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This is an unofficial translation of Enterprise Income Tax Law (Decree No. 63 of

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Enterprise Income Tax Law (Decree No. 512 of the State Council of the People's
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31 December 2007
Enterprise Income Tax Law and Implementation Rules of the Peoples Republic of China
Contents
Enterprise Income Tax Law of the Peoples

2
Republic of China
Implementation Rules of the Enterprise

28
Income Tax Law of the Peoples Republic of China
About Deloitte
94
Deloitte China Tax 1
Enterprise Income Tax Law of the Peoples

Republic of China
Promulgated by Decree No.63 of the President of the Peoples Republic of China on March 16,
2007, effective on January 1, 2008.
2007316200811
2 Deloitte China Tax
Enterprise Income Tax Law of

the Peoples Republic of China
Chapter 1: General Provisions
Chapter 2: Taxable Income
Chapter 3: Income Tax Payable
12
Chapter 4: Tax Incentive
14
Chapter 5: Withholding at Source
18
Chapter 6: Special Tax Adjustments
18
Chapter 7: Tax Administration
22
Chapter 8: Supplementary Provisions
24
13
15
19
19
23
25

Article 1.

All enterprises and other income receiving organisations (herein after referred
to as enterprises) within the territory of the Peoples Republic of China shall
be the taxpayer of the enterprise income tax and shall pay the enterprise
income tax in accordance with the provisions of this Law.
Sole proprietorships and partnerships are not under the purview of this law.
Article 2.
Enterprises are classified as resident enterprises and non-resident enterprises.
A resident enterprise as referred to in this Law, refers to an enterprise which is

established within the territory of China pursuant to Chinese laws or an
enterprise established within the territory of another country or other
tax region pursuant to that country or that regions laws whose actual
management or control is located in China.
A non-resident enterprise as referred to in this Law, refers to an enterprise

established within the territory of another country or other tax region
pursuant to foreign laws, whose actual management or control is located
outside of China but which has an establishment in China or even if it does
not have an establishment in China, has income derived from China.
Article 3.

Resident enterprises shall pay the enterprise income tax for income sourced
within and outside of China.
Non-resident enterprises shall pay the enterprise income tax for income
sourced within China derived from its establishment in China and for income
sourced outside of China that is effectively connected with its establishment
in China.
Non-resident enterprises without any establishment in China deriving income

sourced in China and those having an establishment in China earning income
sourced in China but is not effectively connected with that establishment shall
pay enterprise income tax on income sourced within China.
Article 4.
Enterprise income tax shall be levied at the rate of 25%.
Non-resident enterprises deriving income stipulated in the third paragraph of

Article 3 hereof shall be levied tax at 20%.
()
25%
20%

Article 5.

The taxable income of an enterprise in a tax year shall be the amount

remaining from its gross income after deducting for non-taxable, tax-exempt,
other deductible items and the prior years' carry-forward losses.
Article 6.

The total revenue of an enterprise refers to the revenues derived from various
sources, whether in monetary terms or in-kind, which shall include:
1) Revenue from sales of goods;
2) Revenue from provision of labour services;
3) Gross proceeds from transfer of property;

4) Dividend income from private and listed enterprises and other distributions
with respect to equity interests;

5) Interest income;
6) Rental income;
7) Royalty income;
8) Revenue from donations; and
9) Other income.
Article 7.
Non-taxable income shall include:
1) Governmental funding

2) Official receipts and administrative charges collected in accordance with
relevant laws and included under a governmental budget system; and

3) Other non-taxable income as stipulated by the State Council.
Article 8.

Expenditure incurred in connection with operational activities on a

reasonable and actual basis, including costs, expenses, taxes, losses and other
items, may be deducted when computing taxable income.
Article 9.

Expenditure incurred in connection with donations for public interest may be

deducted when computing taxable income if it does not exceed 12% of the
year's total profits.
12%
Article 10. The following items shall not be deductible when computing taxable income:

1) Dividends income from private and listed enterprises and other
distributions with respect to equity interests paid to investors;

2) Enterprise income tax payments;
3) Surcharge on late tax payments;
4) Fines, penalties, and losses incurred through confiscation of property;
5) Donations other than donations stipulated in Article 9 hereof;
6) Sponsorship fees;
7) Unapproved provisions; and
8) Other expenditures not incurred for the purpose of earning income.
Article 11. When computing taxable income, the deductible depreciation expenses for

fixed assets shall be computed in accordance with relevant regulations.

Depreciation expenses are not allowed for the following fixed assets:
1) Fixed assets not in use other than houses and buildings;
2) Fixed assets leased in through an operating lease;
3) Fixed assets leased out through a finance lease;
4) Fully depreciated fixed assets that continue to be used;
5) Fixed assets not used in connection with carrying on a business
6) Land separately recorded as fixed assets; and
7) Other fixed assets for which depreciation is not allowed to be deducted.
Article 12. When computing taxable income, an enterprise may deduct amortisation

expenses for intangible assets in accordance with relevant regulations.

Amortisation expenses are not allowed for the following intangible assets:

1) Intangible assets that are self-developed and whose development expenses
have been deducted when computing taxable income;

2) Self-developed goodwill;
3) Intangible assets not used in connection with carrying on a business; and

4) Other intangible assets for which amortisation expenses are not allowed to
be deducted.
Article 13.

The following expenses incurred by an enterprise should be deemed as

long-term prepaid expenses, and the relevant amortisation expenses
computed according to the regulations are allowed to be deducted when
computing taxable income:
1) Expenses incurred from the reconstruction of fully depreciated fixed assets;
2) Expenses incurred from the reconstruction of leased fixed assets;
3) Expenses incurred from large-scale renovation of fixed assets; and
4) Other expenses that should be deemed as long-term prepaid expenses.
Article 14. When an enterprise makes an external investment by transferring its assets,

during the investment period, the costs of the transferred assets shall not be

deductible when computing taxable income.
Article 15. When computing taxable income, inventory costs incurred by an enterprise

computed in accordance with relevant regulations shall be deductible when

the inventory is sold or otherwise used.
Article 16. When an enterprise transfers its assets, the net value of the assets may be

deductible when calculating taxable income for the transaction.
Article 17. When calculating the enterprise income tax on a consolidated basis, losses

incurred by an enterprise from its overseas operating unit shall not be

deductible.
Article 18. The losses incurred by enterprises in a tax year can be offset against the

taxable income in successive tax years not exceeding 5 years.
Article 19. The formula for calculating taxable income by non-resident enterprises

stipulated in the Paragraph 3 of Article 3 hereof is as follows:

1) Dividends from private and listed enterprises and other distributions with
respect to equity interests, interest, rent and royalty are taxable on their
full amounts;

2) Gains on transfers of assets are taxable on the excess of the proceeds over
the net value of the assets transferred;

3) Other gains, taxable income is to be computed with reference to the
methods used in the above two paragraphs.
Article 20.

The provisions governing the scope, standard relating to income and

deductions and tax treatment for assets as stipulated in this Chapter shall
be determined by the State Council, the Ministry of Finance and State
Administration of Taxation.
Article 21.

When computing taxable income, where financial and accounting bases

adopted by the enterprise contradict tax laws and administrative regulations,
taxable income shall be computed in accordance with the provisions of tax
laws and administrative regulations.

Article 22. The formula for computing the enterprise income tax payable is as follows:

Enterprise Income Tax Payable = Taxable Income X Applicable Tax Rate

Preferential Tax Credits Other Tax Credits
Article 23.

An enterprise shall be allowed to credit its tax payable by the amount of taxes
paid overseas in the current period on the gains listed below; the maximum
credit shall be the tax otherwise payable computed according to this Law; any
excess amount that cannot be credited in the current period can be offset
against tax payable within the following five years:
1) Foreign-sourced income by a resident enterprise;

2) Foreign-sourced income by a non-resident enterprise but which is
effectively connected with its establishments set up within China.
Article 24.

In accordance with Article 23 hereof, a resident enterprise directly or indirectly

controlling foreign enterprises may be eligible for credits for its proportional
share of taxes paid by such controlled foreign enterprises from which it
receives foreign-sourced dividends and other distributions with respect to
equity interests.
Chapter 4: Tax Incentives

Article 25. Enterprise income tax incentives shall be awarded to industries and projects

on which the State has placed heavy emphasis to promote their development

and growth.
Article 26. Tax-exempt income shall include:

1) Interest income from government bonds;

2) Dividend income and other distributions with respect to equity interests
paid between qualifying resident enterprises;

3) Dividend income and other distributions with respect to equity interests
derived from resident enterprises received by a non-resident enterprise in
connection with its establishment in China;

4) Qualifying income received by non-profit making organisations.
Article 27. Income subject to tax exemptions and deductions shall include:

1) Income earned by enterprises from their activities in agriculture, forestry,
animal husbandry and fishery;

2) Income earned from major State-supported public infrastructure facility
projects;

3) Income earned from qualifying environment protection projects, water or
energy saving projects;

4) Income earned from qualifying transfer of technologies;
5) Income described in Paragraph 3 of Article 3 hereof.
Article 28. Enterprise income tax rate shall be reduced to 20% for small-scale enterprises

meeting regulatory requirements.

Enterprise income tax rate shall be reduced to 15% for State-encouraged new
technology and high technology enterprises.
Article 29.

Government of autonomous areas may choose to reduce or exempt taxes

for the portion of enterprise income tax for local distribution paid by an
enterprise located in a minority autonomous region. Tax reductions or
exemptions decided upon by autonomous prefectures and counties are
subject to approval from the People's Governments of provincial and
autonomous regions and municipalities.
20%
15
Article 30. Supper deductions shall be allowed for the below expenses incurred by an

enterprise:

1) Research and development expenses incurred during the development of
new technology, new products and new techniques;

2) Salaries paid to disabled persons and other persons in employment that
the State has encouraged enterprises to offer assistance to.
Article 31.

Venture Capital enterprises in industries where the State has placed heavy
emphasis to promote their development and growth are eligible for tax
deductions toward their taxable income that are based on a specified
percentage set forth of the total investment amount.
Article 32. An enterprise holding fixed assets subject to advancements in technology, etc.

that requires accelerating depreciation may shorten depreciation period or

apply accelerated depreciation method.
Article 33.

When computing taxable income, income derived from the production of

goods by an enterprise which ensures the production of goods in line with
state production policies as well as a comprehensive utilisation of resources is
eligible for deductions against total revenue.
Article 34.

Investments by an enterprise in specialised equipment which aid in protecting

the environment, conserving water or reducing energy usage, enhancing
production safety, etc. are eligible for credit against income tax in accordance
with a specified percentage set forth.
Article 35. The actual implementation of tax incentives as stipulated by this Law shall be

tailored by the State Council.
Article 36.

The State Council shall tailor enterprise income tax incentive policies, to be
filed for recording purposes with Standing Committee of the National
People's Congress, in accordance with economic and societal development
needs, or in the event of unexpected public incidents, etc. which pose
significant impacts on enterprises' operational activities.

Article 37.

Income tax payable on income as stipulated in Paragraph 3 of Article 3 hereof

of a non-resident enterprise shall be subject to withholding at source, with
the payer acting as the withholding agent. The tax amount shall be withheld
by the withholding agent during every payment or when the payable amount
is due from the payment or due payable amount.
Article 38.

For income tax payable on income derived within China from engineering
contracts and labour services by non-resident enterprises, tax authorities may
designate the payer of the contracted amount or labour service fee as the
withholding agent.
Article 39.

Should the withholding agent fail or be unable to withhold income tax at

source for the non-resident enterprise as stipulated in Articles 37 and 38
hereof, the taxpayer shall pay income tax at where the income is derived.
Should the taxpayer still fail to pay tax, tax authorities have the authority to
pursue payment to be made from other income derived within China by this
enterprise.
Article 40. The withholding tax payments shall be made to the Treasury within 7 days

from the withholding date and withholding income tax returns shall be filed

with the local tax bureau.

Article 41.

For business transactions between an enterprise and a related party which do

not comply with the arm's length principle thus resulting in reduced taxable
revenue or taxable income for the enterprise or its related enterprise, the tax
bureau has the right to make adjustments based on reasonable methods.
Costs associated with the joint development or transfer of intangible assets,

or with the provision or receipt of labour services shall be allocated based on
the arm's length principle when computing taxable income.
Article 42.

If an enterprise desires to enter into an advance pricing agreement, then it

can provide pricing principles and computation methods used in business
transactions between the enterprise and its related party to the tax bureau for
discussion and negotiation about entering into such an agreement.
Article 43. An enterprise shall submit a form detailing related party transactions during

the year in an appendix to its annual income tax return filing.

When the in-charge tax bureau conducts an investigation on related party

transactions, the enterprise and its related party, as well as other enterprises
involved in the investigation, shall provide relevant documents accordingly.
Article 44.

If an enterprise refuses to submit information with regard to its related party

transactions, or provides false and incomplete information that does not
provide an accurate reflection of its related party transactions, the in-charge
tax bureau has the right to assess taxable income in accordance with laws and
regulations.
Article 45.

For an enterprise controlled by resident enterprises and/or individual residents

of China and established in a country (region) where the effective tax rate
is significantly lower than the tax rates set forth in Paragraph 1 of Article
4 hereof, and which either does not distribute profits or distributes profits
lesser than it should, not because of reasonable operational needs, the
portion of the abovementioned profits attributed to the resident enterprises
shall be included when computing the taxable income of the resident
enterprise in the current period.
Article 46.

When the ratio of debt and equity investment that an enterprise receives from
its related parties exceeds a specified ratio set forth and results in an interest
expense, the portion of interest expense related to debt exceeding that ratio
shall not be deductible when computing taxable income.
Article 47.

If an enterprise engages in a business arrangement without bona fide

commercial purposes that results in reducing its taxable revenue or taxable
income, the tax bureau has the right to make adjustments based on
reasonable methods.
Article 48. Where the tax bureau makes adjustments to the taxable income in

accordance with the provisions of this Chapter, the underpaid tax due to the

adjustment will be subject to interest stipulated by the State Council.

Article 49. The administration for the collection of enterprise income tax shall be

exercised in accordance with provisions as stipulated in this Law as well as

Tax Collection and Administration Law of the Peoples Republic of China.
Article 50.

Unless otherwise stipulated by tax laws and administrative regulations, a

resident enterprise shall pay tax at its registered address. If the registered
address is located outside of China, the enterprise shall pay tax at the location
of its actual management or control.
When a resident enterprise within China sets up one or more operating units
that are not separate legal entities, it shall combine the income of the home
office and units and pay the computed enterprise income tax thereon.
Article 51.

Non-resident enterprises deriving income in accordance with Paragraph 2 of

Article 3 hereof shall pay tax at the location of its establishment. A non-resident
enterprise which has two or more establishments in China, may, upon approval
of the tax bureau, select the principal establishment to handle the combined
payment of tax.
Non-resident enterprises deriving income in accordance with Paragraph 3 of

Article 3 hereof shall pay tax at the location of the withholding agent.
Article 52. Unless otherwise stipulated by the State Council, enterprises shall not be

allowed to pay enterprise income tax on a consolidated basis.
Article 53. The enterprise income tax year shall start on January 1 and end on December

31 of each calendar year.

When the actual operational period of an enterprise in a tax year is lesser than
12 months because the enterprise starts or terminates its operating activities
in the middle of a tax year, the tax year shall be its actual operational period.
An enterprise that is under liquidation shall use the period of liquidation as its
tax year.
111231
Article 54. Provisional enterprise income tax payments shall be made on a monthly or

quarterly basis.

An enterprise shall, within 15 days after the end of each month or quarter,
file provisional enterprise income tax returns and make provisional tax
payments to the tax bureau.
The enterprise shall submit annual enterprise income tax returns and settle
the final tax payment within five months after the end of each tax year.
Financial statements and other relevant information shall be submitted

together with the enterprise income tax returns in accordance with
regulations.
Article 55. When an enterprise terminates its operating activities during the year, it shall

settle the enterprise income tax payment for the current period within 60

days from the actual day of termination.

An enterprise shall, prior to the cancellation of its business registration, file its
income tax return and make tax payment to the tax bureau for its liquidation
income.
Article 56. Enterprise income tax as stipulated in this Law shall be paid in Renminbi.

Income earned in other currencies shall be converted into Renminbi and taxed

accordingly.

Article 57.

Enterprises, which have been approved to be established prior to the

promulgation of this Law and which enjoy preferential treatment in the form
of reduced enterprise income tax rates in accordance with previous tax laws
and regulations, in accordance with the stipulation from the State Council,
are allowed for a gradual transition to tax rates stipulated in this Law over
the five year period beginning from the effective date of this Law; in
accordance with the stipulation from the State Council, enterprises currently
enjoying preferential treatment in the form of enterprise income tax reduction
or exemption may continue to enjoy such treatment until the end of the
preferential treatment period, but enterprises which are entitled to enjoy
preferential treatment but have not been profitable yet to enjoy the
preferential treatment would have the commencement of the preferential
treatment period coincide with the year this Law comes into effect.
State-encouraged new technology and high technology enterprises located

within legally-established special zones for the promotion of foreign trade,
economic and technological cooperation and other such zones as
administered by the State Council can enjoy transitional benefits, the
implementation of which would be determined by the State Council.
Other enterprises in State-encouraged industries can enjoy enterprise income

tax exemptions or reductions in accordance with State Council regulations.
Article 58.

Where the provisions of a tax treaty/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
treaty/agreement shall prevail.
Article 59. The State Council shall, in accordance with this Law, formulate rules for its

implementation.
Article 60.

This Law shall go into effect on January 1, 2008. Income Tax Law of the
Peoples Republic of China for Enterprises with Foreign Investment and
Foreign Enterprises adopted at the Fourth Session of the Seventh National
People's Congress on April 9, 1991 and Provisional Regulations of the
Peoples Republic of China on Enterprise Income Tax promulgated by the
State Council on December 13, 1993 shall be annulled as of the same date.
200811199149

19931213
Implementation Rules of Enterprise Income Tax

Law of the Peoples Republic of China
Promulgated by Decree No.512 of the State Council of the Peoples Republic of China on
December 6, 2007, effective on January 1, 2008.
2007126200811
Enterprise Income Tax Law of
the Peoples Republic of China
30
34
62
Chapter 4: Tax Incentive
64
78
80
86
92
31
35
63
65
79
81
87
92

Article 1.

These Rules are formulated in accordance with the provisions of the

Enterprise Income Tax Law of the Peoples Republic of China
(hereinafter referred to as the EIT Law).
Article 2.

Sole proprietorship enterprises and partnership enterprises as cited in

Article 1 of the EIT Law refer to sole proprietorship enterprises and
partnership enterprises established pursuant to Chinese laws and regulations.
Article 3.

Enterprises established within the territory of China pursuant to Chinese laws

as cited in Article 2 of the EIT Law include enterprises, business units, social
organisations, and other organisations that earn revenue, which are
established within the territory of China in accordance with Chinese laws and
regulations.
Enterprises established pursuant to laws of foreign countries (regions) as cited

in Article 2 of the EIT Law include enterprises and other organisations
that earn revenue, which are established pursuant to laws of foreign countries
(regions).
Article 4.

Establishments of effective management as cited in Article 2 of the EIT Law

refer to establishments that execute substantial and overall management and
control over the manufacturing and business operations, personnel, accounting,
properties, etc. of an enterprise.
Article 5.

The establishment as cited in Article 2, Paragraph 3 of the EIT Law refers to

any establishment engaged in manufacturing and business operating activities
within the territory of China, including:
1) A place of management, operation or administration;
2) A farm, factory or place of extraction of natural resources;
3) A place where services are rendered;
4) A place of construction, installation, assembly, repair, and exploitation, etc.;

5) Other establishments engaged in manufacturing and business operating
activities.

Where a non-resident enterprise entrusts a business agent to engage in

manufacturing and business operating activities within the territory of China,
including where the entrusted entities or individuals sign contracts, or store
and deliver commodities on behalf of the non-resident enterprise on a
regular basis, the business agent shall be regarded as an establishment of the
non-resident enterprise within the territory of China.
Article 6.

The income as cited in Article 3 of the EIT Law includes income from sales of
goods, rendering of services, and transfers of properties, income from
equity interests such as dividends or profit distributions and from interest,
rental, royalties, donations, and other income.
Article 7.

The income sourced within or outside of China as cited in Article 3 of the EIT
Law is determined based on the following principles:

1) For income from sales of goods, source is determined in accordance with
the place where the trading activities occur;

2) For income from rendering services, source is determined in accordance
with the place where the service activities occur;

3) For income from transfers of immovable properties, source is determined
in accordance with the place where the immovable properties are located;
for income from transfers of movable properties, source is determined in
accordance with the place of the transferring enterprise or establishment
which transfers the movable properties; for income from transfers of
equity interests, source is determined in accordance with the place where
the invested enterprise is located;

4) For income from equity interests such as dividends and profit distributions,
source is determined in accordance with the place of the enterprise which
makes the distribution;

5) For income from interest, rental and royalties, source is determined in
accordance with the place of the enterprise or establishment which bears
or pays the income, or with the place of domicile of the individual who
bears or pays the income;

6) For other income, source will be determined by the government
authorities of the State Council in charge of finance and taxation.
Article 8.

The effectively connected income as cited in Article 3 of the EIT Law refers to
income earned by establishments of non-resident enterprises within the
territory of China that own share rights or creditors rights through which
income is earned, or that own, manage, or control properties through which
income is earned.

Section 1: General Provisions
Article 9.

Taxable income of an enterprise is calculated on an accrual basis. Revenues

and expenses attributed to the current period shall both be recognised in the
current period, regardless of when the actual payments are received or made.
Revenues and expenses shall not be recognised in the current period in which
they cannot be attributed, even if the actual payments are received or made.
Exceptions will apply if so prescribed by the government authorities of the
State Council in charge of finance and taxation.
Article 10.

Losses as cited in Article 5 of the EIT Law refer to the amount less than zero
after non-taxable, tax-exempt and various deductible items are deducted from
the gross income of each tax year in accordance with the provisions of the EIT
Law and these Rules.
Article 11.

Liquidation income as cited in Article 55 of the EIT Law refers to the balance
of the realisable value or trading price for the total assets of an enterprise
after deducting the net assets value, liquidation expenses and relevant taxes
or expenses.
The portion of remaining assets distributed by an liquidated enterprise to an

investing enterprise, which is equivalent to the investing enterprises share of
accumulated retained earnings and reserves of the liquidated enterprise,
shall be recognised as dividend income; for the balance of assets after
deducting the aforementioned dividend income, any excess or deficiency
compared with the investment cost, shall be recognised as gains or losses
from the transfer of investment.
Section 2: Revenue
Article 12. Revenue of an enterprise derived in monetary terms as cited in Article 6 of

the EIT Law includes cash, bank deposits, accounts receivables, notes

receivables, held-to-maturity bond investments, waiver of liabilities, etc.

Revenue of an enterprise derived in-kind as cited in Article 6 of the EIT Law

includes fixed assets, biological assets, intangible assets, equity investments,
inventories, un-matured bonds, services and other relevant interests.
Article 13. Revenue of an enterprise derived in-kind as cited in Article 6 of the EIT Law

shall be measured at fair market value.

The aforementioned fair market value refers to the value determined in

accordance with the market price.
Article 14.

The revenue from sales of goods as cited in Article 6 (1) of the EIT Law
refers to the revenue derived by an enterprise from selling goods, products,
raw materials, packaging materials, low-value consumables or other
inventories.
Article 15.

The revenue from provision of labour services as cited in Article 6 (2) of the
EIT Law refers to the revenue derived by an enterprise from engaging in
construction/installation, repair/maintenance, transportation, storage/leasing,
financing/insurance, postal/telecommunication, consulting/brokerage,
cultural/ sports, scientific research, technological services, education/training,
accommodation/dining, intermediary, sanitation/health-care, social services,
tourism, entertainment, processing and other labour services.
Article 16.

The gross proceeds from the transfer of property as cited in Article 6 (3) of the
EIT Law refers to the gross proceeds derived by an enterprise from transferring
fixed assets, biological assets, intangible assets, capital investments, creditors
rights, etc.
Article 17. The dividend income and other distributions with respect to equity interests

as cited in Article 6 (4) of the EIT Law refer to income derived by an enterprise

from profit distributions of equity interests in invested entities.

For dividend income and other distributions with respect to equity interests,
unless the government authorities of the State Council in charge of finance
and taxation stipulate otherwise, such income is realised on the date when
the profit distribution is legally declared by the invested entity.
Article 18.

Interest income as cited in Article 6 (5) of the EIT Law refers to interest income
derived by an enterprise from provision of funds to other parties that does not
constitute equity interests or from the possession of the enterprises funds by
other parties, including savings interest, loan interest, bond interest, debt
interest, etc.
Interest income shall be recognised when the interest becomes payable as

provided in the agreement.
Article 19. Rental income as cited in Article 6 (6) of the EIT Law refers to income derived

by an enterprise from providing use rights for fixed assets, packaging

materials and other tangible assets.

Rental income shall be recognised when the rental becomes payable as

provided in the lease agreement.
Article 20. Royalty income as cited in Article 6 (7) of the EIT Law refers to income

derived by an enterprise from providing use rights for patents, non-patented

technology, trademarks, copyrights and other license rights.

Royalty income shall be recognised when the royalty becomes payable by the
licensee as provided in the license agreement.
Article 21. Revenue from donations as cited in Article 6 (8) of the EIT Law refers to

the monetary or non-monetary assets received by an enterprise from other

enterprises, organisations and individuals without return consideration.

Revenue from donations shall be recognised on the date when the donated
assets are actually received.
Article 22.

Other income as cited in Article 6 (9) of the EIT Law refers to income derived
by an enterprise other than those items of income stipulated in Article 6 (1)
to (8). It includes revenue derived from asset surplus such as the discovery
of unbooked assets, overdue deposits on packaging materials forfeited,
accounts payables that cannot be settled, collections from accounts
receivables which were previously written off as bad debts, revenue from
debt-restructuring, subsidies, penalty income from breach of contracts,
exchange gains, etc.
Article 23. Revenue can be recognised by an enterprise under an installment method for

the following business activities:

1) For sales of goods where payments are collected by installments, revenue
shall be recognised in accordance with the dates of payment as stipulated
in the contract.

2) For an enterprise contracted for processing or manufacturing large
machinery and equipment, vessels, aircraft, etc., or engaged in
construction, installation, assembly, engineering activities or the provision
of other services, etc., where the duration of activities lasts more than 12
months, revenue shall be recognised based on the percentage-of-
completion basis or upon work completed within each tax year.
Article 24.

In a situation where revenue is derived under a production sharing

agreement, the revenue shall be recognised on the date when the products
are distributed to the participating enterprise, while the amount of income is
determined by the fair market value of the products distributed.

12

Article 25.

Non-monetary assets exchanged by an enterprise, and products, properties

and services provided as donations, liability settlements, sponsorships, fund-
raising, advertisements, samples, employees welfare, or profit distributions,
etc., shall be regarded as sales of products, transfers of properties and
provision of services, unless the government authorities of the State Council
in charge of finance and taxation stipulate otherwise.
Article 26.

Funds as cited in Article 7 (1) of the EIT Law refer to financial funds provided
by various levels of the Peoples Government to business units, social
organisations, etc., which are regulated under the governmental budget
system, unless the government authorities of the State Council in charge of
finance and taxation stipulate otherwise.
Administrative charges as cited in Article 7 (2) of the EIT Law refer to charges
collected from specific entities in the course of social management and
specific public services to citizens, legal entities or other organisations in
accordance with relevant laws, regulations, and procedures stipulated by the
State Council, which are regulated under the governmental budget system.
Official receipts as cited in Article 7 (2) of the EIT Law refer to amounts
collected by an enterprise on behalf of the government for designated
purposes in accordance with relevant laws, regulations, etc.
Other non-taxable income as cited in Article 7 (3) of the EIT Law refers
to financial funds received by an enterprise for designated purposes stipulated
by the government authorities of the State Council in charge of finance and
taxation and approved by the State Council.
Section 3: Deduction
Article 27. Expenditures incurred in connection with operational activities, as cited in

Article 8 of the EIT Law, refer to expenditures directly in relation to revenue

earned.

Expenditures incurred in connection with operational activities on a

reasonable basis, as cited in Article 8 of the EIT Law, refer to normal and
necessary expenditures that should be included in the costs of relevant
assets or in profit and loss of the current period in accordance with the
normal course of manufacturing or business operating activities.
Article 28.

Expenditures incurred by an enterprise shall be categorised into revenue

expenditure and capital expenditure. Revenue expenditures shall be
directly deducted in the period of occurrence. Capital expenditures shall be
deducted by amortisation over a relevant period of time or included in the
cost of relevant assets, and cannot be directly deducted in the period of
occurrence.
Expenses paid or properties acquired using non-taxable income earned

by enterprises shall not be deductible nor can they provide deductible
depreciation or amortisation.
Unless the EIT Law or these Rules stipulate otherwise, the costs, expenses,
taxes, losses and other outgoings can not be deducted more than once.
Article 29. Costs as cited in Article 8 of the EIT Law refer to cost of sales, cost of goods

sold, cost of services and other expenditures in the course of manufacturing

or business operating activities of enterprises.
Article 30.

Expenses as cited in Article 8 of the EIT Law refer to selling expenses, general
and administrative expenses, and financial expenses incurred in the course of
manufacturing or business operating activities of enterprises, except the
relevant expenses which have already been included into costs.
Article 31. Taxes as cited in Article 8 of the EIT Law refer to various taxes and surcharges

incurred by an enterprise other than enterprise income tax and recoverable

value-added tax.
Article 32.

Losses as cited in Article 8 of the EIT Law refer to losses incurred in the
manufacturing or business operating activities of enterprises such as
losses from counting shortages, damage or disposal of fixed assets and
inventories, losses from transfers of properties, losses from doubtful debts
and bad debts, losses from natural disasters or other force majeure, and other
losses.
The balance of losses incurred by an enterprise, after deducting any

compensation from responsible parties and insurance, shall be deducted
in accordance with the provisions stipulated by the government authorities of
the State Council in charge of finance and taxation.
For assets written-off as losses by an enterprise, they shall be recognised as

revenue of the period in which they are fully or partially recovered if so
recovered in later tax years.
Article 33. Other items as cited in Article 8 of the EIT Law refer to the relevant and

reasonable expenditures incurred in the manufacturing or business operating

activities of enterprises other than costs, expenses, taxes, and losses.
Article 34. Reasonable employee salaries and remuneration incurred by an enterprise are

deductible.

The aforementioned employee salaries and remuneration refer to all monetary

and non-monetary compensation paid to employees taking positions in or
employed by an enterprise in each tax year, including basic salaries, bonuses,
allowances, subsidies, annual salary increases, overtime compensation and
other expenses in connection with positions or employment.
Article 35.

Basic social insurance premiums such as basic pension premiums, basic

medical insurance premiums, unemployment insurance premiums, work injury
insurance premiums, maternity insurance premiums, etc., and housing
fund amounts paid by an enterprise within the range and standard
stipulated by relevant in-charge government authorities of the State Council
or the Peoples Governments at provincial level are deductible.
Supplemental pension premiums and supplemental medical insurance

premiums paid by an enterprise for investors or employees within the range
and standard stipulated by the government authorities of the State Council in
charge of finance and taxation are deductible.
Article 36.

Other than the life/accident insurance premiums paid by an enterprise for

employees in special job positions as stipulated by relevant state regulations
and other deductible commercial insurance stipulated by the government
authorities of the State Council in charge of finance and taxation, commercial
insurance paid by an enterprise for investors or employees cannot be
deducted.
Article 37. Reasonable borrowing costs incurred by an enterprise in manufacturing or

business operating activities, which are not required to be capitalised, are

deductible.

For enterprises purchasing and/or constructing fixed assets, intangible assets,

or inventories that will not reach estimated saleable condition until after more
than 12 months, reasonable borrowing costs incurred during the period of
purchasing and/or constructing the relevant assets shall be regarded as capital
expenditures and included in the cost of the relevant assets, which shall be
deducted in accordance with the relevant provisions of these Rules.
12

Article 38. Interest expenses incurred by an enterprise in manufacturing or business

operating activities as follows are allowed to be deducted:

1) Interest expenses incurred by a non-financial enterprise on debts borrowed
from financial enterprises, interest expenses incurred by a financial
enterprise on deposit savings and inter-bank lending, interest expenses
incurred by an enterprise on bonds issued as approved;

2) Interest expenses incurred by a non-financial enterprises on debts
borrowed from non-financial enterprises, if within the amount calculated
using the loan interest rate of the same type and period provided by
financial enterprises.
Article 39.

Exchange losses incurred in currency transactions, and exchange losses from

translations of monetary assets and liabilities in foreign currencies to
RMB amounts at the end of the tax year using the year-end middle spot
exchange rate are deductible, except those that have already been recorded
into costs of assets or in connection with profit distributions to shareholders.
Article 40. Employee welfare expenses incurred by an enterprise are deductible within

14% of total employee salaries and remuneration.
Article 41. Labour union expenses contributed by an enterprise are deductible within 2%

of the total employee salaries and remuneration.
Article 42.

Education expenses for employees incurred by an enterprise are deductible

within 2.5% of the total employee salaries and remuneration, except to the
extent that government authorities of the State Council in charge of
finance and taxation stipulate otherwise. Any excess is allowed to be carried
forward to the following tax years for deduction.
Article 43.

Entertainment expenses incurred by an enterprise in relation to the

manufacturing or business operations shall be deducted to the extent of
60% of the expenses incurred, but with the total entertainment expenses not
exceeding 5 of sales (operating) revenue of the current period.
Article 44.

For advertising expenses and marketing expenses incurred that satisfy relevant
requirements, the deductible amount shall not exceed 15% of sales
(operating) revenues of the current period except to the extent government
authorities of the State Council in charge of finance and taxation stipulate
otherwise; while the portion above the ceiling can be carried forward to the
following tax years for deduction.
14%
2%

2.5%
60%
5

15%
Article 45.

Amounts credited to a special liability fund accrued by an enterprise for the

purpose of environment protection and ecological restoration in accordance
with relevant provisions of laws and regulations are deductible. The accrued
amounts cannot be deducted if the purpose of the fund is changed after
accrual.
Article 46. Property insurance premiums paid by an enterprise in accordance with

relevant provisions are deductible.
Article 47. Leasing expenses paid by an enterprise for fixed assets that are leased based

on its manufacturing and business needs can be deducted in the following

ways:

1) Leasing expenses incurred for fixed assets under operating leases can be
deducted evenly over the leasing period;

2) Where leasing expenses are incurred for fixed assets under finance leases,
depreciation expenses shall be accrued on the portion of such lease which
constitutes the value of fixed assets in accordance with relevant provisions,
and shall be depreciated and deducted over the relevant period.
Article 48. Reasonable worker protection expenses incurred by an enterprise are

deductible.
Article 49. Management fees paid between enterprises, rentals and royalties paid

between operational units within an enterprise, and interest paid between

operational units of a non-financial enterprise shall not be deductible.
Article 50.

For establishments of non-resident enterprises set up within the territory

of China, expenses incurred by overseas head offices in relation to the
manufacturing and business operation of the establishments are deductible,
where supporting documents such as the scope of expenses to be allocated,
allocation base and methods can be issued by the head offices and hence the
expenses can be reasonably computed and allocated.
Article 51.

Donations for public interest as cited in Article 9 of the EIT Law refer to the
donations made by an enterprise through public interest social organisations
or the Peoples Governments and their departments above county level, to
be used in the activities for public interest stipulated by the Public Welfare
Donation Law of the Peoples Republic of China.
Article 52. Public interest social organisations as cited in Article 51 of these Rules refer to

social organisations that concurrently satisfy the following conditions, such as

foundations and charitable organisations:

1) Legally incorporated, with legal person status;

2) With a mission of development for public interest, not for profit making
purposes;

3) All assets and their associated earnings and appreciation belong to the
legal person;

4) Profits and operating surplus are mainly used in activities that support the
established purposes of the organisation;

5) Upon termination, remaining assets do not belong to any individual or
profit-making organisation;

6) Not engaged in activities that are irrelevant to established purposes;
7) With complete financial accounting system;

8) Donators do not participate in distribution of the public interest social
organisation in any form or manner; and

9) Other conditions stipulated by the government authorities of the State
Council in charge of finance and taxation with the departments in charge
of civil affairs of the State Council.
Article 53. Expenditures incurred in connection with donations for public interest by an

enterprise are deductible within 12% of the years total profit.

The years total profit refer to the years accounting profits (before income tax)
calculated in accordance with the state-unified accounting standards.
Article 54. Sponsorship fees as cited in Article 10 (6) of the EIT Law refer to various

expenditures incurred by an enterprise having a non-advertising nature and

being irrelevant to the manufacturing or business operating activities.
Article 55.

Unapproved provisions as cited in Article 10 (7) of the EIT Law refer to various
provisions which are not stipulated by the government authorities of the
State Council in charge of finance and taxation, such as reserves for assets
impairment, risk reserves, etc.
12%
Section 4 Tax Treatment of Assets

Article 56. For all assets of an enterprise, including fixed assets, biological assets,

intangible assets, long-term prepaid expenses, investment assets, inventories,

etc., historical cost shall be used as tax basis.

The aforementioned historical cost refers to expenditures actually incurred

when an enterprise acquired the assets.
If during the period when the enterprise is holding an asset, the asset
experiences an increase or decrease in value, the tax basis of the asset shall
not be adjusted unless the corresponding profits or losses may be recognised
as stipulated by the government authorities of the State Council in charge of
finance and taxation.
Article 57.

Fixed assets as cited in Article 11 of the EIT Law refer to non-monetary assets
held by an enterprise for use in the manufacturing of goods or the rendering
of services, for rental to others, or for administrative purposes, and are
used for more than 12 months, including houses, buildings and structures,
machinery, mechanical apparatus, transportation vehicles and other
equipment, apparatuses or tools in connection with manufacturing or
business operations.
Article 58. The tax basis of fixed assets shall be determined in accordance with the

following principles:

1) The tax basis of a fixed asset that is purchased shall be based on the
purchase price, relevant taxes and expenses paid, and other expenditures
directly attributable to putting the asset into condition for its intended use;

2) The tax basis of a fixed asset that is self-constructed shall be based on the
expenditures incurred prior to its completion;

3) The tax basis of a fixed asset that is acquired by finance lease shall be
based on the total payments as agreed in the leasing contract, as well as
relevant expenditures incurred by the lessee in the course of the conclusion
of the leasing contract; where no total payments have been agreed in the
leasing contract, the tax basis shall be based on the sum of the fair market
value of the asset and relevant expenditures incurred by the lessee in the
course of the conclusion of the leasing contract;

4) The tax basis of fixed asset surplus shall be based on the complete
replacement cost of the same-type fixed assets;

5) The tax basis of a fixed asset that is acquired through donation,
investment, non-monetary assets exchange or debt restructuring shall be
based on the fair market value of the asset and relevant taxes and
expenses paid;

12


6) For reconstructed fixed assets, the reconstruction expenditures incurred in
the course of reconstruction shall be added to the tax basis except the
expenditures as stipulated by Article 13 (1) and (2) of the EIT Law.
Article 59. Depreciation of fixed assets calculated using the straight-line depreciation

method is deductible.

An enterprise shall begin computing depreciation for a fixed asset in the

month following the month in which the asset is placed into service, and shall
cease computing depreciation for a fixed asset in the month following the
month in which the assets use is ceased.
The net residual value of a fixed asset shall be reasonably determined by an

enterprise according to the nature and condition of the fixed asset. It may not
be changed once determined.
Article 60. The minimum number of years for computing depreciation of fixed assets is

as follows except to the extent government authorities of the State Council in

charge of finance and taxation stipulate otherwise:

1) 20 years for houses and buildings;

2) 10 years for airplanes, trains, ships, machinery, mechanical apparatuses
and other equipment used in manufacturing;

3) 5 years for apparatuses, tools, furnishings used in connection with
manufacturing and business operations;

4) 4 years for transportation vehicles other than airplanes, trains and ships,
5) 3 years for electronic equipment.
Article 61.

For enterprises engaged in the extraction of mineral resources such as

petroleum, natural gas, etc., the tax treatment of expenditures incurred prior
to the commencement of commercial extraction/production and the method
of depreciation/depletion of the relevant fixed assets shall be stipulated by
the government authorities of the State Council in charge of finance and
taxation separately.
20
10
Article 62. The tax basis for bearer biological assets shall be determined in

accordance with the following principles:

1) The tax basis of a bearer biological asset that is purchased shall be based
on the purchase price, relevant taxes and expenses paid;

2) The tax basis of a bearer biological asset that is acquired through donation,
based on the fair market value of the asset, relevant taxes and expenses
paid.

The aforementioned bearer biological assets refer to biological assets held

for use in the generation of agricultural products or rendering of services, or
for lease to others, including economic forest, firewood forest, livestock for
generation of other biological assets, draught animals, etc.
Article 63. Depreciation of bearer biological assets computed using the straight-line

method is deductible.

An enterprise shall begin computing depreciation for a bearer biological

asset in the month following the month in which the asset is placed in service,
and cease computing depreciation for a bearer biological asset in the
month following the month in which the assets use is ceased.
The net residual value of a bearer biological asset shall be reasonably

determined by an enterprise according to the nature and condition of the
bearer biological asset. It may not be changed once determined.
Article 64. The minimum number of years for computing depreciation of bearer

biological assets is as follows:

1) 10 years for forestry bearer biological assets;
2) 3 years for livestock bearer biological assets.
Article 65.

Intangible assets as cited in Article 12 of the EIT Law refer to non-monetary

long-term assets without physical substance, which are held by an enterprise
for use in the manufacturing of goods or the rendering of services, for lease
to others, or for administrative purposes, including patents, trademarks,
copyrights, land use-rights, non-patented technologies, goodwill, etc.
10
Article 66. The tax basis for intangible assets shall be determined in accordance with the

following principles:

1) The tax basis of an intangible asset that is purchased shall be based on the
purchase price, relevant taxes and expenses paid, and other expenditures
directly attributable to putting the asset into condition for its intended use;

2) The tax basis of an intangible asset that is self-developed shall be based on
the expenditures incurred in the development process from meeting
capitalisation criteria to reaching the condition for its intended use;

3) The tax basis of an intangible asset that is acquired through donation,
based on the sum of the fair market value of the asset and relevant taxes
paid.
Article 67. Amortisation expenses for intangible assets using the straight-line method are

deductible.

The amortisation period for intangible assets shall not be less than 10 years.
Intangible assets acquired through investment or transfer that has a useful life
stipulated in accordance with the provisions of relevant laws, or agreed in
contracts may be amortised according to the useful life.
Expenditures for purchasing goodwill are deductible when the entire business
of an enterprise is sold or the enterprise is liquidated.
Article 68. Expenses incurred from the reconstruction of fixed assets as cited in Article 13

(1) and (2) of the EIT Law refer to expenditures incurred to restructure houses

and buildings, extend the useful life, etc.

Expenses as cited in Article 13 (1) of the EIT Law shall be amortised over the
remaining expected useful life of the fixed asset; expenses as cited in Article
13 (2) of the EIT Law shall be amortised over the remaining leasing period in
accordance with the terms of the applicable contract.
If the useful life of a reconstructed fixed asset is extended, the depreciation

period shall be extended appropriately except as stipulated by Article 13 (1)
and (2) of the EIT Law.
10
Article 69. Expenses incurred on major repair of fixed assets as cited in Article 13 (3) of

the EIT Law refer to expenditures meeting all the following conditions:

1) Expenses incurred from repair are more than 50% of the tax basis of the
fixed assets when the assets were acquired;

2) The useful lives of the fixed assets after repair is extended by more than 2
years;

Expenses stipulated by Article 13 (3) of the EIT Law shall be amortised over
the remaining useful life of the fixed assets.
Article 70. Long-term prepaid expenses as cited in Article 13 (4) of the EIT Law shall be

amortised by installments from the month following the occurrence of the

expenses with the amortisation period being not less than 3 years.
Article 71. The investment assets as cited in Article 14 of the EIT Law refer to assets

formed by an enterprise through external equity investments and debt

investments.

The costs of investment assets shall be deductible upon the transfer or

disposal of the investment assets.
The costs of investment assets shall be determined based on the following

principles:

1) The costs of an investment asset acquired by cash payments shall be based
on the purchase price;

2) The costs of an investment asset acquired by means other than cash
payments shall be based on the fair market value of the investment asset,
relevant taxes and expenses paid.
Article 72. Inventories as cited in Article 15 of the EIT Law refer to finished products or

goods held for sale by an enterprise, goods-in-process, raw materials and

articles consumed during manufacturing or rendering of services, etc.

The costs of inventories shall be determined based on the following principles:

1) The costs of inventories acquired by cash payments shall be based on the
purchase price, relevant taxes and expenses paid;

2) The costs for inventories acquired by means other than cash payments shall
be based on the fair market value of the inventories, relevant taxes and
expenses paid;

3) The costs of agricultural products harvested from bearer biological
assets shall be based on necessary expenditures of harvesting such as
material costs, labour costs and indirect expenses allocated.

50%
Article 73.

During its holding period and upon selling, an enterprise may choose to use
the first-in-first-out method, the weighted average method or the specific
identification method to determine the actual cost of inventories. Once the
valuation method has been determined, it shall not be freely changed.
Article 74.

The net assets value as cited in Article 16 and 19 of the EIT Law refers to the
balances of tax basis of the assets after deducting the depreciation, depletion,
amortisation, and asset provisions allowed in accordance with provisions in
these Rules.
Article 75.

Enterprises shall recognise capital gain or loss of relevant assets in the course
of a reorganisation when the transaction is executed and re-determine the
tax basis of the relevant assets in accordance with the trading prices unless
the government authorities of the State Council in charge of finance and
taxation stipulate otherwise.

Article 76. The formula for tax payable as cited in Article 22 of the EIT Law is as follows:

Tax Payable = Taxable Income X Applicable Tax Rate

Preferential Tax Credits Other Tax Credits

Preferential tax credits and other tax credits in this formula refer to the taxes
payable that are eligible for reductions, exemptions or tax credits as stipulated
by the EIT Law and the State Council's tax preferential policy.
Article 77.

Income tax paid overseas as cited in Article 23 of the EIT Law refers to tax
of an enterprise income tax nature that has been actually paid on income
derived by an enterprise from outside of the territory of China in accordance
with foreign tax laws and related regulations.
Article 78.

The maximum credit as cited in Article 23 of the EIT Law refers to the tax
payable on the income derived by an enterprise from outside of the territory
of China computed in accordance with the EIT Law and these Rules hereof.
The maximum credit shall be computed with respect to countries (regions)
instead of items, except to the extent government authorities of the State
Council in charge of finance and taxation stipulates otherwise, in accordance
with the following formula:
Maximum Credit for Income Taxes Paid on Foreign-sourced Income

= Total Tax Payable Computed on China-sourced and Foreign-sourced Taxable
Income in Accordance with the EIT Law and these Rules X Taxable Income
Sourced from a Particular Country (Region) Total China-sourced and
Foreign-sourced Taxable Income
Article 79.

The five year period as cited in Article 23 of the EIT Law refers to the five
consecutive years starting from the year following the year in which the
foreign taxes of enterprise income tax nature were paid on foreign-sourced
income and such foreign taxes exceeded the maximum allowable credit.
Article 80. Foreign enterprises directly controlled by a resident enterprise as cited in

Article 24 of the EIT Law refer to foreign enterprises with more than 20% of

their shares directly held by the resident enterprise.

Foreign enterprises indirectly controlled by a resident enterprise as cited in

Article 24 of the EIT Law refer to foreign enterprises with more than 20% of
their shares indirectly held by the resident enterprise. Detailed provisions are
to be stipulated by the government authorities of the State Council in charge
of finance and taxation and issued separately.
Article 81. When an enterprise applies for tax credit in accordance with Articles 23

and 24 of the EIT Law, it shall furnish relevant tax documents issued by the

foreign tax authorities for the corresponding tax year for the taxes paid.
Chapter 4 : Tax Incentive

Article 82.

Interest income from government bonds, as cited in Article 26 (1) of the EIT
Law, refers to interest income derived from enterprises holdings of
government bonds issued by the government authorities of the State Council
in charge of finance.
Article 83.

Dividend income and other distributions with respect to equity interests

paid between qualifying resident enterprises, as cited in Article 26 (2) of the
EIT Law, refer to investment income derived by a resident enterprise from
direct investment in another resident enterprise. Dividend income and other
distributions with respect to equity interests, as cited in Article 26 (2) and (3)
of the EIT Law, do not include investment income derived from the holding of
shares less than 12 months, where the shares are publicly listed and traded by
resident enterprises.
5

5

20%

20%

12
Article 84. Qualifying non-profit making organisations, as cited in Article 26 (4) of the EIT

Law, refer to organisations which fulfill all the following criteria:

1) Completed registration procedures for a non-profit making organisation in
accordance with relevant laws and regulations;

2) Engaged in charitable or non-profit making activities;

3) Other than for reasonable expenses incurred with respect to the
organisation, use derived income wholly for charitable or non-profit
making activities within the registered scope or in accordance with the
provisions of the Articles of Association;

4) Shall not distribute assets and associated interests of the organisation;

5) Use remaining assets after de-registration within the registered scope or
in accordance with the provisions of the Articles of Association for
charitable or non-profit making purposes; or donate remaining assets
along with public announcement to other organisations of similar nature
and mission;

6) Founders shall not keep or enjoy any property rights over the asset
invested into the organisation;

7) The salaries and welfare of employees shall be limited to a range as
stipulated and shall not be used as a means to distribute the organisation's
assets.

The regulation on the qualification of the above mentioned organisation will

be enacted by the government authorities of the State Council in charge of
finance and taxation with the relevant departments of the State Council.
Article 85.

Income received by qualifying non-profit making organisations, as cited in

Article 26 (4) of the EIT Law, shall not include income derived from profit-
making activities by non-profit making organisations unless the government
authorities of the State Council in charge of finance and taxation stipulate
otherwise.
Article 86. Income subject to tax exemptions and reductions earned by enterprises from

their activities in agriculture, forestry, animal husbandry and fishery, as cited in

Article 27 (1) of the EIT Law, refers to:

1) Income earned by enterprises from activities in the below categories shall
be entitled to exemption from enterprise income tax:
1. Growing vegetables, grains, potatoes, oil plants, beans, cotton, ramie,
sugar crops, fruits and nuts;

2. Breeding selection of new variety of agricultural products;
3. Growing Chinese medicinal herbs;
1.

2.
3.
4. Cultivating and growing trees;
5. Rearing livestock and poultry;
6. Harvesting forestry products;
7. Providing services relating to agriculture, forestry, animal husbandry

and fishery, such as irrigation services, preliminary processing of
agricultural products, veterinarian services, promotion of agricultural
technologies, agricultural machinery services and repair of agricultural
machinery, etc., and

8. High seas fishing.

2) In the case of income earned by enterprises from activities in the below
categories, there shall be allowed a 50% credit against the enterprise
income tax:
1. Growing flowers and crops used for beverages (such as tea, etc.) and
flavor;

2. Sea and inland waters aquaculture.
Tax incentives of these Rules shall not be allowed where the income is
earned by enterprises from engaging in projects of restricted or prohibited
industries by the State.
Article 87.

Major State-supported public infrastructure facility projects as cited in Article

27 (2) of the EIT Law refer to projects as listed in the Catalogue of Enterprise
Income Tax Incentives for Public Infrastructure Facility Projects , such as pier
and dock projects, airports, railroads, roads, urban public transportation,
electricity projects, water resources utilisation projects, etc.
In the case of income earned by enterprises from the aforementioned major

State-supported public infrastructure facility projects, with effect from the
first year to which manufacturing or business operational revenue earned
from the project is attributable, there shall be allowed a credit for the entire
enterprise income tax on that income from the first to third years and a 50%
credit from the fourth to sixth years.
Enterprises that are subcontractors for the operation or construction, or that

undergo internal construction projects for self use shall not be eligible for
enterprise income tax incentives as stipulated in these Rules.
4.
5.
6.
7.

8.
1.
2.
Article 88.

Qualifying environment protection projects, water or energy saving projects,

as cited in Article 27 (3) of the EIT Law, include public wastewater treatment,
public refuse treatment, comprehensive exploitation and utilisation of
biogas, upgrades of energy-saving/pollution-discharge-reduction
technologies, seawater desalination projects, etc. The conditions and scope
in detail will be tailored by the government authorities of the State Council
in charge of finance and taxation with other relevant departments of the
State Council separately, which would be announced and implemented
subject to the State Councils approval.
In the case of income earned by enterprises from the aforementioned

qualifying environment protection projects, and water or energy saving
projects, with effect from the first year to which manufacturing or business
operational revenue earned from the project is attributable, there shall be
allowed a credit for the entire enterprise income tax on that income from the
first to third years and a 50% credit from the fourth to sixth years.

Article 89.

For projects enjoying tax exemptions or reductions in accordance with the

provisions in Article 87 and 88 of these Rules, if they are transferred within
the exemption or reduction period, the transferee may continue to enjoy the
tax incentives in the remaining period starting from the date of transfer;
while the transferee shall not be allowed to restart the computation of tax
exemptions or reductions if the transfer is conducted after the expiration of
the exemption or reduction period.

Article 90.

Income earned by enterprises from qualifying transfers of technologies

as cited in Article 27 (4) of the EIT Law shall be entitled to a tax credit.
This refers to an enterprise income tax credit in a taxable year with the
credit being the amount of enterprise income tax on up to RMB5 million of
income earned by a resident enterprise from any transfer of technologies.
In the case of any excess of such income over RMB5 million, there shall be
allowed a 50% enterprise income tax credit.

Article 91. Income earned by non-resident enterprises as cited in Article 27 (5) of the EIT

Law shall be subject to a reduced enterprise income tax rate of 10%.

The following types of income may be exempt from enterprise income tax:

1) Interest income attributable to loans from foreign governments to the
Chinese government;

2) Interest income attributable to preferential loans from international
financial organisations to Chinese government and resident enterprises;
and

3) Other income approved by the State Council.


500500

10%
Article 92. Small-scale enterprises meeting regulatory requirements, as cited in Paragraph

1 of Article 28 of the EIT Law, refer to enterprises in the non-restricted/

prohibited industries which meet the following criteria:

1) For industrial enterprises, the annual taxable income does not exceed
RMB300,000, the number of staff does not exceed 100, and the total
assets do not exceed RMB30,000,000;

2) For other enterprises, the annual taxable income does not exceed
RMB300,000, the number of staff does not exceed 80 and the total assets
do not exceed RMB10,000,000.
Article 93.

State-encouraged high-new technology enterprises, as cited in Paragraph 2

of Article 28 of the EIT Law, refer to enterprises holding independent
ownership of core intellectual property, which simultaneously meet the
following criteria:

1) The products (services) fall within the Scope of State-encouraged High-
new Technologies;

2) The ratio of research and development expenditures to the enterprises
sales shall not be less than the ratio stipulated;

3) The ratio of sales (or service) income from high-new technology products
to total revenue shall not be less than the ratio stipulated;

4) The percentage of employees working in science and technology field shall
not be less than the ratio stipulated; and

5) Other conditions stipulated by the verification and administrative measures
over high-new technology enterprises.

The Scope of State-encouraged High-new Technologies and the verification

and administrative measures over high-new technology enterprises are to be
jointly drafted by the government authorities of the State Council in charge of
science and technology, finance, and taxation, which will be announced and
implemented subject to the State Councils approval.

Article 94.

A minority autonomous area, as cited in Article 29 of the EIT Law, refers to

an autonomous region, prefecture or county which is governed in accordance
with the provisions of the Minority Region Autonomy Law of the People's
Republic of China .
Enterprises of State-restricted or State-prohibited industries located in

minority autonomous areas shall not be eligible for enterprise income tax
exemptions and reductions.
30

1003000
3080

1000
Article 95.

Where research and development expenses are incurred during the development
of new technologies, new products or new production techniques, the
super-deduction for research and development expenses as cited in Article 30 (1)
of the EIT Law refers to, if the expenses are not capitalised as intangible
assets but are charged to the income statement of the current period, a
50% super-deduction that is allowable in addition to the actual expense
deduction; if the expenditures are capitalised as intangible assets, cost bases
of the intangible assets equal to 150% of actual costs are allowable for
amortisation purposes.

Article 96.

The super-deduction for salaries paid to disabled persons as cited in Article 30

(2) of the EIT Law refers to a 100% super-deduction on the salaries expense
in addition to the actual expense deduction. The scope of the disabled
persons is pursuant to the Law of the Peoples Republic of China on
Protection of the Disabled Persons and relevant stipulations.
The method for super-deductions for other persons in employment that the
State has encouraged enterprises to offer assistance to as cited in Article 30
(2) of the EIT Law will be stipulated by the State Council separately.

Article 97.

The tax deductions toward taxable income as cited in Article 31 of the EIT
Law refer to where a venture capital enterprise invests in the shareholdings
of small-medium high-new technology enterprises for more than 2 years.
In such cases, 70% of the investment amount in small-medium high-new
technology enterprises may be deducted toward the taxable income of the
venture capital enterprise for the year when the two-year holding is
completed. Where the amount of the deduction is not fully utilised in that
year, the unused amount is allowed to be carried forward to the following tax
years.

Article 98. Fixed assets with depreciation periods shortened or with an accelerated

depreciation method applied, as cited in Article 32 of the EIT Law, include:

1) Fixed assets affected by accelerated development of next generation
products due to advancements in technology; and

2) Fixed assets in constant exposure to high tremor and high corrosion.
Where the depreciation period is shortened, the shortest depreciation period

shall not be less than 60% of the minimum depreciation period as cited in
Article 60 of these Rules hereof; where an accelerated depreciation method is
applied, either the double declining balance method or the sum-of-the-years'-
digits method may be used.

50%150%

100%

2
70%2

60%
Article 99.

Deductions against total revenue as cited in Article 33 of the EIT Law refer to
where enterprises utilise resources listed in the Enterprise Income Tax
Incentive Catalogue for Comprehensive Utilisation of Resources as main
raw materials to manufacture non-restricted or non-prohibited products
which meet relevant national and industry standards. In such cases, 10%
of the revenue derived from such product sales may be recognised as a
deduction for enterprise income tax purposes.
The main raw materials, as cited in the previous paragraph, shall be utilised
in a proportion to the total materials consumed not lower than the standard
proportion as cited in the Enterprise Income Tax Incentive Catalogue for
Comprehensive Utilisation of Resources .

Article 100. The credit against income tax as cited in Article 34 of the EIT Law refers to

where enterprises purchase and actually use specialised equipment which aids

in protecting the environment, conserving water or reducing energy usage,

or enhancing production safety and which are listed in Enterprise Income

Tax Incentive Catalogue for Specialised Equipment in Environment

Protection , Enterprise Income Tax Incentive Catalogue for Specialised

Equipment in Water Conservation or Energy Usage Reduction , or
Enterprise Income Tax Incentive Catalogue for Specialised Equipment

in Production Safety . In such cases, 10% of the equipments investment cost

may be credited against the current year's income tax payable of the

enterprise. If the credit is not fully utilised, the remaining balance may be

carried forward to the following five tax years.

Where an enterprise enjoys the aforementioned tax credit, the enterprise

must actually purchase the aforementioned items of equipment and put
them to use by the enterprise itself. Where the aforementioned equipment
is transferred or leased within five years from purchase, the relevant tax
incentives shall terminate and the enterprise shall repay the amount of tax
which has been credited.

Article 101. The Enterprise Income Tax Incentive Catalogues as cited in Article 87, 99

and 100 of this Chapter are to be drafted by the government

authorities of the State Council in charge of finance and taxation with other

relevant departments of the State Council, which would be announced and

implemented subject to the State Councils approval.

Article 102. Where an enterprise engages simultaneously in activities with different tax

treatments being applied, the income shall be separately computed for

activities qualifying for tax incentives with expenditures incurred during the

period reasonably allocated. The enterprise shall not be allowed to enjoy tax

incentives if there is no such separate computation.

90%

10%
5
.

.


Article 103. Where withholding of enterprise income tax at source is imposed for non-

resident enterprises in accordance with the EIT Law, the taxable income shall

be computed in accordance with the provisions of Article 19 of the EIT Law.

Total income as cited in Article 19 (1) of the EIT Law refers to the total fees
received by a non-resident enterprise from a payer as well as additional
surcharges.

Article 104. The payer as cited in Article 37 of the EIT Law refers to entities or individuals

directly having the obligation to make the payments to non-resident

enterprises in accordance with relevant laws or provisions of contracts.

Article 105. The payments as cited in Article 37 of the EIT Law refer to payments in

monetary form or in-kind, such as payments of cash remittances, payments

through account transfers, payments using equity interests, etc.

The amount due or payable as cited in Article 37 of the EIT Law refers to
payable items which shall be charged to relevant costs or expenses by the
payer on an accrual basis.

Article 106. The scenarios where the withholding agent may be designated as stipulated

in Article 38 of the EIT Law include:

1) Where the estimated contract period or period of labour service is less
than one tax year, and evidence exists to show that the tax obligation will
not be fulfilled;

2) Where tax registration or temporary tax registration has not been
performed, and no agent is entrusted in China to arrange the fulfillment
of tax obligations;

3) Where an enterprise has failed to file enterprise income tax returns,
including provisional filings in accordance with regulatory deadlines;

The aforementioned withholding agent is designated by tax authorities

above county level and the tax authorities shall simultaneously inform
the withholding agent of the computation base, computation method,
withholding deadline and payment method.

Article 107. The location where income is derived as cited in Article 39 of the EIT Law

refers to the location where income is derived as stipulated according to

Article 7 hereof. If there are multiple locations where income is derived within

the territory of China, the taxpayer may choose to file enterprise income tax

returns in one of the locations.
78
Deloitte China Tax
Article 108. The taxpayer's other income derived within China as cited in Article 39 of

the EIT Law refers to income derived by the taxpayer from other various

sources within the territory of China.

Where tax authorities pursue tax payable from a taxpayer, it shall inform the
taxpayer its reason for doing so, the amount of tax payable to be pursued,
the payment deadline, the payment method, etc.

Article 109. Related parties, as cited in Article 41 of the EIT Law, refer to enterprises, other

entities and individuals, which have any of the following relationships with an

enterprise:

1) Direct or indirect control over such matters as finance, business operations,
purchases and sales, etc.;

2) Both directly or indirectly controlled by a third party;
3) Other relationship due to associated interests.

Article 110. The arm's length principle as cited in Article 41 of the EIT Law refers to

the principle that unrelated parties abide to when carrying out business

transactions in accordance with fair market prices and common business

practices.

Article 111. Reasonable methods, as cited in Article 41 of the EIT Law, refer to the

following methods:

1) Comparable Uncontrolled Price Method, which refers to the pricing
method in accordance with the price of identical or similar business
activities among non-related parties;

2) Resale Price Method, which refers to the pricing method by deducting
gross profit of identical or similar business activities from the resale price to
non-related parties for the goods purchased from related parties;

3) Cost Plus Method, which refers to the pricing method in accordance with
the cost and reasonable expenses as well as profit mark-up;

4) Transaction Net Margin Method, which refers to the pricing method in
accordance with the net income level of identical or similar business
activities among non-related parties;

5) Profit Split Method, which refers to the pricing method by reasonable
allocation of consolidated profit (or loss) for an enterprise and its related
parties; and

80
6) Other methods in compliance with the arms length principle.

Deloitte China Tax
Article 112. In accordance with Article 41, paragraph 2 of the EIT Law, an enterprise may

share common costs incurred with its related parties based on the arms

length principle through a cost sharing agreement.

Where an enterprise shares costs with its related parties, the allocation shall
be based on the principle that the costs and expected benefits are matched.
An enterprise entering into a cost sharing agreement shall file the relevant
documents specified by the tax authorities within the period stipulated by the
tax authorities.
If an enterprise fails to abide by the provisions of the above two paragraphs

when it shares cost with its related parties, the costs allocated to the
enterprise itself shall not be deductible when computing taxable income.

Article 113. An advanced pricing agreement as cited in Article 42 of the EIT Law refers

to an agreement that is concluded after negotiation and confirmation with

the tax authorities, upon an enterprises application to them, in respect of the

enterprises pricing principles and computation methods for related party

transactions in future years in compliance with the arms length principle.

Article 114. The relevant documents as cited in Article 43 of the EIT Law refer to:

1) Contemporaneous documents in respect of related party transactions such
as pricing, standards for determining expenditures, computation methods,
explanatory notes, etc.;

2) Documents relating to resale (transfer) price or ultimate sale (transfer)
price in respect of the properties, use right of the properties, services of
the related party transactions, etc.;

3) Information such as product price, pricing method, profit level, etc. that
are comparable to the enterprise being investigated, which shall be
provided by other enterprises involved in the investigation of related party
transactions;

4) Other information in respect of the related party transactions.
Other enterprises involved in the investigation as cited in Article 43 of the EIT

Law refer to enterprises similar to the enterprise being investigated in terms of
the business operations and modes.
Enterprises shall provide documents such as pricing, standards for

determining expenditures, computation methods, explanatory notes, etc.
in respect of an enterprises related party transactions within the period
stipulated by the tax authorities. The related parties and other enterprises
involved in the investigation of related party transactions shall provide relevant
documents within the period agreed by them and the tax authorities.
Article 115. Where the tax authorities deem an enterprises taxable income in accordance

with Article 44 of the EIT Law, the following methods may be used:

1) Deem the taxable income by reference to the profit margin of same-type
or similar enterprises;

2) Deem the taxable income based on the enterprises cost plus reasonable
expenditures and profit;

3) Deem the taxable income by reasonable proportion of the consolidated
profit of the related party group; and

4) Deem the taxable income with other reasonable methods.
Where an enterprise disagrees with the taxable income deemed by the tax
authorities in accordance with aforementioned provisions, it shall provide
relevant proof to the tax authorities. The deemed taxable income may be
adjusted subject to the tax authorities verification.

Article 116. Individual residents of China as cited in Article 45 of the EIT Law refer to

individuals, who have an Individual Income Tax obligation for their domestic

and overseas income, in accordance with the relevant provisions of the

Individual Income Tax Law of the Peoples Republic of China.

Article 117. The term controlled as cited in Article 45 of the EIT Law includes:

1) A resident enterprise or an individual resident of China directly or indirectly
holding 10% or more of total voting shares, and such resident
enterprise(s)/individual resident(s) jointly holding more than 50% of total
shares of the foreign enterprise;

2) The shareholding percentage of resident enterprise(s) and individual
resident(s) of China does not meet the percentage standard as stipulated
in 1), but substantial control is formed over the foreign enterprise in
respect of shareholding, financing, business, purchase and sales, etc.

Article 118. The effective tax rate as cited in Article 45 of the EIT Law, being significantly

lower than the tax rate set forth in Paragraph 1 of Article 4 of the EIT Law,

refers to the effective tax rate being lower than 50% of the tax rates set forth

in Paragraph 1 of Article 4 of the EIT Law.

10%

50%
.

50%
Article 119. Debt investments, as cited in Article 46 of the EIT Law, refer to financing that

an enterprise has directly or indirectly acquired from related parties, and the

enterprise is required to repay the principal and make interest payment or

financing that requires other compensation of an interest payment nature.

Debt investments indirectly acquired from related parties by an enterprise

include:

1) Debt investments made by related parties but through unrelated third
parties;

2) Debt investments made by unrelated third parties, with related parties
providing guarantees and assuming joint and several liability;

3) Other debt investments having the nature of liabilities indirectly acquired
from related parties.

Equity investments, as cited in Article 46 of the EIT Law, refer to investments

which an enterprise received without being required to repay the principal
and make interest payments, while investors have the proprietary rights of the
net assets of the enterprise.
The specified ratios as cited in Article 46 of the EIT Law will be separately
stipulated by the government authorities of the State Council in charge of
finance and taxation.

Article 120. Business arrangements without bona fide commercial purposes as cited in

Article 47 of the EIT Law refer to arrangements whose primary purpose is to

reduce, avoid or defer tax payments.

Article 121. When the tax authorities make special tax adjustments for enterprises in

accordance with provisions of tax laws and regulations, they shall impose

interest charges for the underpaid tax computed on a daily basis from June 1

following the tax year to which the tax is attributed, through the date of tax

payment.

The aforementioned interest charges shall not be deducted when computing

taxable income.

Article 122. Interest as cited in Article 48 of the EIT Law shall be the sum of an amount

computed using the basic Renminbi lending rate published by the

Peoples Bank of China having the same term as the underpaid tax in the year

to which the underpaid tax is attributed, and an additional 5%.

If an enterprise provides relevant documents in accordance with the provisions

of Article 43 of the EIT Law and these Rules, the interest charges may be
computed at the aforementioned basic Renminbi lending rate.

.

61

.

5

Article 123. Where transactions between an enterprise and its related parties do not

comply with the arms length principle, or an enterprise makes other

arrangements without bona fide commercial purposes, the tax authorities

have the right to make tax adjustments within 10 years from the tax year

when the transactions occurred.

Article 124. The registered address of an enterprise as cited in Article 50 of the EIT

Law refers to the enterprises legal address registered in accordance with

relevant State provisions.

Article 125. Where an enterprise computes and pays enterprise income tax on a combined

basis, it shall account for the combined taxable income based on

administrative measures, the details of which will be separately tailored by the

government authorities of the State Council in charge of finance and taxation.
Article 126. A principal establishment as cited in Article 51 of the EIT Law refers to

establishments which satisfy all of the following conditions:

1) Taking on the responsibility of managing and supervising the
manufacturing or business operations of the other establishments;

2) Keeping full and complete accounting records and supporting documents
that accurately reflect revenue, cost, expenses and profits or losses of each
establishment.
Article 127. The approval of the tax bureau, as cited in Article 51 of the EIT Law, refers

to verification and approval from the tax authorities who are commonly

superior to all tax bureaus at the location of the establishments.

Where a non-resident enterprise has been approved to file combined

enterprise income tax returns and subsequently undergoes expansion, merger
and acquisition, relocation, closure of the establishments or winding-up of
business of the establishments, etc., the principal establishment responsible
for handling the combined filings and payment of tax shall report to the
tax bureau at its location in advance. Where the principal establishment which
pays the combined enterprise income tax needs to be changed, the change
shall be made in accordance with the provisions of the preceding paragraph.
.

10
Article 128. The tax authorities shall determine if an enterprise makes enterprise income

tax provisional payments on a monthly or quarterly basis.

Where an enterprise makes provisional enterprise income tax payments on

a monthly or quarterly basis in accordance with Article 54 of the EIT Law,
it shall make provisional tax payments based on actual profits in the month or
quarter. Where there are difficulties in making provisional tax payments based
on actual profits in the month or quarter, the enterprise may make provisional
tax payments based on the average monthly or quarterly taxable income of
the last tax year, or based on any other method as approved by the tax
authorities. Once the method of determining the provisional tax payments
has been confirmed, that method must continue to be used within the tax
year.
Article 129. Regardless of whether an enterprise incurs profits or losses in a tax year, the

enterprise shall file the provisional enterprise income tax returns, annual

enterprise income tax return, financial reports and any other documents as

stipulated by the tax authorities in accordance with Article 54 of the EIT Law.

Article 130. Where the income of an enterprise is earned in currencies other than

Renminbi, it shall be converted into Renminbi at the middle exchange

rate on the last day of the month or quarter to compute taxable income

when tax advance payments are made. When settling the final tax payment

at year-end, for incomes in foreign currencies whose tax has been paid during

the monthly or quarterly provisional tax payment system, it is not necessary

to re-convert such income in the tax computation. To compute taxable income,

only the portion of income in foreign currencies for which tax has yet to be

paid within the tax year needs to be converted into Renminbi, with such

conversion being at the middle exchange rate on the last day of the tax year.

Where the tax authorities conduct audits and verify that an enterprise has
under-reported or over-reported the aforementioned income, the enterprise
shall convert the under-reported or over-reported income into Renminbi at
the middle exchange rate on the last day of the month prior to the month of
the audit and verification to compute the taxable income and further the tax
amount which shall be paid or refunded.

Article 131. Enterprises which have been approved to be established prior to the

promulgation of the EIT Law as cited in Article 57, paragraph 1 of the

Tax Law refer to enterprises which have completed business registration

procedures prior to the promulgation of the EIT Law.

Article 132. Enterprises incorporated in Hong Kong Special Administrative Region of the

PRC, Macau Special Administrative Region of the PRC and Taiwan shall be

governed by reference to Article 2, Paragraphs 2 and 3 of the EIT Law.

Article 133. These Rules shall become effective on January 1, 2008. The Implementation

Rules of the Income Tax Law of the Peoples Republic of China for Enterprises

with Foreign Investment and Foreign Enterprises promulgated by the State

Council on June 30, 1991 and The Implementation Rules of the Provisional

Regulations of the Peoples Republic of China on Enterprise Income Tax

promulgated by the Ministry of Finance on February 4, 1994 shall be annulled

as of the same date.
. 20081 11991630

19942 4

About Deloitte Touche Tohmatsu

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member
firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an
organisation of member firms around the world devoted to excellence in providing
professional services and advice, focused on client service through a global strategy
executed locally in over 140 countries. With access to the deep intellectual capital of
approximately 150,000 people worldwide, Deloitte delivers services in four professional
areas - audit, tax, consulting, and financial advisory services - and serves more than 80
percent of the world's largest companies, as well as large national enterprises, public
institutions, locally important clients, and successful, fast-growing global companies.
Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and
other reasons, certain member firms do not provide services in all four professional areas.
As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member
firms has any liability for each other's acts or omissions. Each of the member firms is a
separate and independent legal entity operating under the names "Deloitte," "Deloitte &
Touche," "Deloitte Touche Tohmatsu," or other related names.
About Deloittes China practice

Deloitte's China practice provides services through a number of legal entities and those
entities are members of Deloitte Touche Tohmatsu (Swiss Verein).
We are one of the leading professional services providers in the Chinese Mainland, Hong
Kong SAR and Macau SAR. We have 7,000 people in ten offices including Beijing, Dalian,
Guangzhou, Hong Kong, Macau, Nanjing, Shanghai, Shenzhen, Suzhou and Tianjin.
As early as 1917, we opened an office in Shanghai. Backed by our global network, we
deliver a full range of audit, tax, consulting and financial advisory services to national,
multinational and growth enterprise clients in China.
We have considerable experience in China and have been a significant contributor to the
development of China's accounting standards, taxation system and local professional
accountants. We also provide services to around one-third of all companies listed on the
Stock Exchange of Hong Kong.
For more information, please visit our website at www.deloitte.com/cn.
DeloitteDeloitte Touche Tohmatsu

/
/
140
150,000
/
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/Deloitte
Deloitte & ToucheDeloitte Touche Tohmatsu
Deloitte Touche
Tohmatsu
7,000
1917
www.deloitte.com/cn
Contact details for Deloittes China Practice

Beijing
Deloitte Touche Tohmatsu CPA Ltd.
Beijing Branch
8/F Office Tower W2
The Towers, Oriental Plaza
1 East Chang An Avenue
Beijing 100738, PRC
Tel: +86 10 8520 7788
Fax: +86 10 8518 1218
Dalian
Dalian Branch
Room 1503 Senmao Building
147 Zhongshan Road
Dalian 116011, PRC
Tel: +86 411 8371 2888
Fax: +86 411 8360 3297
Guangzhou

Guangzhou Branch
26/F Teemtower
208 Tianhe Road
Guangzhou 510620, PRC
Tel: +86 20 8396 9228
Fax: +86 20 3888 0119 / 0121
Hong Kong SAR
Deloitte Touche Tohmatsu
35/F One Pacific Place
88 Queensway
Hong Kong
Tel: +852 2852 1600
Fax: +852 2541 1911
Macau SAR

Deloitte Touche Tohmatsu
19/F The Macau Square Apartment H-N
43-53A Av. do Infante D. Henrique Macau
Tel: +853 2871 2998
Fax: +853 2871 3033
Nanjing
Nanjing Branch
Room B, 11/F Golden Eagle Plaza
89 Hanzhong Road
Nanjing 210029, PRC
Tel: +86 25 5790 8880
Fax: +86 25 8691 8776
Shanghai

30/F Bund Center
222 Yan An Road East
Shanghai 200002, PRC
Tel: +86 21 6141 8888
Fax: +86 21 6335 0003
Shenzhen
Shenzhen Branch
13/F China Resources Building
5001 Shennan Road East
Shenzhen 518010, PRC
Tel: +86 755 8246 3255
Fax: +86 755 8246 3186
Suzhou
Deloitte Business Advisory Services
(Shanghai) Limited
Suzhou Branch
Suite 908, Century Financial Tower
1 Suhua Road, Industrial Park
Suzhou 215021, PRC
Tel: +86 512 6762 1238
Fax: +86 512 6762 3338
Tianjin
Tianjin Branch
30/F The Exchange North Tower
189 Nanjing Road
Heping District
Tianjin 300051, PRC
Tel: +86 22 2320 6688
Fax: +86 22 2320 6699

apply.

Tax

2008 .
HK-002E&C-08
1
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100738
+86 10 8520 7788
+86 10 8518 1218

147
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+86 411 8360 3297
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+86 22 2320 6688
+86 22 2320 6699
89
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210029
+86 25 5790 8880
+86 25 8691 8776


31 December 2007

apply.

Tax

2008
HK-002E&C-08
This is printed on environmentally friendly paper.
1
8
100738
+86 10 8520 7788
+86 10 8518 1218

147
1503
116011
+86 411 8371 2888
+86 411 8360 3297
208
26
510620
+86 20 8396 9228
+86 20 3888 0119 / 0121
88
35
+852 2852 1600
+852 2541 1911
43-53A
19H-N
+853 2871 2998
+853 2871 3033
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5001
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+86 755 8246 3186
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1
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+86 512 6762 1238
+86 512 6762 3338
189
30
300051
+86 22 2320 6688
+86 22 2320 6699
89
11B
210029
+86 25 5790 8880
+86 25 8691 8776


31 December 2007

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Enterprise Income Tax Law and

About this publication

2008 Deloitte Touche Tohmatsu CPA Ltd. All rights reserved

This is an unofficial translation of Enterprise Income Tax Law (Decree No. 63 of

Colour: CMYK process

Prepared by Kevin Kwok

Cover for New Tax Law and implementation

Enterprise Income Tax Law and

About this publication

2008 Deloitte Touche Tohmatsu CPA Ltd. All rights reserved

This is an unofficial translation of Enterprise Income Tax Law (Decree No. 63 of

Colour: CMYK process

Prepared by Kevin Kwok

Enterprise Income Tax Law of the Peoples

Implementation Rules of the Enterprise

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Enterprise Income Tax Law of the Peoples

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Enterprise Income Tax Law of

Chapter 1: General Provisions

Chapter 2: Taxable Income

Chapter 3: Income Tax Payable

Chapter 4: Tax Incentive

Chapter 5: Withholding at Source

Chapter 6: Special Tax Adjustments

Chapter 7: Tax Administration

Chapter 8: Supplementary Provisions

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Chapter 1: General Provisions

Enterprises are classified as resident enterprises and non-resident enterprises.

A resident enterprise as referred to in this Law, refers to an enterprise which is

A non-resident enterprise as referred to in this Law, refers to an enterprise

Non-resident enterprises without any establishment in China deriving income

Enterprise income tax shall be levied at the rate of 25%.

Non-resident enterprises deriving income stipulated in the third paragraph of

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Chapter 2: Taxable Income

The taxable income of an enterprise in a tax year shall be the amount

1) Revenue from sales of goods;

2) Revenue from provision of labour services;

3) Gross proceeds from transfer of property;

8) Revenue from donations; and

Non-taxable income shall include:

3) Other non-taxable income as stipulated by the State Council.

Expenditure incurred in connection with operational activities on a

Expenditure incurred in connection with donations for public interest may be

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2) Enterprise income tax payments;

3) Surcharge on late tax payments;

4) Fines, penalties, and losses incurred through confiscation of property;

5) Donations other than donations stipulated in Article 9 hereof;

7) Unapproved provisions; and

8) Other expenditures not incurred for the purpose of earning income.

1) Fixed assets not in use other than houses and buildings;

2) Fixed assets leased in through an operating lease;

3) Fixed assets leased out through a finance lease;

4) Fully depreciated fixed assets that continue to be used;

5) Fixed assets not used in connection with carrying on a business

6) Land separately recorded as fixed assets; and

7) Other fixed assets for which depreciation is not allowed to be deducted.