Foreign Investment and Foreign Enterprises
BIZCHINA / Taxation
Income Tax Law of the People's Republic of China on Enterprises with
Foreign Investment and Foreign Enterprises
Updated: 2006-04-17 15:07
Article 11
Losses incurred in a tax year by any enterprise with foreign investment
and by an establishment or a place set up in China by a foreign
enterprise to engage in production or business operations may be made up
by the income of the following tax year. Should the income of the
following tax year be insufficient to make up for the said losses, the
balance may be made up by its income of the further subsequent year, and
so on, over a period not exceeding five years.
Article 12
Any enterprise with foreign investment shall be allowed, when filing a
consolidated income tax return, to deduct from the amount of tax payable
the foreign income tax already paid abroad in respect of the income
derived from sources outside China. The deductible amount shall, however,
not exceed the amount of income tax otherwise payable under this Law in
respect of the income derived from sources outside China.
Article 13
The payment or receipt of charges or fees in business transactions
between an enterprise with foreign investment or an establishment or a
place set up in China by a foreign enterprise to engage in production or
business operations, and its associated enterprises, shall be made in the
same manner as the payment or receipt of charges or fees in business
transactions between independent enterprises. Where the payment or
receipt of charges or fees is not made in the same manner as in business
transactions between independent enterprises and results in a reduction
of the taxable income, the tax authorities shall have the right to make
reasonable adjustment.
Article 14
Where an enterprise with foreign investment or an establishment or a
place set up in China by a foreign enterprise to engage in production or
business operations is established, moves to a new site, merges with
another enterprise, breaks up, winds up or makes a change in any of the
main entries of registration, it shall present the relevant documents to
and go through tax registration or a change or cancellation in
registration with the local tax authorities after the relevant event is
registered, or a change or cancellation in registration is made with the
administrative agency for industry and commerce.
Article 15
Income tax on enterprises and local income tax shall be computed on an
annual basis and paid in advance in quarterly instalments. Such payments
shall be made within fifteen days from the end of each quarter and the
final settlement shall be made within five months from the end of each
tax year. Any excess payment shall be refunded and any deficiency shall
be repaid.
Article 16
Any enterprise with foreign investment and any establishment or place set
up in China by a foreign enterprise to engage in production or business
operations shall file its quarterly provisional income tax return in
respect of advance payments with the local tax authorities within the
period for each advance payment of tax, and it shall file an annual
income tax return together with the final accounting statements within
four months from the end of the tax year.
Article 17
Any enterprise with foreign investment and any establishment or place set
up in China by a foreign enterprise to engage in production or business
operations shall report its financial and accounting systems to the local
tax authorities for reference. All accounting records must be complete
and accurate, with legitimate vouchers as the basis for entries.
If the financial and accounting bases adopted by an enterprise with
foreign investment and an establishment or a place set up in China by a
foreign enterprise to engage in production or business operations
contradict the relevant regulations on tax of the State Council, tax
payment shall be computed in accordance with the relevant regulations on
tax of the State Council.
Article 18
When any enterprise with foreign investment goes into liquidation, and if
the balance of its net assets or the balance of its remaining property
after deduction of the enterprise's undistributed profit, various funds
and liquidation expenses exceeds the enterprise's 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
Any foreign enterprise which has no establishment or place in China but
derives profit, interest, rental, royalty and other income from sources
in China, or though it has an establishment or a place in China, the said
income is not effectively connected with such establishment or place,
shall pay an income tax of twenty percent on such income.
For the payment of income tax in accordance with the provisions of the
preceding paragraph, the income beneficiary shall be the taxpayer and the
payer shall be the withholding agent. The tax shall be withheld from the
amount of each payment by the payer. The withholding agent shall, within
five days, turn the amount of taxes withheld on each payment over to the
State Treasury and submit a withholding income tax return to the local
tax authorities.
Income tax shall be exempted or reduced on the following income:
(1) the profit derived by a foreign investor from an enterprise with
foreign investment shall be exempted from income tax;
(2) income from interest on loans made to the Chinese government or
Chinese State banks by international financial organizations shall be
exempted from income tax;
(3) income from interest on loans made at a preferential interest rate to
Chinese State banks by foreign banks shall be exempted from income tax;
and
(4) income tax of the royalty received for the supply of technical
know-how in scientific research, exploitation of energy resources,
development of the communications industries, agricultural, forestry and
animal husbandry production, and the development of important
technologies may, upon approval by the competent department for tax
affairs under the State Council, be levied at the reduced rate of ten
percent. Where the technology supplied is advanced or the terms are
preferential, exemption from income tax may be allowed.
Apart from the aforesaid provisions of this Article, if preferential
treatment in respect of reduction of or exemption from income tax on
profit, interest, rental, royalty and other income is required, it shall
be regulated by the State Council.
Article 20
The tax authorities shall have the right to inspect the financial,
accounting and tax affairs of enterprises with foreign investment and
establishments or places set up in China by foreign enterprises to engage
in production or business operations, and have the right to inspect tax
withholding of the withholding agent and its payment of the withheld tax
into the State Treasury.
The entities and the withholding agents being so inspected must report
the facts and provide relevant information. They may not refuse to report
or conceal any facts.
When making an inspection, the tax officials shall produce their identity
documents and be responsible for confidentiality.
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