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The Standing Committee of the National People’s Congress
Order of the President of the People’s Republic of China
No.45
“Income Tax Law of the People’s Republic of China on Enterprises with Foreign Investment and Foreign Enterprises” is adopted at the
Fourth Session of the Seventh National People’s congress on April 9, 1991, and is promulgated.This law will be effective as of July
1, 1991.
President of the People’s Republic of China: Yang Shangkun
April 9,1999
Income Tax Law of the People’s Republic of China on Enterprises with Foreign Investment and Foreign Enterprises
Article 1
Income tax shall be paid in accordance with the provisions of this Law by enterprises with foreign investment within the territory
of the People’s Republic of China on their income derived from production, business operations and other sources.
Income tax shall be paid in accordance with the provisions of this Law by foreign enterprises on their income derived from production,
business operations and other sources within the territory of the People’s Republic of China.
Article 2
“Enterprises with foreign investment” referred to in this Law mean Chinese-foreign equity joint ventures, Chinese-foreign contractual
joint ventures and foreign-capital enterprises that are established in China.
“Foreign enterprises” referred to in this Law mean foreign companies, enterprises and other economic organizations which have establishments
or places in China and engage in production or business operations, and which, though without establishments or places in China,
have income from sources within China.
Article 3
Any enterprise with foreign investment which establishes its head office in China shall pay its income tax on its income derived from
sources inside and outside China. Any foreign enterprise shall pay its income tax on its income derived from sources within China.
Article 4
The taxable income of an enterprise with foreign investment and an establishment or a place set up in China to engage in production
or business operations by a foreign enterprise, shall be the amount remaining from its gross income in a tax year after the costs,
expenses and losses have been deducted.
Article 5
The income tax on enterprises with foreign investment and the income tax which shall be paid by foreign enterprises on the income
of their establishments or places set up in China to engage in production or business operations shall be computed on the taxable
income at the rate of thirty percent, and local income tax shall be computed on the taxable income at the rate of three percent.
Article 6
The State shall, in accordance with the industrial policies, guide the orientation of foreign investment and encourage the establishment
of enterprises with foreign investment which adopt advanced technology and equipment and export all or greater part of their products.
Article 7
The income tax on enterprises with foreign investment established in Special Economic Zones, foreign enterprises which have establishments
or places in Special Economic Zones engaged in production or business operations, and on enterprises with foreign investment of a
production nature in Economic and Technological Development Zones, shall be levied at the reduced rate of fifteen percent.
The income tax on enterprises with foreign investment of a production nature established in coastal economic open zones or in the
old urban districts of cities where the Special Economic Zones or the Economic and Technological Development Zones are located, shall
be levied at the reduced rate of twenty-four percent.
The income tax on enterprises with foreign investment in coastal economic open zones, in the old urban districts of cities where the
Special Economic Zones or the Economic and Technological Development Zones are located or in other regions defined by the State Council,
within the scope of energy, communications, harbour, wharf or other projects encouraged by the State, may be levied at the reduced
rate of fifteen percent. The specific measures shall be drawn up by the State Council.
Article 8
Any enterprise with foreign investment of a production nature scheduled to operate for a period of not less than ten years shall,
from the year beginning to make profit, be exempted from income tax in the first and second years and allowed a fifty percent reduction
in the third to fifth years. However, the exemption from or reduction of income tax on enterprises with foreign investment engaged
in the exploitation of resources such as petroleum, natural gas, rare metals, and precious metals shall be regulated separately by
the State Council. Enterprises with foreign investment which have actually operated for a period of less than ten years shall repay
the amount of income tax exempted or reduced already.
The relevant regulations, promulgated by the State Council before the entry into force of this Law, which provide preferential treatment
of exemption from or reduction of income tax on enterprises engaged in energy, communications, harbour, wharf and other major projects
of a production nature for a period longer than that specified in the preceding paragraph, or which provide preferential treatment
of exemption from or reduction of income tax on enterprises engaged in major projects of a nonproduction nature, shall remain applicable
after this Law enters into force.
Any enterprise with foreign investment which is engaged in agriculture, forestry or animal husbandry and any other enterprise with
foreign investment which is established in remote underdeveloped areas may, upon approval by the competent department for tax affairs
under the State Council of an application filed by the enterprise, be allowed a fifteen to thirty percent reduction of the amount
of income tax payable for a period of another ten years following the expiration of the period for tax exemption or reduction as
provided for in the preceding two paragraphs.
After this Law enters into force, any modification to the provisions of the preceding three paragraphs of this Article on the exemption
from or reduction of income tax on enterprises shall be submitted by the State Council to the Standing Committee of the National
People’s Congress for decision.
Article 9
The exemption from or reduction of local income tax on any enterprise with foreign investment which operates in an industry or undertakes
a project encouraged by the State shall, in accordance with the actual situation, be at the discretion of the people’s government
of the relevant province, autonomous region or municipality directly under the Central Government.
Article 10
Any foreign investor of an enterprise with foreign investment which reinvests its share of profit obtained from the enterprise directly
into that enterprise by increasing its registered capital, or uses the profit as capital investment to establish other enterprises
with foreign investment to operate for a period of not less than five years shall, upon approval by the tax authorities of an application
filed by the investor, be refunded forty percent of the income tax already paid on the reinvested amount. Where regulations of the
State Council provide otherwise in respect of preferential treatment, such provisions shall apply. If the investor withdraws its
reinvestment before the expiration of a period of five years, it shall repay the refunded tax.
Article 11
Losses incurred in a tax year by any enterprise with foreign investment and by an establishment or a place set up in China by a foreign
enterprise to engage in production or business operations may be made up by the income of the following tax year. Should the income
of the following tax year be insufficient to make up for the said losses, the balance may be made up by its income of the further
subsequent year, and so on, over a period not exceeding five years.
Article 12
Any enterprise with foreign investment shall be allowed, when filing a consolidated income tax return, to deduct from the amount of
tax payable the foreign income tax already paid abroad in respect of the income derived from sources outside China. The deductible
amount shall, however, not exceed the amount of income tax otherwise payable under this Law in respect of the income derived from
sources outside China.
Article 13
The payment or receipt of charges or fees in business transactions between an enterprise with foreign investment or an establishment
or a place set up in China by a foreign enterprise to engage in production or business operations, and its associated enterprises,
shall be made in the same manner as the payment or receipt of charges or fees in business transactions between independent enterprises.
Where the payment or receipt of charges or fees is not made in the same manner as in business transactions between independent enterprises
and results in a reduction of the taxable income, the tax authorities shall have the right to make reasonable adjustment.
Article 14
Where an enterprise with foreign investment or an establishment or a place set up in China by a foreign enterprise to engage in production
or business operations is established, moves to a new site, merges with another enterprise, breaks up, winds up or makes a change
in any of the main entries of registration, it shall present the relevant documents to and go through tax registration or a change
or cancellation in registration with the local tax authorities after the relevant event is registered, or a change or cancellation
in registration is made with the administrative agency for industry and commerce.
Article 15
Income tax on enterprises and local income tax shall be computed on an annual basis and paid in advance in quarterly instalments.
Such payments shall be made within fifteen days from the end of each quarter and the final settlement shall be made within five months
from the end of each tax year. Any excess payment shall be refunded and any deficiency shall be repaid.
Article 16
Any enterprise with foreign investment and any establishment or place set up in China by a foreign enterprise to engage in production
or business operations shall file its quarterly provisional income tax return in respect of advance payments with the local tax authorities
within the period for each advance payment of tax, and it shall file an annual income tax return together with the final accounting
statements within four months from the end of the tax year.
Article 17
Any enterprise with foreign investment and any establishment or place set up in China by a foreign enterprise to engage in production
or business operations shall report its financial and accounting systems to the local tax authorities for reference. All accounting
records must be complete and accurate, with legitimate vouchers as the basis for entries.
If the financial and accounting bases adopted by an enterprise with foreign investment and an establishment or a place set up in China
by a foreign enterprise to engage in production or business operations contradict the relevant regulations on tax of the State Council,
tax payment shall be computed in accordance with the relevant regulations on tax of the State Council.
Article 18
When any enterprise with foreign investment goes into liquidation, and if the balance of its net assets or the balance of its remaining
property after deduction of the enterprise’s undistributed profit, various funds and liquidation expenses exceeds the enterprise’s
paidin capital, the excess portion shall be liquidation income on which income tax shall be paid in accordance with the provisions
of this Law.
Article 19
Any foreign enterprise which has no establishment or place in China but derives profit, interest, rental, royalty and other income
from sources in China, or though it has an establishment or a place in China, the said income is not effectively connected with such
establishment or place, shall pay an income tax of twenty percent on such income.
For the payment of income tax in accordance with the provisions of the preceding paragraph, the income beneficiary shall be the taxpayer
and the payer shall be the withholding agent. The tax shall be withheld from the amount of each payment by the payer. The withholding
agent shall, within five days, turn the amount of taxes withheld on each payment over to the State Treasury and submit a withholding
income tax return to the local tax authorities.
Income tax shall be exempted or reduced on the following income:
(1)
the profit derived by a foreign investor from an enterprise with foreign investment shall be exempted from income tax;
(2)
income from interest on loans made to the Chinese government or Chinese State banks by international financial organizations shall
be exempted from income tax;
(3)
income from interest on loans made at a preferential interest rate to Chinese State banks by foreign banks shall be exempted from
income tax; and
(4)
income tax of the royalty received for the supply of technical know-how in scientific research, exploitation of energy resources,
development of the communications industries, agricultural, forestry and animal husbandry production, and the development of important
technologies may, upon approval by the competent department for tax affairs under the State Council, be levied at the reduced rate
of ten percent. Where the technology supplied is advanced or the terms are preferential, exemption from income tax may be allowed.
Apart from the aforesaid provisions of this Article, if preferential treatment in respect of reduction of or exemption from income
tax on profit, interest, rental, royalty and other income is required, it shall be regulated by the State Council.
Article 20
The tax authorities shall have the right to inspect the financial, accounting and tax affairs of enterprises with foreign investment
and establishments or places set up in China by foreign enterprises to engage in production or business operations, and have the
right to inspect tax withholding of the withholding agent and its payment of the withheld tax into the State Treasury. The entities
and the withholding agents being so inspected must report the facts and provide relevant information. They may not refuse to report
or conceal any facts.
When making an inspection, the tax officials shall produce their identity documents and be responsible for confidentiality.
Article 21
Income tax payable according to this Law shall be computed in terms of Renminbi (RMB). Income in foreign currency shall be converted
into Renminbi according to the exchange rate quoted by the State exchange control authorities for purposes of tax payment.
Article 22
If any taxpayer fails to pay tax within the prescribed time limit, or if the withholding agent fails to turn over the tax withheld
within the prescribed time limit, the tax authorities shall, in addition to setting a new time limit for tax payment, impose a surcharge
for overdue payment, equal to 0.2 percent of the overdue tax for each day in arrears, starting from the first day the payment becomes
overdue.
Article 23
The tax authorities shall set a new time limit for registration or submission of documents and may impose a fine of five thousand
yuan or less on any taxpayer or withholding agent which fails to go through tax registration or make a change or cancellation in
registration with the tax authorities within the prescribed time limit, or fails to submit income tax return, final accounting statements
or withholding income tax return to the tax authorities within the prescribed time limit, or fails to report its financial and accounting
systems to the tax authorities for reference.
Where the tax authorities have set a new time limit for registration or submission of documents, they shall impose a fine of ten thousand
yuan or less on the taxpayer or withholding agent which again fails to meet the time limit for going through registration or making
a change in registration with the tax authorities, or for submitting income tax return, final accounting statements or withholding
income tax return to the tax authorities. Where the circumstances are serious, the legal representative and the person directly responsible
shall be investigated for criminal responsibility by applying mutatis mutandis the provisions of Article 121 of the Criminal Law.
Article 24
Where the withholding agent fails to fulfil its obligation to withhold tax as provided in this Law, and does not withhold or withholds
an amount less than that should have been withheld, the tax authorities shall set a time limit for the payment of the amount of tax
that should have been withheld, and may impose a fine up to but not exceeding one hundred percent of the amount of tax that should
have been withheld.
Where the withholding agent fails to turn the tax withheld over to the State Treasury within the prescribed time limit, the tax authorities
shall set a time limit for turning over the taxes and may impose a fine of five thousand yuan or less on the withholding agent; if
the withholding agent fails to meet the time limit again, the tax authorities shall pursue the taxes according to law and may impose
a fine of ten thousand yuan or less on the withholding agent. If the circumstances are serious, the legal representative and the
person directly responsible shall be investigated for criminal responsibility by applying mutatis mutandis the provisions of Article
121 of the Criminal Law.
Article 25
Where any person evades tax by deception or concealment or fails to pay tax within the time limit prescribed by this Law and, after
the tax authorities pursued the payment of tax, fails again to pay it within the prescribed time limit, the tax authorities shall,
in addition to recovering the tax which should have been paid, impose a fine up to but not exceeding five hundred percent of the
amount of tax which should have been paid. Where the circumstances are serious, the legal representative and the person directly
responsible shall be investigated for criminal responsibility in accordance with the provisions of Article 121 of the Criminal Law.
Article 26
Any enterprise with foreign investment, foreign enterprise or withholding agent, in case of a dispute with the tax authorities on
payment of tax, must pay tax according to the relevant regulations first. Thereafter, the taxpayer or withholding agent may, within
sixty days from the date of receipt of the tax payment certificate issued by the tax authorities, apply to the tax authorities at
the next higher level for reconsideration. The higher tax authorities shall make a decision within sixty days after receipt of the
application for reconsideration. If the taxpayer or withholding agent is not satisfied with the decision, it may institute legal
proceedings in the people’s court within fifteen days from the date of receipt of the notification on decision made after reconsideration.
If the party concerned is not satisfied with the decision on punishment by the tax authorities, it may, within fifteen days from the
date of receipt of the notification on punishment, apply for reconsideration to the tax authorities at the next higher level than
that which made the decision on punishment. Where the party is not satisfied with the decision made after reconsideration, it may
institute legal proceedings in the people’s court within fifteen days from the date of receipt of the decision made after reconsideration.
The party concerned may, however, directly institute legal proceedings in the people’s court within fifteen days from the date of
receipt of the notification on punishment. If the party concerned neither applies for reconsideration to the higher tax authorities,
nor institutes legal proceedings in the people’s court within the time limit, nor complies with the decision on punishment, the tax
authorities which made the decision on punishment may apply to the people’s court for compulsory execution.
Article 27
Where any enterprise with foreign investment which was established before the promulgation of this Law would, in accordance with the
provisions of this Law, otherwise be subject to higher tax rates or enjoy less preferential treatment of tax exemption or reduction
than before the entry into force of this Law, in respect to such enterprise, within its approved period of operation, the law and
relevant regulations of the State Council in effect before the entry into force of this Law shall apply. If any such enterprise has
no approved period of operation, the law and relevant regulations of the State Council in effect before the entry into force of this
Law shall apply within the period prescribed by the State Council. Specific measures shall be drawn up by the State Council.
Article 28
Where the provisions of a tax agreement concluded between the government of the People’s Republic of China and a foreign government
are different from the provisions of this Law, the provisions of the agreement shall prevail.
Article 29
Rules for implementation shall be formulated by the State Council in accordance with this Law.
Article 30
This Law shall enter into force on July 1, 1991. The Income Tax Law of the People’s Republic of China on Chinese-foreign Equity Joint
Ventures and the Income Tax Law of the People’s Republic of China on Foreign Enterprises shall be annulled as of the same date.
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