The Income Tax Law of the People’s Republic Of China Concerning Chinese-Foreign Joint Ventures

(Adopted by the Third Session of the Fifth National People's Congress and
Promulgated on and Effective as of September 10, 1980)

Article 1 Income tax shall be paid in accordance with the provisions of this Law by Chinese-foreign joint ventures (hereafter referred to as "joint ventures") located in the People's Republic of China on all of their income from production and business operations and on other income.
Income tax on the income from production and business operations and on other income of branches of a joint venture inside and outside China shall be paid by their head office on a consolidated basis.

Article 2 The taxable income of a joint venture shall be the excess of its gross income in a tax year over its deductible costs, expenses and losses.

Article 3 The income tax rate on joint ventures shall be 30 percent. In addition, a local income tax of 10 percent of the assessed income tax shall be levied.
The income tax rates on joint ventures that develop petroleum, natural gas and other resources shall be stipulated separately.

Article 4 When a foreign joint venturer remits abroad its share of profit obtained from the venture, an income tax of 10 percent of the remitted amount shall be levied.

Article 5 A newly established joint venture scheduled to operate for a period of 10 years or more, upon approval by the tax authorities of an application filed by the venture, shall be exempted from income tax in the first profit-making year and allowed a 50 percent reduction of income tax in the second and third years.
With the approval of the Ministry of Finance of the People's Republic of China, joint ventures engaged in relatively low-profit operations such as farming and forestry and joint ventures established in remote, economically underdeveloped regions may be allowed a 15 to 30 percent reduction in income tax for another 10 years following the expiration of the period for exemption and reductions specified in the preceding paragraph.

Article 6 A joint venturer that reinvests in China its share of profit obtained from the venture for a period of not less than five years shall, upon a approval by the tax authorities of an application filed by the joint venturer, be refunded 40 percent of the income tax already paid on the reinvested portion. If it withdraws the investment within five years, it shall repay the refunded tax.

Article 7 Losses incurred by a joint venture in a tax year may be carried over to the next tax year and offset against a corresponding amount from that year's income. Should the income in the subsequent tax year be insufficient to offset the said losses, the balance may be offset against income in successive years, but within a period not exceeding five years.

Article 8 Income tax on joint ventures shall be computed and levied on an annual basis and paid in advance in quarterly installments. Such advance payments shall be made within 15 days after the end of each quarter, and the final settlement shall be made within three months after the end of each tax year, with a refund for any overpayment or a supplemental payment for any deficiency.

Article 9 A joint venture shall file its income tax returns in respect of advance payments with the local tax authorities within the period prescribed for advance payments; and an annual income tax return, together with the statements of final accounts, shall be filed within three months after the end of the tax year.

Article 10 Income tax on joint ventures shall be computed in terms of Renminbi. Income in foreign currency shall be taxed on the equivalent amount converted into Renminbi according to the foreign exchange rate quoted by the State General Administration of Exchange Control of the People's Republic of China.

Article 11 When a joint venture starts to operate, changes its line of production, moves to a new site, ceases to operate or changes or assigns its registered capital, it shall present the pertinent certificates to and go through tax registration with the local tax authorities within 30 days after registering with the General Administration for Industry and Commerce of the People's Republic of China.

Article 12 The tax authorities have the right to investigate the financial, accounting and tax affairs of a joint venture. The joint venture must make reports according to the facts and provide pertinent information, may not refuse to co-operate and may not conceal the facts.

Article 13 A joint venture must pay its tax within the prescribed time limit. In case of failure to do so, the tax authorities, in addition to setting a new time limit for tax payment, shall impose a surcharge for overdue payment equal to 1/2 of 1 percent of the overdue tax for every day in arrears, starting from the first day payment becomes overdue.

Article 14 The tax authorities may exercise their discretion in light of the circumstances to impose a fine on a joint venture that has violated the provisions of Article 9, 11 or 12 of this Law.
In dealing with a joint venture that has evaded or refused to pay tax, the tax authorities, in addition to pursuing the tax payment, may impose a fine of up to but not exceeding five times the tax underpaid or not paid, in accordance with the seriousness of the case. Cases of gross violation shall be handled by the local people's courts in accordance with the law.

Article 15 In case of a dispute with the tax authorities over tax payment, a joint venture must first pay the tax as prescribed before applying to higher tax authorities for reconsideration. If it does not accept the decision made after re-consideration, it may bring a suit in the local people's courts.

Article 16 Income tax paid abroad by a joint venture or its branches may be credited against the assessed income tax of the head office.
When agreements on avoidance of double taxation have been concluded between the Government of the People's Republic of China and foreign governments, income tax credits shall be handle in accordance with the provisions of the respective agreements.

Article 17 Rules for the implementation of this Law shall be formulated by the Ministry of Finance of the People's Republic of China.

Article 18 This Law shall go into effect on the day of its promulgation.