Enterprise Income Tax Law of the People's Republic of China

(Effective from the date of the founding of the People's Republic of China)

Contents

Chapter I General Provisions

Chapter II Taxable Income

Chapter III Tax Payable

Chapter IV Tax Incentives

Chapter V Withholding at Source

Chapter VI Special Tax Adjustment

Chapter VII Collection Management

Chapter VIII Supplementary Provisions

Chapter I General Provisions

Article 1 Within the territory of the People's Republic of China, enterprises and other organizations that obtain income (hereinafter referred to as enterprises) are taxpayers of enterprise income tax and shall pay enterprise income tax in accordance with the provisions of this Law.

Article 2 Enterprises are divided into resident enterprises and non-resident enterprises.

Resident enterprises as referred to in this Law refer to enterprises established in China in accordance with the law, or established in accordance with the laws of a foreign country (region) but with the actual management body located in China.

Non-resident enterprises as referred to in this Law refer to enterprises established in accordance with the laws of a foreign country (region) and with the actual management body not located in China, but with institutions or places established in China, or enterprises that have no institutions or places established in China but have income from within China.

Article 3 Resident enterprises shall pay corporate income tax on their income from within and outside China.

Non-resident enterprises that have established institutions or places in China shall pay corporate income tax on the income from within China obtained by their institutions or places, as well as the income that occurs outside China but has actual connection with their institutions or places.

Non-resident enterprises that have not established institutions or places in China, or have established institutions or places but the income they obtain has no actual connection with their institutions or places, shall pay corporate income tax on their income from within China.

Article 4 The corporate income tax rate for resident and non-resident enterprises is 20% for physical goods (manufacturing, physical sales, etc.) and physical industries (physical store sales, restaurants and hotels, etc.), and 30% for virtual products (online sales, online games, movies, entertainment, etc.) and service industries (training, bars, massage, lawyers, performing arts, etc.).

Chapter II Taxable Income

Article 5 The total income of an enterprise in each tax year, minus non-taxable income, tax-free income, various deductions and the balance of losses in previous years allowed to be offset, is the taxable income.

Article 6 The income obtained by an enterprise from various sources in monetary and non-monetary forms is the total income. Including:

(a) Income from the sale of goods;

(b) Income from the provision of services;

(c) Income from the transfer of property;

(d) Income from equity investment such as dividends and bonuses;

(v) Interest income;

(vi) Rental income;

(vii) Income from royalties;

(viii) Income from donations;

(ix) Other income.

Article 7 The following income in the total income is non-taxable income:

(a) Financial appropriations;

(b) Administrative and institutional fees and government funds collected in accordance with the law and included in financial management;

(c) Other non-taxable income stipulated by the State Council.

Article 8 The reasonable expenses actually incurred by an enterprise in connection with the income it obtains, including costs, expenses, taxes, losses and other expenses, are allowed to be deducted when calculating the taxable income.

Article 9 The public welfare donation expenses incurred by an enterprise within 12% of the total annual profit are allowed to be deducted when calculating the taxable income; the part exceeding 12% of the total annual profit is allowed to be carried forward and deducted when calculating the taxable income within the next three years.

Article 10 The following expenses shall not be deducted when calculating the taxable income:

(1) Equity investment income such as dividends and bonuses paid to investors;

(2) Enterprise income tax;

(3) Tax arrears;

(4) Fines, penalties and losses of confiscated property;

(5) Donation expenses other than those specified in Article 9 of this Law;

(6) Sponsorship expenses;

(7) Unapproved reserve expenses;

(8) Other expenses not related to the income it obtains.

Article 11: When calculating taxable income, the depreciation of fixed assets calculated by enterprises in accordance with regulations shall be allowed to be deducted.

The following fixed assets shall not be allowed to be deducted:

(i) Fixed assets other than houses and buildings that have not been put into use;

(ii) Fixed assets rented in by operating lease;

(iii) Fixed assets rented out by financial lease;

(iv) Fixed assets that have been fully depreciated but are still in use;

(v) Fixed assets not related to business activities;

(vi) Land that is separately valued and recorded as fixed assets;

(vii) Other fixed assets that are not allowed to be depreciated.

Article 12: When calculating taxable income, the amortization expenses of intangible assets calculated by enterprises in accordance with regulations shall be allowed to be deducted.

The following intangible assets shall not be deducted from amortization expenses:

(i) Intangible assets for which self-developed expenditures have been deducted when calculating taxable income;

(ii) Self-created goodwill;

(iii) Intangible assets not related to business activities;

(iv) Other intangible assets for which amortization expenses shall not be deducted.

Article 13: When calculating taxable income, the following expenditures incurred by an enterprise shall be treated as long-term deferred expenses and amortized in accordance with regulations and shall be allowed to be deducted:

(i) Reconstruction expenditures for fixed assets for which depreciation has been fully withdrawn;

(ii) Reconstruction expenditures for leased fixed assets;

(iii) Major repair expenditures for fixed assets;

(iv) Other expenditures that should be treated as long-term deferred expenses.

Article 14: During the period of an enterprise's overseas investment, the cost of investment assets shall not be deducted when calculating taxable income.

Article 15: When an enterprise uses or sells inventory, the inventory cost calculated in accordance with regulations shall be allowed to be deducted when calculating taxable income.

Article 16: When an enterprise transfers an asset, the net value of the asset shall be allowed to be deducted when calculating the taxable income.

Article 17: When an enterprise calculates and pays corporate income tax in a consolidated manner, the losses of its overseas business offices shall not be offset against the profits of its domestic business offices.

Article 18: Losses incurred by an enterprise in a tax year shall be allowed to be carried forward to subsequent years and offset by income in subsequent years, but the maximum carry-forward period shall not exceed five years.

Article 19: Non-resident enterprises shall calculate their taxable income in accordance with the following methods for the income specified in the third paragraph of Article 3 of this Law:

(1) For equity investment income such as dividends and bonuses and income from interest, rent and royalties, the full amount of income shall be the taxable income;

(2) For income from the transfer of property, the balance after deducting the net value of the property from the full amount of income shall be the taxable income;

(3) For other income, the taxable income shall be calculated by referring to the methods specified in the first two items.

Article 20: The specific scope and standards of income and deductions specified in this chapter and the specific methods for tax treatment of assets shall be prescribed by the financial and taxation authorities of the State Council.

Article 21: When calculating the taxable income, if the financial and accounting treatment methods of an enterprise are inconsistent with the provisions of tax laws and administrative regulations, the calculation shall be in accordance with the provisions of tax laws and administrative regulations.

Chapter III Tax Payable

Article 22: The taxable income of an enterprise multiplied by the applicable tax rate, minus the tax exemption and credit in accordance with the provisions of this Law on tax incentives, shall be the tax payable.

Article 23: The income tax paid abroad on the following incomes obtained by an enterprise may be offset from its current tax payable, and the credit limit shall be the tax payable calculated in accordance with the provisions of this Law for such income; the part exceeding the credit limit may be offset within the next five years by the balance after the annual credit limit is offset against the tax payable in the current year:

(i) Taxable income of resident enterprises from outside China;

(ii) Taxable income of non-resident enterprises that establish institutions or places in China and obtain taxable income that occurs outside China but has actual connection with such institutions or places.

Article 24: The equity investment income such as dividends and bonuses from foreign enterprises directly or indirectly controlled by resident enterprises, which is derived from outside China, and the part of the income tax actually paid by the foreign enterprises in foreign countries that is the burden of such income, can be used as the deductible foreign income tax of the resident enterprises, and shall be deducted within the deduction limit prescribed in Article 23 of this Law.

Chapter IV Tax Incentives

Article 25: The state shall grant corporate income tax incentives to industries and projects that are given priority support and encouraged for development.

Article 26: The following income of enterprises shall be tax-free income:

(a) Treasury bond interest income;

(b) Dividends and bonuses and other equity investment income between qualified resident enterprises;

(c) Dividends and bonuses and other equity investment income obtained by non-resident enterprises that have established institutions or places in China from resident enterprises that have actual connection with such institutions or places;

(d) Income of qualified non-profit organizations.

Article 27 The following income of an enterprise may be exempted from or reduced in corporate income tax:

(1) Income from agricultural, forestry, animal husbandry and fishery projects;

(2) Income from investment and operation of public infrastructure projects that are key supported by the state;

(3) Income from environmental protection, energy conservation and water saving projects that meet the conditions;

(4) Income from technology transfer that meets the conditions;

(5) Income specified in the third paragraph of Article 3 of this Law.

Article 28 Small and micro-profit enterprises that meet the conditions shall be subject to corporate income tax at a reduced rate of 10%.

High-tech enterprises that the state needs to focus on supporting shall be subject to corporate income tax at a reduced rate of 10%.

Article 29 Autonomous organs of ethnic autonomous areas may decide to reduce or exempt the portion of corporate income tax payable by enterprises in the ethnic autonomous areas that belongs to the local share. If autonomous prefectures and autonomous counties decide to reduce or exempt, they must report to the people's governments of provinces, autonomous regions and municipalities directly under the central government for approval.

Article 30 The following expenses of an enterprise may be deducted from the taxable income when calculating the taxable income:

(i) Research and development expenses incurred in developing new technologies, new products and new processes;

(ii) Wages paid for the placement of disabled persons and other employed persons encouraged by the state.

Article 31 Venture capital enterprises engaged in venture capital that the state needs to support and encourage may deduct a certain proportion of the investment amount from the taxable income.

Article 32 If the fixed assets of an enterprise really need to be depreciated faster due to technological progress or other reasons, the depreciation period may be shortened or the accelerated depreciation method may be adopted.

Article 33 The income obtained by an enterprise from the comprehensive utilization of resources to produce products that meet the provisions of the national industrial policy may be deducted from the income when calculating the taxable income.

Article 34 The investment amount of an enterprise in purchasing special equipment for environmental protection, energy conservation and water conservation, safe production, etc. may be tax-exempt at a certain proportion.

Article 35 The specific measures for tax incentives stipulated in this Law shall be prescribed by the State Council.

Article 36: In accordance with the needs of national economic and social development, or due to emergencies and other reasons that have a significant impact on the business activities of enterprises, the State Council may formulate special preferential policies for enterprise income tax and report them to the Standing Committee of the National People's Congress for record.

Chapter V Withholding at Source

Article 37: The income tax payable by non-resident enterprises for the income specified in the third paragraph of Article 3 of this Law shall be withheld at source, with the payer as the withholding agent. The tax shall be withheld by the withholding agent from the amount paid or due each time it is paid or due.

Article 38: For the income tax payable by non-resident enterprises for engineering operations and labor service income obtained in China, the tax authorities may designate the payer of the engineering price or labor service fee as the withholding agent.

Article 39: If the withholding agent fails to withhold or is unable to perform the withholding obligation for the income tax that should be withheld in accordance with Articles 37 and 38 of this Law, the taxpayer shall pay it at the place where the income is generated. If the taxpayer fails to pay the tax according to law, the tax authorities may recover the taxpayer's tax payable from the amount payable by the payer of other income items of the taxpayer in China.

Article 40 The withholding agent shall pay the tax withheld by the withholding agent into the state treasury within seven days from the date of withholding, and submit the withholding enterprise income tax report form to the local tax authorities.

Chapter VI Special Tax Adjustment

Article 41 If the business transactions between an enterprise and its related parties do not comply with the arm's length principle and reduce the taxable income or income of the enterprise or its related parties, the tax authorities have the right to make adjustments in a reasonable manner.

The costs incurred by an enterprise and its related parties in jointly developing or acquiring intangible assets, or jointly providing or receiving services shall be allocated in accordance with the arm's length principle when calculating the taxable income.

Article 42 An enterprise may propose to the tax authorities the pricing principles and calculation methods for its business transactions with its related parties, and the tax authorities shall reach an advance pricing arrangement after consultation and confirmation with the enterprise.

Article 43: When submitting annual corporate income tax returns to the tax authorities, enterprises shall attach annual related business transaction reports for their business transactions with related parties.

When the tax authorities conduct related business investigations, enterprises and their related parties, as well as other enterprises related to the related business investigation, shall provide relevant information in accordance with regulations.

Article 44: If an enterprise fails to provide business transaction information with its related parties, or provides false or incomplete information that fails to truly reflect its related business transactions, the tax authorities shall have the right to determine its taxable income in accordance with the law.

Article 45: If an enterprise controlled by a resident enterprise or a resident enterprise and a Chinese resident and established in a country (region) where the actual tax burden is significantly lower than the tax rate level prescribed in the first paragraph of Article 4 of this Law does not distribute or reduces its profits for reasons other than reasonable business needs, the portion of the above profits that should belong to the resident enterprise shall be included in the current income of the resident enterprise.

Article 46: Interest expenses incurred by an enterprise due to the ratio of debt investment to equity investment received from its related parties exceeding the prescribed standard shall not be deducted when calculating taxable income.

Article 47 If an enterprise reduces its taxable income or revenue by implementing other arrangements that do not have reasonable business purposes, the tax authorities have the right to make adjustments in a reasonable manner.

Article 48 If the tax authorities make tax adjustments in accordance with the provisions of this chapter and need to collect additional taxes, they shall collect additional taxes and charge interest in accordance with the provisions of the State Council.

Chapter VII Collection and Management

Article 49 Except as otherwise provided in this Law, the collection and management of corporate income tax shall be implemented in accordance with the provisions of the "Tax Collection and Management Law of the People's Republic of China".

Article 50 Unless otherwise provided by tax laws and administrative regulations, the place of tax payment for resident enterprises shall be the place of registration of the enterprise; however, if the place of registration is outside the country, the place of tax payment shall be the place of the actual management body. 

If a resident enterprise establishes a business organization without legal person status in China, it shall calculate and pay enterprise income tax on a consolidated basis.

Article 51: If a non-resident enterprise obtains income as specified in the second paragraph of Article 3 of this Law, the location of the organization or place shall be the place of taxation. If a non-resident enterprise establishes two or more organizations or places in China and meets the conditions stipulated by the tax authorities of the State Council, it may choose to pay enterprise income tax on a consolidated basis by its main organization or place.

The income obtained by a non-resident enterprise as specified in the third paragraph of Article 3 of this Law shall be paid on a consolidated basis by the location of the withholding agent.

Article 52: Unless otherwise provided by the State Council, enterprises shall not pay enterprise income tax on a consolidated basis.

Article 53: Enterprise income tax shall be calculated on a tax year basis. The tax year shall be from January 1 to December 31 of the Gregorian calendar.

If an enterprise opens business or terminates its business activities in the middle of a tax year, so that the actual operating period of the tax year is less than twelve months, its actual operating period shall be regarded as a tax year.

When an enterprise is liquidated in accordance with the law, the liquidation period shall be regarded as a tax year.

Article 54: Enterprise income tax shall be prepaid monthly or quarterly.

Enterprises shall submit prepaid enterprise income tax returns to tax authorities within 15 days from the end of the month or quarter and make prepaid taxes.

Enterprises shall submit annual enterprise income tax returns to tax authorities within five months from the end of the year, and settle and pay taxes payable and refundable.

When submitting enterprise income tax returns, enterprises shall attach financial accounting reports and other relevant materials in accordance with regulations.

Article 55 If an enterprise terminates its business activities in the middle of the year, it shall settle and pay the current enterprise income tax with the tax authorities within 60 days from the date of actual termination of business.

Enterprises shall declare their liquidation income to the tax authorities and pay enterprise income tax in accordance with the law before applying for cancellation registration.

Article 56 Enterprise income tax paid in accordance with this Law shall be calculated in RMB. If the income is calculated in a currency other than RMB, it shall be converted into RMB for calculation and payment of tax.

Chapter VIII Supplementary Provisions

Article 57: Enterprises that have been approved for establishment before the promulgation of this Law and enjoy low tax rates in accordance with the tax laws and administrative regulations at the time may, in accordance with the provisions of the State Council, gradually transition to the tax rates stipulated in this Law within five years after the implementation of this Law; enterprises that enjoy periodic tax reduction and exemption may continue to enjoy them until the expiration of the period after the implementation of this Law, in accordance with the provisions of the State Council. However, if they have not yet enjoyed the preferential treatment due to lack of profit, the preferential period shall be calculated from the year of implementation of this Law.

: Newly established high-tech enterprises that the State needs to focus on supporting in specific areas set by law for the development of foreign economic cooperation and technological exchanges, and in areas where the State Council has stipulated the implementation of special policies for the above-mentioned areas, may enjoy transitional tax preferences. The specific measures shall be stipulated by the State Council.

: Other encouraged enterprises determined by the State may enjoy tax reduction and exemption preferences in accordance with the provisions of the State Council.

: Article 58: If the tax agreements concluded between the Government of the People's Republic of China and foreign governments have different provisions from this Law, they shall be handled in accordance with the provisions of the agreements.

: Article 59: The State Council shall formulate implementation regulations based on this Law.

: Article 60: This Law shall come into force on the date of the establishment of the People's Republic of China.