Decree of the President of the People's Republic of China
No. 63
The Corporate Income Tax Law of the People's Republic of
China, adopted at the 5th Session of the 10th National
People's Congress of the People's Republic of China on March
16 2007, is now promulgated and shall become effective as of
January 1 2008.
President of the People's Republic of China: HU Jintao
March 16 2007
Chapter I - General Provisions
Article 1. Enterprises and other organisations that have
income inside the People's Republic of China (hereinafter
referred to as "enterprises" are taxpayers of corporate
income tax, and shall pay corporate income tax in accordance
with the provisions of this law.
This law is not applicable to solely funded enterprises
and partnership enterprises.
Article 2. Enterprises are classified as resident
enterprises and non resident enterprises.
Resident enterprises mentioned in this law refer to
enterprises that are set up according to law inside China or
in accordance with laws of foreign countries or regions but
with actual management institutions inside China.
Non-resident enterprises in this law refer to enterprises
that are established in accordance with laws of foreign
countries or regions, without actual management institutions
inside China, but have set up institutions or business
outlets inside China, or have income generated from within
China though without institutions or outlets inside China.
Article 3. Resident enterprises shall pay corporate
income tax on their incomes generated from within China as
well as from abroad.
Non-resident enterprises that have set up agencies or
outlets inside China shall pay corporate income tax on
income generated by their agencies or outlets from within
China as well as incomes that have been generated from
abroad but with actual connections with the agencies and
outlets set up inside China.
Non-resident enterprises that have not established
agencies or outlets inside China, or have set up agencies or
outlets inside China but the incomes generated have no
actual connections with the agencies or outlets set up,
shall pay corporate income on the incomes generated from
within China.
Article 4. The tax rate of corporate income tax is 25%.
The applicable rate is 20% for incomes obtained by
non-resident enterprises as mentioned in paragraph 3 of
article 3 of this law.
Chapter II - Taxable Incomes
Article 5. The taxable incomes of an enterprise during
each taxable year is equal to the total incomes minus
incomes exempted from taxation, tax-free incomes, various
deductibles, and the amount used to make up the losses of
the previous years.
Article 6. Income generated by enterprises in the form of
currencies and non-currency from various sources is
considered total income, which includes:
1. incomes from sales of commodities
2. incomes from provision of labour services,
3. incomes from transfer of property,
4. investment gains from shares and dividends,
5. incomes from interest
6. incomes from rental,
7. incomes from royalties,
8. incomes from accepting donations,
9. other incomes.
Article 7. The following incomes included in the total
incomes are deemed as incomes exempted from taxation:
1. fiscal allocation
2. obtained according to law and included into fiscal
management as fees collected for administration purposes and
government funds,
3. other incomes specified by the State Council as
exempted from taxation.
Article 8. Expenditures of enterprises that take place
and are related to the obtaining of incomes, including cost,
fees, duties, losses and other expenses may be deducted from
the taxable incomes, provided that they are reasonable.
Article 9. Expenditures in the form of welfare donations
on the part of enterprises can be deducted from the taxable
incomes so long as they are within 12% of the total profits
of the year.
Article 10. The following expenditures shall not be
deducted in the calculation of taxable incomes:
1. investment gains paid to investors, such as share
interest, dividends, etc,
2. corporate income tax,
3. overdue charges of taxation,
4. fines, and losses caused by properties confiscated,
5. expenditure in the form of donation beyond what is
specified in article 9 of this law,
6. sponsoring expenditure,
7. expenditure of reserve that has not been verified,
8. other expenditures that are not related to the
obtaining of incomes.
Article 11. The depreciation of fixed assets calculated
as per regulations by the enterprises at the time of
calculating taxable incomes can be deducted.
The following fixed assets shall not be included in the
calculation of depreciation and deduction:
1. fixed assets that have not been used, except houses
and buildings,
2. fixed assets rented in the form of operational
leasing,
3. fixed assets rented out in the form of financing
leasing,
4. fixed assets for which the full amount of depreciation
is withdrawn and are still in use,
5. fixed assets having no relationship to the operational
activities,
6. land calculated separately and entered as fixed
assets,
7. other fixed assets that can not be included in the
calculation of depreciation and deduction.
Article 12. When calculating taxable incomes, the
amortization fees of intangible assets calculated by
enterprises as per related regulations can be deducted.
The following intangible assets can not be included in
the deduction of amortization fees:
1. intangible assets developed independently for which
the expenditure has been included and deducted at the time
of calculating taxable incomes,
2. self founded commercial reputation,
3. intangible assets that are not related to business
operations,
4. other intangible assets that can not be included in
the calculation of deduction of amortization fees.
Article 13. When calculating taxable incomes, the
following expenditures of enterprises, considered as long
term amortization fees and having been amortized per related
regulations, are allowed to be deducted:
1. expenditure for renovation and building of fixed
assets for which the full amount of depreciation has been
withdrawn,
2. expenditure for renovation and building of leased
fixed assets,
3. expenditure for overhaul of fixed assets,
4. other expenditure that should be considered as long
term amortization fees.
Article 14. The cost of investment assets can not
deducted at the time of calculating taxable incomes when
enterprises are making overseas investment.
Article 15. In cases where enterprises use or sell
inventories and calculate the cost of inventories per
related regulations, such cost can be deducted at the time
of calculating taxable incomes.
Article 16. At the time of transferring assets, the net
value of the assets can be deducted at the time of
calculating taxable incomes.
Article 17. At the time of gathering and calculating the
taxable corporate incomes, the enterprises shall not use
losses incurred by their overseas branches to offset the
gains of domestic branches.
Article 18. Losses incurred by an enterprise during one
taxable year are allowed to be settled and transferred to
subsequent years and made up with incomes from subsequent
years. However, the duration of settlement and transfer can
not be longer than 5 years.
Article 19. For incomes obtained by non-resident
enterprises as mentioned in paragraph 3 of article 3 of this
law, the following method shall be used to calculate the
taxable incomes:
1. dividends, bonus and other investment gains as well as
interest, rentals, royalty incomes are taxable incomes in
full amount,
2. for incomes from transfer of properties, the taxable
incomes shall be the balance between the total incomes and
the net value of the property,
3. for other incomes, the methods mentioned in the
previous two paragraphs shall serve as a reference for the
calculation of taxable incomes.
Article 20. Detailed measures governing the specific
scope and standards for the incomes and deductions as well
as taxation treatment of assets as mentioned in this chapter
shall be separately worked out by the fiscal and taxation
authorities under the State Council.
Article 21. At the time of calculating taxable incomes,
when the methods of corporate finances or accounting are not
in line with the provisions of the taxation laws or
administrative regulations, the provisions of the taxation
laws or administrative regulations shall prevail.
Chapter III - Tax Payable
Article 22. The taxable incomes of an enterprise
multiplied by the applicable rates, minus various
deductibles and exemptions as per the provisions of this law
on taxation preferences shall be the tax payable.
Article 23. In cases where the following incomes obtained
by enterprises have paid income tax abroad, they can serve
as the creditable amount in the tax payable during the same
period, and the creditable quota is up to the amount of tax
payable on the incomes calculated according to this law. For
the extra part that exceeds the creditable quota, the
balance between creditable quota and the creditable amount
every year can be used as the creditable amount on a yearly
basis during the subsequent five years:
1. taxable incomes of resident enterprises from outside
China,
2. taxable incomes obtained by non-resident enterprises
that have set up agencies or outlets inside China from
outside China, but having actual connections with the
agencies or outlets set up inside China.
Article 24. For investment gains, including stock
dividends and bonuses, obtained by resident enterprises from
foreign enterprises under their direct or indirect control
outside China and in cases where the income tax actually
paid by foreign enterprises outside China is paid on the
incomes thus generated, the income tax paid will be deemed
as overseas creditable tax of the resident enterprise and
used for credit purposes within the creditable quota as
specified in article 23 of this law.
Chapter IV - Preferential Treatment of Taxation
Article 25. The State grants preferential treatment of
corporate income tax to industries and projects that the
State supports and encourages for development.
Article 26. The following incomes of enterprises are
classified as tax-free incomes:
1. incomes from the interest of T-bonds,
2. stock dividends, bonuses and other equity type
investment gains between resident enterprises that meet
certain terms and conditions,
3. stock dividends, bonuses and other equity type
investment gains obtained by non-resident enterprises that
have set up agencies or outlets inside China from resident
enterprises with actual connections with the agencies or
outlets set up,
4. incomes generated by non-profit-making enterprises
that meet certain terms and conditions.
Article 27. The following incomes of enterprises may be
exempted from corporate income tax or be eligible for
reduced corporate income tax:
1. incomes from engaging in agricultural, forestry,
husbandry, and fishing projects,
2. incomes generated from engaging in the investment and
management of public infrastructural projects and facilities
supported specifically by the State,
3. incomes generated from engaging in environmental
protection, energy conservation and water conservation
projects that meet certain terms and conditions,
incomes from transfer of technology that meet certain terms
and conditions,
4. incomes specified in paragraph 3 of article 3 of this
law.
Article 28. Small scale and low profit making enterprises
that meet certain terms and conditions are eligible for 20%
corporate income tax rate.
New and Hi-tech enterprises that the State needs to support
specifically are eligible for 15% corporate income tax rate.
Article 29. The autonomous authorities in places that
exercise ethnic autonomy may decide to grant reduced tax
rate to or exempt enterprises operating in their respective
administrative regions from paying part of the corporate
income tax that will go to the local governments. In cases
where the states and prefectures decide to do so, they shall
report such decisions to the people's governments at the
provincial, municipal and autonomous region level for
approval.
Article 30. The following expenditures of enterprises may
be deducted on a cumulative basis at the time of calculating
taxable incomes:
1. research and development expenditure for developing
new technology, new products, and new techniques,
2. salaries paid to allocate the disabled as well as
other people for employment as encouraged by the State.
Article 31. Start-up investment enterprises engaging in
the venture investment that is supported and encouraged
specifically by the State may be entitled to the treatment
of deducting a certain percentage of income tax from the
total investment.
Article 32. In cases where the fixed assets of
enterprises need to be depreciated at a faster rate due to
reasons of technological advances, the method of shortening
the depreciation period or accelerated depreciation may be
employed.
Article 33. Incomes generated from enterprises
comprehensive use of resources to produce products that
conform to the provisions of the country's industrial
policies may be deducted from the taxable incomes at the
time of calculation.
Article 34. Investment used by enterprises to purchase
special equipment for the purpose of environmental
protection, energy and water conservation, safety
production, and other purposes may be used as creditable
amount at a certain percentage.
Article 35. Detailed measures on preferential taxation
treatment as mentioned in this law shall be worked out
separately by the State Council.
Article 36. The State Council may draft specific
preferential policies regarding corporate income tax in view
of the need of the national economic and social development
or in the case of major impact on enterprises operational
activities cast by emergencies, and submit them for record
filing with the Standing Committee of the National People's
Congress.
Chapter V - Taxation at Source
Article 37. Income tax on incomes of non-resident
enterprises as mentioned in paragraph 3 of article 3 of this
law shall be deducted from the source, and the payer shall
be the withholding agent. The tax shall be withheld by the
withholding agent from the payment or payable amount at the
time of each payment.
Article 38. For income tax on incomes obtained by
non-resident enterprises from engineering and labour
services inside China, the taxation authority may designate
the party that pays the engineering projects or labour
services as withholding agent.
Article 39. For income tax to be withheld as specified in
articles 37 and 38, in cases where the withholding agent
fails to withhold according to law or is unable to perform
the obligations of withholding, the taxpayer shall pay tax
at the place of income generation. In cases where the
taxpayer fails to pay tax according to law, the taxation
authority may reclaim from the taxpayer the tax payable from
the payables under other items of incomes inside China.
Article 40. Taxes withheld by the withholding agent each
time shall be paid to the Treasury within 7 days, starting
from the day of withholding, and the withholding agent shall
submit to the local taxation authority a statement regarding
the withholding of corporate income tax.
Chapter VI - Adjustment to Special Taxation
Article 41. In cases where the business operations
between an enterprise and its associated parties do not
conform to the principles of independent transaction, which
results in the reduction of the taxable incomes or tax
payable on the part of the enterprise or its associated
parties, the taxation authorities shall have the right to
introduce adjustments according to reasonable methods.
In cases where an enterprise develops or accepts
intangible assets jointly with its associated parties or
provides and accepts labour costs jointly with its
associated parties, amortization shall be undertaken
according to the principle of independent transaction at the
time of calculating taxable incomes.
Article 42. Enterprises may propose to the taxation
authorities the pricing principles and calculation methods
regarding its business operations with associated parties,
and the taxation authorities shall consult and confirm with
the enterprises before arriving at a pre-arrangement for
pricing.
Article 43. Enterprises in submitting statements
declaring annual corporate income tax to the taxation
authorities shall provide statements regarding the annual
business operations with their associated parties.
When taxation authorities conduct investigations into the
associated business operations, the enterprises and their
associated parties as well as other enterprises related to
the investigations shall provide relevant information as
requested.
Article 44. In cases where enterprises fail to provide
information regarding the business operations with their
associated parties or provide false or incomplete
information, unable to reflect genuinely the business
operations with associated parties, the taxation authorities
shall have the right to verify and arrive at the taxable
incomes according to law.
Article 45. In cases where enterprises set up by resident
enterprises or under the control of resident enterprises and
Chinese residents in countries or regions where the actual
tax burden is significantly lower than what is specified in
paragraph 1 of article 4 of this law do not distribute
profits or reduce the distribution of profits not out of
reasonable operational needs, the profits that belong to the
resident enterprises mentioned above shall be included as
the period income of the resident enterprises.
Article 46. In cases where the percentage of credit type
investment and equity type investment received by an
enterprise from its associated parties exceeds the specified
ratio, the interest expenditure thus caused shall not be
deducted at the time of calculation of taxable incomes.
Article 47. In cases where enterprises make other
arrangements that do not have reasonable commercial
purposes, which results in the reduction in the taxable
incomes or tax payable, the taxation authorities shall have
the right to make adjustment with reasonable methods.
Article 48. In cases where taxation authorities make
taxation adjustment per the provisions of this chapter, and
there is a need for reclaim of taxes, such taxes shall be
reclaimed, and interest shall be charged as well according
to the regulations of the State Council.
Chapter VII - Taxation Administration
Article 49. Taxation administration of corporate income
tax shall, in addition to what is specified in this law, be
conducted in line with the provisions of the Taxation
Administration Law of the People's Republic of China.
Article 50. Unless otherwise specified in taxation laws
and administrative regulations, the taxation location of a
resident enterprise shall be the place of registration of
the enterprise. For enterprises with registration location
abroad, the taxation location shall be the place where the
actual management institutions are located.
In cases where resident enterprises set up operational
branches inside China that do not have legal person status,
the corporate income tax shall be calculated and paid in an
aggregate manner.
Article 51. For incomes generated by non-resident
enterprises as mentioned in paragraph 2 of article 3 of this
law, the place where the agency or outlet is located is the
place of taxation. In cases where a non-resident enterprise
sets up two or more agencies or outlets inside China, upon
the examination and approval by the taxation authorities,
the enterprise may choose to have its principal agency or
outlet pay the corporate income tax in an aggregate manner.
For incomes obtained by non-resident enterprises as
mentioned in paragraph 3 of article 3 of this law, the place
where the withholding agent is located is considered the
taxation location.
Article 52. Unless otherwise specified by the State
Council, enterprises shall not combine and pay corporate
income tax.
Article 53. Corporate income tax is calculated on the
basis of a taxable year and a taxation year is between
January 1 and December 31 of a calendar year.
In cases where an enterprise starts business or
terminates operations in the middle of a taxation year,
which results in the actual operational period during a
taxation year being less than 12 months, the actual period
of operation shall be taken as a taxation year.
When an enterprise conducts liquidation according to law,
the liquidation period will be deemed as a taxation year.
Article 54. Corporate income tax shall be paid on a
monthly basis or quarterly basis.
Enterprises shall submit to the taxation authority
taxation declaration for the pre-payment of corporate income
tax and pay taxes in advance within 15 days upon the end of
each month or quarter.
Enterprises shall, within 5 months upon the completion of
each year, submit to the taxation authority annual taxation
declaration of corporate income tax and pay taxes, calculate
the exact amount of taxes to pay, and pay the full amount
payable or get back the amount refundable.
Enterprises in submitting annual taxation declaration of
corporate income tax shall submit the financial and
accounting statements and other related materials as
requested.
Article 55. In cases where an enterprise terminates
operations in the middle of the year, it shall, within 60
days upon the day of termination of the actual operations,
handle the calculation and payment of the period corporate
income tax with the taxation authority.
An enterprise, before handling the writing off of its
registration, shall declare to the taxation authority
regarding its incomes from liquidation and pay corporate
income tax according to law.
Article 56. Corporate income tax paid in accordance with
this law shall be calculated in RMB Yuan. In cases where the
incomes are calculated in currencies other than RMB,
conversion into RMB shall be done at the time of calculation
and payment of taxes.
Chapter VIII - Supplementary Articles
Article 57. Enterprises established upon approval before
the promulgation of this law that are entitled to low tax
rates as preferential treatment per the taxation laws and
administrative regulations at that time shall transfer to
the tax rates specified in this law within 5 years upon the
entry into force of this law. In cases where they are
entitled to preferential taxation treatment, such as
exemption or reduction within a specified period of time,
they may continue to do so up to the expiry per the
regulations of the State Council after the entry into force
of this law. However, for those that have not enjoyed the
preferential treatment due to the reasons of failure to make
profits, the preferential treatment period shall be
calculated according to the year when this law becomes
effective.
For special areas developed according to laws for the
purpose of promoting foreign economic cooperation and
technological exchanges, as well as new and high technology
enterprises newly set up that the State deems necessary to
support specifically in areas that are entitled to the
exercise of special policies as mentioned above per the
regulations of the State Council, they are eligible for
transitional preferential taxation treatment, and the
detailed measures shall be worked out by the State Council.
Other enterprises within the categories of being
encouraged as identified by the State may be granted
preferential taxation treatment of exemption or reduced rate
per the regulations of the State Council.
Article 58. In cases where there are different provisions
between this law and the agreements on taxation signed
between the government of the People's Republic of China and
foreign governments, the provisions of such agreements shall
prevail.
Article 59. The State Council shall draft the
implementation regulations for this law.
Article 60. This law shall enter into force as of January
1 2008. The Corporate Income Tax Law of the People's
Republic of China on Foreign Invested Enterprises and
Foreign Enterprises adopted at the 4th Session of the 7th
National People's Congress on April 9 1991 and the
Provisional Regulations of the People's Republic of China on
Corporate Income Tax released by the State Council on
December 13 1993 shall be abolished at the same time.
