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Enterprise Income Tax Law

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Order of the President of the People’s Republic of China
No. 63
The Enterprise Income Tax Law of the People’s Repub lic of China has been adopted at the 5th Session of the
10th National People’s Congress of the People’s Rep ublic of China on March 16, 2007. It is hereby
promulgated and shall go into effect as of January 1, 2008.

President of the People’s Republic of China Hu Jint ao
March 16, 2007
Enterprise Income Tax Law of the People’s Republic of
China
(Adopted at the 5th Session of the 10th National Pe ople’s Congress of the People’s Republic of China o n
March 16, 2007)
Contents
Chapter I General Rules
Chapter II Taxable Income Amount
Chapter III Payable Tax Amount
Chapter IV Preferential Tax Treatments
Chapter V Withholding by Sources
Chapter VI Special Adjustments to Tax Payments
Chapter VII Administration of Tax Levy
Chapter VIII Supplementary Rules
Chapter I General Rules
Article 1 The enterprises and other organizations which have incomes (hereinafter referred to as the
enterprises) within the territory of the People’s R epublic of China shall be payers of the enterprise income tax
and shall pay their enterprise income taxes accordi ng to the present Law.
The sole individual proprietorship enterprises and partnership enterprises are not governed by the pre sent law.
Article 2 Enterprises are classified into resident and non-resident enterprises.
The term “resident enterprise” as mentioned in the present Law means an enterprise which is set up und er
Chinese law within the territory of China, or set u p under the law of a foreign country (region) but w hose
actual management organ is within the territory of China.
The term “non-
resident enterprise” as mentioned in the present La w means an enterprise which is set up under
the law of a foreign country (region) and whose act ual management organ is not within the territory of China
but who has organs or establishments within the ter ritory of China, or who does not have any organ or
establishment within the territory of China but who has incomes sourced in China.
Article 3 For its incomes sourced from both inside and outsid e the territory of China, a resident enterprise
shall pay the enterprise income tax.
In case a non-resident enterprise sets up an organ or establishment within the territory of China, it shall pay
enterprise income tax on its incomes sourced inside the territory of China and incomes sourced outside the
territory of China but actually connected with the said organ or establishment.
In case a non-resident enterprise has no organ or e stablishment within the territory of China, or its incomes
have no actual connection to its organ or establish ment inside the territory of China, it shall pay enterprise
income tax on the incomes sourced inside the territ ory of China.
Article 4 The enterprise income tax shall be levied at the rate of 25%.
In case a non-resident enterprise obtains incomes a s mentioned in Paragraph 3, Article 3 of the presen t Law,
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the tax rate shall be 20%.
Chapter II Taxable Income Amount
Article 5 The balance after the tax-free and tax-exempt incomes, each deduction item as well as the permitted
remedies for losses of the previous year(s) being d educted from an enterprise’s total income amount of each
tax year shall be the taxable income amount.
Article 6 An enterprise’s total income amount refers to the m onetary and non-monetary incomes from various
sources and includes:
(1) income from selling goods;
(2) income from providing labor services;
(3) income from transferring property;
(4) equity investment gains, such as dividend, bonus;
(5) interest incomes;
(6) rental income;
(7) royalty income;
(8) income from accepting donations; and
(9) other incomes.
Article 7 The tax-free income refers to the following incomes which are included in the total income amount:
(1) The treasury appropriations;
(2) The administrative fees and the governmental funds which are levied in accordance with the law and fall
under the treasury administration; and
(3) Other tax-free incomes as prescribed by the State C ouncil.
Article 8 When calculating the taxable income amount, the rea sonable expenditures which actually happened
and have actual connection with the business operat ions of an enterprise, including the costs, expenditures,
taxes, losses, etc. may be deducted.
Article 9 As regards an enterprise’s expenditures for public welfare donations, the portion within 12% of the
total annual profits is permitted to be deducted.
Article 10 When calculating the taxable income amount, none of the following expenditures may be
deducted:
(1) Such equity investment gains as dividend, bonus pai d to the investors;
(2) Payment for enterprise income tax;
(3) Late fee for taxes;
(4) Pecuniary punishment, fines, and losses of confiscated properties;
(5) Expenditures for donations other than those prescribed in Article 9;
(6) Sponsorship expenditures;
(7) Unverified reserve expenditures;
(8) Other expenditures in no relation to the obtainment of revenues;
Article 11 An enterprise’s depreciations of fixed assets, which are calculated pursuant to the related
provisions, are permitted to be deducted in the cal culation of the taxable income amount.
As regards any of the following fixed assets, no de preciation may be calculated for deduction:
(1) The fixed assets which have not yet been put into u se, among which houses and buildings are not
included;
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(2) The fixed assets which are rented in through commercial lease;
(3) The fixed assets which are rented out through finance leasing;
(4) The fixed assets for which depreciation has been fully allocated but which are still in use;
(5) The fixed assets in no relation to the business operations;
(6) The land which is separately evaluated and entered into account as an item of fixed asset; and
(7) Other fixed assets for which no depreciation may be calculated for deduction.
Article 12 An enterprise is allowed to deduct the amortized expenditures of intangible assets calculated under
the related provisions when calculating the taxable amount of incomes.
For the following intangible assets, no amortized e xpense may be calculated:
(1) The intangible assets, which are developed by the e nterprise itself and the expenditures have been
deducted when calculating the taxable income amount ;
(2) The self-created business reputation;
(3) The intangible assets in no relation to the business operations; and
(4) Other intangible assets for which no amortized expe nse may be calculated for deduction.
Article 13 The following expenditures incurred by an enterprise shall be deemed as long-term deferred
expenditures when calculating the taxable income am ount. Those amortized pursuant to the related provisions
are permitted to be deducted:
(1) The expenditures for rebuilding a fixed asset, for which depreciation has been fully allocated;
(2) The expenditures for rebuilding a rented fixed asse t;
(3) The expenditures for heavily repairing a fixed asset; and
(4) Other expenditures which shall be deemed as long-te rm deferred expenditures.
Article 14 When calculating the taxable income amount, an ente rprise may not deduct the costs of the
investment assets during the period of external inv estment.
Article 15 In case an enterprise uses or sells its inventories, it is permitted to deduct the costs of the
inventories calculated pursuant to the related prov isions when calculating the taxable income amount.
Article 16 In case an enterprise transfers an asset, it is permitted to deduct the net value of the asset when
calculating the taxable income amount.
Article 17 An enterprise may not offset the losses of its over seas business organs against the profits of its
domestic business organs in the consolidated calcul ation of its enterprise income taxes.
Article 18 The losses suffered by an enterprise during a tax year may be carried forward and made up by the
incomes during subsequent years, however, the carry -forward period may not exceed 5 years.
Article 19 In case a non-resident enterprise obtains incomes as prescribed in Paragraph 3, Article 3 of the
present Law, the following approaches shall be adop ted in calculation of its the taxable income amount:
(1) As regards dividends, bonuses and other equity inve stment gains, interests, rentals and royalties, the
taxable income amount shall be the total income amo unt;
(2) As regards incomes from assigning property, the taxable income amount shall be the balance of the total
income amount less the net value of the property; a nd
(3) As regards other incomes, the taxable income amount shall be calculated according to the approaches as
mentioned in the preceding two items by analogy.
Article 20 The specific scope and standards of revenues and de ductions, as well as the concrete tax treatment
methods of assets as prescribed in this Chapter sha ll be constituted by the treasury and tax administrative
departments under the State Council.
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Article 21 If the enterprise’s financial or accounting treatment method does not comply with any tax law or
administrative regulation when calculating the taxa ble income amount, the tax law or administrative
regulation shall prevail.
Chapter III Payable Tax Amount
Article 22 The payable tax amount shall be the balance of the taxable amount multiplied by the applicable tax
rate minus the tax amounts deducted and exempted as prescribed in the present Law.
Article 23 In case an enterprise has already paid overseas the enterprise tax for the following incomes, it may
deduct it from the payable tax amount of the curren t period. The limit of tax credit shall be the payable tax
amount on such incomes calculated under the present Law. The part exceeding the limit of tax credit may,
during the five subsequent years, be offset from th e balance of the limit of tax credit of each year minus the
tax amount which ought to be offset in the current year:
(1) A resident enterprise’s taxable incomes sourced fro m outside the territory of China; and
(2) Taxable incomes obtained outside the territory of C hina by a non-resident enterprise having organs or
establishments inside the territory of China, but h aving actual connection with such organs or establi shments.
Article 24 As regards the dividends, bonuses and other equity investment gains earned outside the territory of
China by a resident enterprise from a foreign enter prise which it controls directly or indirectly, the portion of
income tax on this income paid outside the territor y of China by the foreign enterprise the territory of China
may be treated as the allowable tax credit of the r esident enterprise’s overseas income tax amount and be
deducted within the limit of tax credit as provided for in Article 23 of the present Law.
Chapter IV Preferential Tax Treatments
Article 25 The important industries and projects whose develop ment is supported and encouraged by the state
shall enjoy the preferential treatments in enterprise income tax.
Article 26 An enterprise’s following incomes of shall be tax-f ree ones:
(1) The interest incomes from treasury bonds;
(2) Dividends, bonuses and other equity investment gain s generated between qualified resident enterprises;
(3) Dividends, bonuses and other equity investment gains which are obtained from a resident enterprise by a
non-resident enterprise with organs or establishmen ts inside the territory of China and have actual connection
with such organs or establishments; and
(4) Incomes of qualified not-for-profit organizations.
Article 27 As regards the following incomes, the enterprise in come tax may be exempted or reduced:
(1) The incomes generated from the engagement in agricu lture, forestry, husbandry and fishery;
(2) The incomes generated from investment in and business operations of the important public infrastructure
projects supported by the state;
(3) The income generated from the projects of environme ntal protection, energy and water saving and
satisfying the related requirements;
(4) The incomes generated from transferring technologie s and satisfying the related requirements; and
(5) The income as provided for in Paragraph 3, Article 3 of the present Law.
Article 28 As regards a small meagre-profit enterprise satisfying the prescribed conditions, the enterprise
income tax shall be levied at a reduced tax rate of 20%.
As regards important high-tech enterprises necessar y to be supported by the state, the enterprise income tax
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shall be levied at the reduced tax rate of 15%.
Article 29 The autonomous organ of an autonomous region of ethnic minorities may determine to reduce or
exempt the enterprise income tax by enterprises wit hin the said autonomous region. In case the decision on
deduction or exemption is made by an autonomous pre fecture or county, it shall be reported to the people’s
government of the province, autonomous region, or m unicipality directly under the Central Government for
approval.
Article 30 An enterprise may additionally calculate and deduct the following expenditures in the calculation
of the taxable income amount:
(1) The expenditures for researching and developing new technologies, new products and new techniques; and
(2) The wages paid to the disabled employees or other employees encouraged to hire by the State.
Article 31 In case a startup investment enterprise engages in important startup investments necessary to be
supported and encouraged by the state, it may deduc t a certain proportion of the investment amount from the
taxable income amount.
Article 32 In case an enterprise surely needs to accelerate th e depreciation of any fixed asset by virtue of
technological progress or for any other reason, it may curtail the term of depreciation or adopt a met hod for
accelerated depreciation.
Article 33 As regards the incomes earned by an enterprise from producing products complying with the
industrial policies of the state by comprehensively utilizing resources, the income may be downsized i n the
calculation of the amount of taxable incomes.
Article 34 As regards the amount of an enterprise’s investment in purchasing special equipment for protecting
environment, saving energy and water, work safety, etc., the tax amount may be deducted at a certain rate.
Article 35 The specific measures for the preferential tax treatments as referred to in the present Law shall be
constituted by the State Council.
Article 36 The State Council may constitute special preferenti al policies on the enterprise income tax in case
the national economic and social development so req uires, or the business operations of enterprises have been
seriously affected by emergencies and other factors , and submit them to the Standing Committee of the
National People’s Congress for archival filling.
Chapter V Withholding by Sources
Article 37 The payable income taxes on the incomes obtained by a non-resident enterprise as prescribed in
Paragraph 3, Article 3 of the present Law shall be withheld by sources, with the payer acting as the o bligatory
withholder, who shall withhold the tax amount from each payment or payment due.
Article 38 As regards the payable income taxes on the incomes obtained by a non-resident enterprise within
the territory of China from undertaking engineering projects or providing labor services, the payer of the
project price or remuneration may be designated as the obligatory withholder by the tax organ.
Article 39 In case the obligatory withholder has failed to withhold the income tax which ought to be withheld
according to Articles 37 and 38 of the present Law or is unable to perform the withholding obligation, the
taxpayer shall pay them at the place where the inco me has occurred. In case the taxpayer fails to do so, the tax
organ may recover the payable tax of the enterprise from its other income items within the territory of China
which ought to be paid by the payer.
Article 40 A obligatory withholder shall, within 7 days after the date of withholding, turn over to the state
treasury the tax payments which it withholds every time and submit a form of report on the withheld
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enterprise income taxes to the local tax organ.
Chapter VI Special Adjustments to Tax Payments
Article 41 As regards a transaction between an enterprise and its affiliated parties, in case the taxable revenue
or income of the enterprise or its affiliated parti es reduces by virtue of the failure to conform to t he arms
length principle, the tax organ may, through a reas onable method, make an adjustment.
As regards the costs of an enterprise and its affil iated parties for jointly developing or accepting i ntangible
assets, or jointly providing or accepting labor ser vices, they shall, when calculating the taxable inc ome
amount, apportion them according to the arms length principle.
Article 42 An enterprise may propose the pricing principles and calculation methods for the transactions
between it and its affiliated parties to the tax or gan, the tax organ and the enterprise shall, upon n egotiations
and confirmation, achieve an advance pricing arrang ement.
Article 43 When an enterprise submits its annual enterprise income tax returns to the tax organ, an annual
report on the affiliated transactions between it an d its affiliated parties shall be attached.
When the tax organ investigates into the affiliated transactions, the enterprise and its affiliated parties, as well
as other enterprises in relation to the affiliated transactions under investigation, shall, according to the related
provisions, provide the related materials.
Article 44 In case any enterprise refuses to submit the materi als on transactions which happened between it
and its affiliated parties, or provides any false o r incomplete material, on the basis of which the tr ue
information about the affiliated transactions canno t be reflected, the tax organ may determine upon ch eck its
taxable income amount.
Article 45 As regards an enterprise which is set up in a count ry (region) where the actual tax burden is
apparently lower than the tax rate as prescribed in Paragraph 1 of Article 4 of the present Law by a r esident
enterprise or controlled by an resident enterprise or by a Chinese resident, in case it fails to distribute the
profits or decreases the distribution not by virtue of reasonable business operations, the portion of the
aforesaid profits attributable to this resident ent erprise shall be included in its incomes of the cur rent period.
Article 46 As regards an enterprise’s interest expenditures fo r any credit investments and equity investments
accepted from its affiliated parties, in excess of the prescribed criterion, the enterprise may not de duct them
when calculating the taxable income amount.
Article 47 In case an enterprise makes any other arrangement n ot for any reasonable commercial purpose,
which causes the decrease of its taxable revenue or income, the tax organ may, through a reasonable me thod,
make an adjustment.
Article 48 In case the tax organ makes an adjustment to a tax payment pursuant to the provisions in this
Chapter so that it is necessary to recover the tax payment in arrears, it shall do so and charge an ad ditional
interest according to the provisions of the State C ouncil.
Chapter VII Administration of Tax Levy
Article 49 The administration for levying enterprise income ta xes shall be subject to the Law of the People’s
Republic of China on Administering Tax Levy in addi tion to the present Law.
Article 50 The tax payment place of a resident enterprise shall be its registration place unless it is otherwise
provided for in any tax law or administrative regul ation. But in case its registration place is outside the
territory of China, the tax payment place shall be the place at the locality of its actual management organ.
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As regards a resident enterprise which has set up operational organs without legal person status inside the
territory of China, it shall, on a consolidated bas is, calculate and pay its enterprise income taxes.
Article 51 In case a non-resident enterprise earns any income as prescribed in Paragraph 2, Article 3 of the
present Law, the tax payment place shall be the pla ce at the locality of the organ or establishment. In case a
non-resident enterprise has set up two or more orga ns or establishments within the territory of China, it may
choose to have its main organ or establishment make a consolidated payment of the enterprise income tax
upon the examination and approval of the tax organ.
As regards a non-resident enterprise which earns an y income as prescribed in Paragraph 3, Article 3 of the
present Law, the place at the locality of the oblig atory withholder shall be the tax payment place.
Article 52 Enterprises may not pay their enterprise income tax es on a consolidated basis unless it is otherwise
prescribed by the State Council.
Article 53 Enterprise income taxes shall be calculated on the basis of a tax year, which is from January 1 to
December 31 of the Gregorian calendar year.
In case an enterprise’s business operations are sta rted or terminated in the middle of a tax year, whi ch leads to
its actual business operation period in this tax ye ar being shorter than 12 months, its actual busines s operation
period shall constitute a tax year.
When an enterprise is under liquidation according t o law, the liquidation period shall be a tax year.
Article 54 Enterprise income taxes shall, on the monthly or qu arterly basis, be paid in advance.
An enterprise shall submit an enterprise income tax return for advance payment to the tax organ and pa y the
tax in advance within 15 days after the end of a mo nth or quarter.
An enterprise shall submit an annual enterprise inc ome tax return for the settlement of tax payments to the tax
organ and settle the payable or refundable amount o f taxes within 5 months after the end of each year.
When an enterprise submits an enterprise income tax return, the financial statements and other related
materials shall be attached in accordance with the related provisions.
Article 55 In case an enterprise terminates its business operation in the middle of a year, it shall apply to the
tax organ for calculating and paying the enterprise income taxes of the current period within 60 days after the
actual date for terminating its business operations .
Before the deregistration formalities are handled, an enterprise shall make a declaration to the tax organ and
pay the enterprise income taxes on the basis of the income of the liquidation.
Article 56 Enterprise income taxes to be paid pursuant to the present law shall be calculated on the basis of
RMB. In case any income is calculated on the basis of a currency other than RMB, the taxes shall, after such
income converted into RMB, be calculated and paid.
Chapter VIII Supplementary Rules
Article 57 In case an enterprise has already been set up befor e the promulgation of the present Law and
enjoys low tax rates in accordance with the provisi ons of the tax laws and administrative regulations in force
at that time, it may, in accordance with the provis ions of the State Council, continue to enjoy the pr eferential
treatments within five years as of the promulgation of the present Law and gradually transfer to the tax rate as
prescribed in the present Law. In case an enterpris e enjoys the preferential treatment of tax exemptio n for a
fixed term, it may, after the promulgation of this Law, continue to enjoy such treatment in accordance with the
provisions of the State Council until the fixed term expires. However, if an enterprise has failed to enjoy the
preferential treatment by virtue of failure to make profits, the term of preferential treatment may be counted as
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of the year when the present Law is promulgated.
As regards high-tech enterprises which are newly es tablished with the key support of the State within the
particular areas set up by law for developing forei gn economic cooperation and technological exchanges or
the areas enjoying the abovementioned special polic ies as provided for by the State Council, they may enjoy
transitional preferential tax treatments. The speci fic measures thereof shall be constituted by the St ate
Council.
As regards other enterprises falling within the enc ouraged category as already determined by the State
Council, they may, according to the provisions of t he State Council, enjoy the preferential treatment of tax
reduction or exemption.
Article 58 In case any provision in a tax treaty concluded bet ween the government of the People’s Republic of
China and a foreign government is different from th e provisions in the present Law, the provision in the said
treaty shall prevail.
Article 59 The State Council shall constitute a regulation for implementing the present Law.
Article 60 The present law shall go into effect as of January 1, 2008. The Income Tax Law of the People’s
Republic of China Concerning Foreign-funded Enterpr ises and Foreign Enterprises as adopted on April 9,
1991 at the 4th Session of the Standing Committee o f the 7th National People’s Congress and the Interim
Regulation of the People’s Republic of China Concer ning Enterprise Income Tax as promulgated on
December 13, 1993 by the State Council shall be con currently abolished.
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