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Foreign Investment and Foreign Enterprises

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Income Tax Law of the People's Republic of China on Enterprises with
Foreign Investment and Foreign Enterprises

Updated: 2006-04-17 15:07

("Income Tax Law of the People's Republic of China on Enterprises with
Foreign Investment and Foreign Enterprises" is adopted at the Fourth
Session of the Seventh National People's congress on April 9, 1991, and
is promulgated. This law will be effective as of July 1, 1991.)

Chapter I General Provisions

Article 1
Income tax shall be paid in accordance with the provisions of this Law by
enterprises with foreign investment within the territory of the People's
Republic of China on their income derived from production, business
operations and other sources.
Income tax shall be paid in accordance with the provisions of this Law by
foreign enterprises on their income derived from production, business
operations and other sources within the territory of the People's
Republic of China.

Article 2
"Enterprises with foreign investment" referred to in this Law mean
Chinese-foreign equity joint ventures, Chinese-foreign contractual joint
ventures and foreign-capital enterprises that are established in China.
"Foreign enterprises" referred to in this Law mean foreign companies,
enterprises and other economic organizations which have establishments or
places in China and engage in production or business operations, and
which, though without establishments or places in China, have income from
sources within China.

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

Article 4
The taxable income of an enterprise with foreign investment and an
establishment or a place set up in China to engage in production or
business operations by a foreign enterprise, shall be the amount
remaining from its gross income in a tax year after the costs, expenses
and losses have been deducted.

Article 5
The income tax on enterprises with foreign investment and the income tax
which shall be paid by foreign enterprises on the income of their
establishments or places set up in China to engage in production or
business operations shall be computed on the taxable income at the rate
of thirty percent, and local income tax shall be computed on the taxable
income at the rate of three percent.

Article 6
The State shall, in accordance with the 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 greater part of their products.

Article 7
The income tax on enterprises with foreign investment established in
Special Economic Zones, foreign enterprises which have establishments or
places in Special Economic Zones engaged in production or business
operations, and on enterprises with foreign investment of a production
nature in Economic and Technological Development Zones, shall be levied
at the reduced rate of fifteen percent.
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 twenty-four percent.
The income tax on enterprises with foreign investment in coastal economic
open zones, in the old urban districts of cities where the Special
Economic Zones or the Economic and Technological Development Zones are
located or in 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 fifteen
percent. The specific measures shall be drawn up 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 ten years shall, from the year
beginning to make profit, be exempted from income tax in the first and
second years and allowed a fifty percent reduction in the third to fifth
years. However, the exemption from or reduction of income tax on
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 exempted or reduced
already.
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 nonproduction 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 competent department for tax affairs under the State
Council of an application filed by the enterprise, be allowed a fifteen
to thirty percent reduction of the amount of income tax payable for a
period of another ten 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
The exemption from or reduction of local income tax on any enterprise
with foreign investment which operates in an industry or undertakes a
project encouraged by the State 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 obtained from the enterprise directly into
that enterprise by increasing its registered capital, or uses the profit
as capital investment to establish other enterprises with foreign
investment to operate for a period of not less than five years shall,
upon approval by the tax authorities of an application filed by the
investor, be refunded forty percent 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 its reinvestment before the expiration
of a period of five years, it shall repay the refunded tax.

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