated in the Tax Law shall be adopted starting from that tax year.
Article 111
Enterprises with foreign investment, which were registered with the State Administration for Industry and Commerce before the promulgation of the Tax Law but have enjoyed the preferential treatment of income tax exemption and reduction pursuant to the laws and regulations before the enforcement of the Tax Law, may continue to enjoy the preferential treatments until the expiration of the tax exemption and reduction period. Enterprises with foreign investment, which were registered with the Administration for Industry and Commerce before the enforcement of the Tax Law, but have not yet started to make profit, or have become profit - making for less than five gears, shall be granted income tax exemption and reduction for a due period pursuant to Article 8 Paragraph 1 of the Tax Law.
Article 112
Enterprises with foreign investment registered with the State Administration for Industry and Commerce after the promulgation and before the enforcement of the Tax Law may refer to the provisions of Article 110 and Article 111 of these Regulations for application.
Article 113
The authority of interpretation of these Regulations shall rest with the Ministry of Finance and the State Administration for Taxation.
Article 114
These Regulations shall come into force on the date of enforcement of the "Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises". The "Detailed Rules and Regulations for the Implementation of the Income Tax Law of the People's Republic of China Concerning Joint Ventures with Chinese and Foreign Investment" and "The Detailed Rules and Regulations for the Implementation of the Income Tax Law of the People's Republic of China Concerning Foreign Enterprises" shall be abrogated at the same time.
