General Regulations of P. R. China XIII

Adopted at the Fourth Session of the Seventh　National　People's Congress on April 9, 1991, promulgated by Order No. 45 of the President of the People's Republic of China on April 9, 1991.
ZHU XI LING [45] 1991.4.9

Article 1　 Enterprises with foreign investment who earn income from production, business operation and other sources within the borders of the　People's Republic of China, shall pay Income Tax according to the provisions of this Law.

Foreign enterprises who earn income from production, business operation and other sources within the borders of the People's Republic of China, shall pay Income Tax according to the provisions of this Law.

Article 2 　"Enterprises with　foreign　investment" in　this　Law refers to　Chinese-foreign equity joint ventures, Chinese-foreign　contractual　joint ventures and wholly foreign-funded enterprises established within the borders of the People's Republic of China.

"Foreign enterprises" in　this　Law refers to　foreign　companies, enterprises and other economic organizations which have established organizations or sites within the borders of the People's Republic of China and engage　in　production　or　business　operations, and those which, though not having established organizations or sites in China, have income from sources within the borders of China.

Article 3 　Any enterprise with foreign investment which establishes its　head　office in China shall pay Income Tax on　its　income　derived　from　sources inside and outside China. Any foreign enterprise shall pay Income Tax on its income derived from sources within China.

Article 4 　For enterprises with foreign investment and foreign enterprises with establishments or sites in　China, the amount of taxable income on the total income each year from those establishments and sites, shall be the amount remaining from gross income for that year after costs, expenses and losses have been deducted.

Article 5 　The Enterprise Income Tax of enterprises with foreign investment and the　Income　Tax which shall be paid by foreign enterprises on　the　income　of　their organizations or sites　in　China for　production or business purposes, shall be calculated on taxable income at a rate of 　30%; Local Income Tax shall　be　calculated on taxable income at a rate of 3%.　

Article 6 　The State shall, in accordance with its industrial policies, guide the orientation of foreign　investment　and　encourage　the　establishment　of enterprises with foreign investment which adopt advanced technology and equipment and export all or the greater part of their production.

Article 7 　The Income Tax on　enterprises　with　foreign　investment　established　in Special Economic Zones, foreign enterprises which have　establishments　or sites in　Special　Economic　Zones engaged　in production or business operations, and enterprises with foreign　investment　of　a production nature in Economic and Technological Development Zones shall be levied at the reduced rate of 15%.

The Income Tax on enterprises with　foreign　investment　of　a　production nature established in coastal economic open zones or　in　the　old　urban districts of cities where the Special Economic Zones or the　Economic　and Technological Development Zones are located, shall　be　levied　at　the reduced rate of 24%.

The Income Tax on enterprises with foreign investment in coastal　economic open zones,　old　urban　districts　of　cities　where　the　Special Economic Zones or the Economic and Technological　Development Zones are located, or other regions defined by the State Council within the scope 　of energy, communications, harbour, wharf or other projects encouraged by the State, may be levied at the reduced rate of 15%. The specific rules shall be formulated by the State Council.

Article 8 　Any enterprise with foreign investment of a production nature scheduled to 　operate for a period of not less than　10　years　shall,　from　the　year in which it begins to make profit, be exempted from Income Tax　in　the　first　and　second years and allowed a 50% reduction in the third to fifth years. However,　the　exemption　from　or　reduction　of　Income Tax　for 　enterprises　with　foreign　investment　engaged　in　the　exploitation of resources such as petroleum, natural gas, rare metals, and precious metals shall be regulated separately by the　State Council. Enterprises with foreign investment which have actually operated for a period of less　than ten years shall repay　the　amount　of　income　tax　already exempted or reduced.

The relevant regulations, promulgated by　the　State　Council　before　the entry into force of this Law,　which　provide　preferential　treatment　of 　exemption from or reduction　of　income　tax　on　enterprises　engaged　in energy, communications, harbour, wharf　and　other　major　projects of a production nature for a period longer than that specified in the preceding 　paragraph, or which provide preferential treatment of　exemption　from　or 　reduction of income tax on enterprises engaged in major projects of a non- production nature, shall remain applicable　after this Law enters into force.

Any enterprise with foreign investment which is engaged in agriculture, forestry or animal　husbandry　and　any　other　enterprise　with　foreign investment which is established in remote underdeveloped areas　may,　upon approval, by the responsible department　for　tax　affairs　under　the State Council, of an application filed by the enterprise, be allowed a 15% to 30% reduction of the amount of Income Tax payable for a period of 10 years following　the　expiration　of　the　period　for tax exemption or reduction as provided for in the preceding two paragraphs.

After this Law enters into force, any modification to the provisions of the preceding three paragraphs of this Article on the exemption from or reduction of income tax on enterprises shall be　submitted　by　the　State Council to the Standing Committee of the National　People's　Congress　for decision.
Article 9 　For any enterprise with foreign investment which operates in an industry or undertakes a　project encouraged by the State, the exemption from or reduction of local Income Tax shall, in accordance with the actual situation, be at the discretion of the People's Government　of　the relevant province, autonomous region or municipality directly under the Central Government.

Article 10 　Any foreign investor　of　an　enterprise　with　foreign　investment　which reinvests its share of profit from the enterprise directly into that enterprise by increasing its registered capital, or which uses　the　profit as　capital　investment　to　establish　other　enterprises　with foreign investment to operate for a period of not less than 5 years shall, upon approval by the tax authorities of an application filed by　the　investor, be refunded 40% of the Income Tax already paid on the reinvested amount. Where regulations of　the　State　Council　provide　otherwise　in respect of preferential treatment, such provisions　shall　apply.　If　the　investor withdraws his reinvestment before the expiration of a period of 5 years, he shall repay the refunded tax.

Article 11 　The losses incurred in a tax year by any enterprise　with　foreign　investment and by the organizations or sites established by a foreign enterprise in China for production or business operations,　may　be offset against the income of the following tax year. Where the income of the　following　tax year is not sufficient to offset those losses, the balance　may be offset against income of the subsequent years, and so on, over a period not exceeding five years.

Article 12 　Enterprises with foreign investment may,　when filing a consolidated income tax return, deduct from the amount of　tax　payable the foreign income tax already　paid　abroad　in　respect　of　the　income derived from sources outside China. The amount deducted,　however, may　not exceed the amount of income tax otherwise payable under　this　Law　with respect to the income derived from sources outside China.　
　
Article 13 　In business transactions between an enterprise with foreign investment or the establishments or sites set up in China by a foreign enterprise for　production　or　business 　operations, and its associated enterprises, the payment or receipt of charges or fees shall　be　made　in　the　same way　as　the　payment　or　receipt　of　charges　or　fees　in　business transactions between independent enterprises. Where the payment or receipt of charges or fees　is　not　made　in　the　same　way as　in　business transactions between independent enterprises and results in a reduction of the taxable income, the tax authorities have　the　right　to make appropriate adjustment.

Article 14 　Where an enterprise with foreign investment or an establishment or site in China for　production　or business operations, moves　to　a　new　site,　merges　with another enterprise, breaks up, winds up or makes a change in　any　of　the main entries of registration, it shall present the relevant　documents　to, and　go　through　tax　registration　procedures or　change　or cancellation　of its registration with the local tax authorities, after the　relevant　event　is registered, or a change or cancellation in registration has been made　with　the Industrial and Commercial Administration Department.

Article 15 Enterprise Income Tax and local Income Tax shall　be　calculated　on　an annual basis and paid in advance in quarterly installments.　Such　payments shall be made within 15 days from the end of　each　quarter　and　the final settlement shall be made within 5 months from the end of each tax year. Any excess payment shall be refunded and any deficiency shall be made up.

Article 16 　Any enterprise with foreign investment and any establishment or site　set up in China by a foreign enterprise for　production　or　business operations shall file its　quarterly　provisional　income　tax　return　in respect of advance payments with the　local　tax　authorities　within　the period for each advance payment of tax, and it shall file an annual income tax return together with　the　final　accounting　statements　within　4 months from the end of the tax year.

Article 17 　Any enterprise with foreign investment and any establishment or site set up in China by a foreign enterprise for production　or business operations shall report its financial and accounting systems to the　local tax authorities for reference. All accounting records must be complete and accurate, with legitimate vouchers as the basis for entries.

Where the financial and　accounting　procedures　adopted　by　an　enterprise　with foreign investment and an establishment or a site set up in　China　by　a foreign　enterprise　for　production　or　business operations contradict the relevant regulations on　tax　of　the　State　Council,　tax payment due shall be calculated in accordance with the relevant regulations on tax of the State Council.　
　
Article 18 　When any enterprise with foreign investment goes into liquidation, and　if 　the balance of its net assets or the balance　of　its　remaining　property after deduction of the enterprise's undistributed　profit,　various　funds and liquidation expenses exceeds the　enterprise's　paid-in　capital,　the 　excess portion shall be liquidation income on which income　tax　shall　be 　paid in accordance with the provisions of this Law.

Article 19 　Where a foreign enterprise has no established organization or site　in　China　but derives profits, interest, rental, royalties and other income from sources in China, or where it has such established organizations or sites　within　China but the above types of　income it earns are not really connected　with　those　organizations or sites, such an enterprise shall pay Income Tax on that income at a rate of 20%.

For the payment of　income　tax　in　accordance　with　the　provisions　of　the　preceding 　paragraph, the income beneficiary shall be　the　taxpayer　and　the　payer　shall be the withholding agent. The tax shall be withheld from the　amount of each payment by the payer. The withholding　agent　shall,　within　5　days, remit the amount of taxes withheld on each payment to the　State 　Treasury and submit a withholding income tax return to the local tax authorities.

Income Tax shall be exempted from or reduced for the following income:
A. The profit derived by a foreign　investor　from　an　enterprise　with　foreign investment shall be exempted from Income Tax;

B. Income from interest on　loans　made　to　the　Chinese　Government　or Chinese State banks by　international　financial　organizations　shall　be exempted from Income Tax;

C. The interest income derived by a foreign bank from loans made　to Chinese State Banks at preferential interest rates shall be exempted from Income Tax; and

D. Income Tax on royalties received for the supply of　technical　know-how in scientific research, exploitation of energy resources,　development of　the　communications　industries,　agricultural,　forestry　and　animal husbandry production, and the development of important technology　may, 　upon approval by the responsible department for tax affairs under the　State Council, be　levied　at　the　reduced　rate　of 10%.　Where　the technology supplied is advanced or the terms are　preferential,　exemption from Income Tax may be allowed.

Apart from the aforesaid　provisions　of　this　Article,　if　preferential treatment in the formof reduction of or　exemption　from　Income　Tax　on profits, interest, rental, royalties and other income is required, it shall be decided by the State Council.

Article 20 　The tax authorities have　the　right　to inspect　the　financial, accounting and tax affairs of　enterprises　with　foreign　investment　and foreign enterprises with establishments or sites in China for production and business operations, and have the right to inspect tax 　withholding activity of the withholding agents and its payment of the withheld　tax　into the State Treasury. The entities and the withholding agents being inspected must report the facts and provide relevant information. They may not conceal or refuse to report any facts.

When making an inspection, the tax officials shall produce their　identity documents and shall maintain confidentiality.

Article 21 　Income Tax payable according to this Law shall be calculated　in　Renminbi (RMB).　Income　in　foreign　currency　shall　be　converted　into Renminbi for purposes of tax payment, according to the exchange rate quoted by the State Foreign Exchange Control Authorities.

Article 22 　If any taxpayer fails to pay tax within the prescribed time limit, or　if　the withholding agent fails to remit　the　tax　withheld　within　the　prescribed time limit, the tax authorities shall, in addition to setting a new time limit for tax payment, also impose a surcharge for overdue　payment, equal to 0.2% of the overdue tax for each day in arrears, starting from the first day the payment becomes overdue.

Article 23 　The tax authorities shall　set　a　new　time　limit　for　registration　or submission of documents and may impose a fine of　up to 5000　yuan　or less on any taxpayer or withholding agent which fails to　register for tax purposes or to make a change or cancellation in registration with the tax authorities within the prescribed time limit; who fails　to　submit　an Income Tax Return, final accounting statements or Withholding Income　Tax　Return to the tax authorities within the　prescribed　time　limit,　or　fails　to report its financial and accounting systems to　the　tax　authorities　for reference.

Where the tax authorities　have　set　a　new　time　limit　for registration or submission of documents, they shall impose a fine　of　up to 10000 yuan or less on the taxpayers or　withholding　agents　who　again fail to meet the time limit for registering　or　making　a change in registration with the tax authorities, or for submitting an Income Tax Return, final accounting statements or Withholding Income　Tax　Return to the tax authorities. Where the circumstances　are　serious,　the　legal 　representatives and the person directly responsible shall be investigated　for criminal responsibility in accordance with the provisions of Article 121 of the Criminal Law.　
　
Article 24 　Where the withholding agent fails to carry out his obligations to withhold tax as provided in this Law, and does not withhold or withholds an amount less than that which should have been withheld, the tax authorities shall set a　time limit for the payment of the amount of tax that should have been withheld, and may impose a fine of up to but not exceeding 100% of　the 　amount of tax not withheld.　

Where the withholding agent fails to remit the tax withheld　to　the　State　Treasury　within　the 　prescribed time limit, the tax authorities shall　set　a　time　limit　for remitting the taxes and may impose a fine of up to 5000 yuan or less on the withholding agent; if the withholding agent fails to meet the　time limit again, the tax authorities shall recover the taxes according　to　law and may impose a fine of up to 10000 yuan　or　less　on　the　withholding agent. If the circumstances are serious, the legal representative and　the 　person　directly　responsible shall　be investigated for　 criminal responsibility in accordance with the provisions of Article 121 of the Criminal Law.

Article 25 　Where any person evades tax by deception or concealment or　fails　to　pay tax within the time limit prescribed　by　this　Law　and,　after　the　tax authorities have reminded the taxpayer of the payment of tax, he fails again to pay it　within　the prescribed　time　limit,　the　tax　authorities　shall,　in　addition　to recovering the tax which should have been paid, impose a fine of　up　to　but not exceeding 5 times the amount of tax in default. Where the circumstances are serious, the legal　representatives and the person directly responsible shall　be　investigated　for　criminal 　responsibility in accordance with the provisions of　Article　121　of　the Criminal Law.　
　
Article 26 　In a dispute with the tax authorities on　payment　of　tax, any enterprise with foreign investment, foreign enterprise or withholding agent,　must pay tax according to the relevant regulations first. Thereafter,　the taxpayer or withholding agent may, within 60 days　from　the　date　of receipt of the tax payment certificate issued　by　the　tax　authorities, apply to the tax authorities at a higher level for reconsideration. The higher tax authorities shall make a decision within 60　days　after receipt of　the　application　for　reconsideration.　If　the　taxpayer　or withholding agent is still not satisfied with the　decision,　he may　institute legal proceedings in the People's Court within 15 days from the date of receipt of the notification on decision made after reconsideration of his case.

If the taxpayer concerned is not satisfied with the decision on the penalties imposed by the tax authorities, he may, within 15 days from the date of　receipt of the notification on punishment, apply for reconsideration　to　the　tax authorities at the level above that which made the penalty decision. Where the party is not satisfied with the decision made　after reconsideration, he may institute legal proceedings in the People's Court within 15 days from the date of receipt of the　decision　made　after reconsideration. The taxpayer　concerned　may,　however,　directly　institute 　legal proceedings in the People's Court within 15 days from the　date　of receipt of the notification　on　penalties.　If　the　party　concerned does not applies for reconsideration to the　higher　tax　authorities and does not　institutes legal proceedings in the People's Court within the time　limit, 　and if the decision on penalties is not fulfilled, the　tax　authorities　which made the decision on penalties may　apply　to　the　People's Court　for compulsory enforcement of their decision.

Article 27 　Where any enterprise with foreign investment which was established　before 　the promulgation of this Law would otherwise, in accordance with the　provisions　of this Law,　be　subject　to　higher　tax　rates　or　enjoy　less preferential treatment in the form of tax exemption or reduction than before the entry into force of this Law, in respect of such enterprise, within its approved period of operation, the Law and relevant regulations of the State Council in effect before the entry into force of this Law shall apply. If any such enterprise has no approved period　of　operation,　the　Law　and　relevant regulations of the State Council in effect before the entry into force　of this Law shall apply within the period prescribed by the State Council. Specific rules shall be stipulated by the State Council.　
　
Article 28 　Where the provisions of a tax agreements concluded between　the　Government of the People's Republic of China and foreign governments　are　different　from the provisions of this Law, the provisions of　the agreement shall prevail.

Article 29 　The Detailed Rules for implementation shall be　formulated　by　the　State　Council　in accordance with this Law.

Article 30 　This Law shall take effect as of July 1, 1991. The Income Tax Law of the 　People's Republic of China for Chinese-Foreign Equity Joint Ventures　and the Income　Tax　Law　of　the　People's Republic　of　China　for　Foreign　Enterprises shall be annulled as of the same date.　

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