Enterprise Income Tax Law of the People’s Republic of China

Adopted at the Fifth Session of the Tenth National People’s Congress on March 16, 2007; and amended for the first time in accordance with Decision on Amending Enterprise Income Tax Law of the People’s Republic of China adopted at the 26th Meeting of the Standing Committee of the Twelve National People’s Congress of the People’s Republic of China on February 24, 2017; and amended for the second time in accordance with the Decision on Amending Four Laws including Electric Power Law of the People’s Republic of China adopted at the Seventh Meeting of the Standing Committee of the Thirteenth National People’s Congress of the People’s Republic of China on December 29, 2018.

Contents

Chapter I General Provisions

Chapter II The Amount of Taxable Income

Chapter III The Amount of Tax Payable

Chapter IV Tax Preferences

Chapter V Tax Withheld at Source

Chapter VI Special Tax Adjustment

Chapter VII Tax Collection and Administration

Chapter VIII Supplementary Provisions

Chapter I General Provisions

Article 1 Within the People’s Republic of China, enterprises, and other organizations which derive income (hereinafter referred to collectively as “enterprises”), shall be taxpayers of enterprise income tax and shall pay enterprise income tax in accordance with provisions of this Law.

This Law is not applicable to sole proprietorships and partnerships.

Article 2 Enterprises are categorized into resident enterprises and non-resident enterprises.

For the purposes of this Law, a resident enterprise is an enterprise established in China in accordance with the law, or which is established in accordance with the law of a foreign country (region) but with effective management located in China. For the purposes of this Law, a non-resident enterprise is an enterprise established in accordance with the law of a foreign country (region) with effective management located outside China, but which has an establishment or a place in China, or which has no such establishment or place but has income sourced from inside China.

Article 3 A resident enterprise shall pay enterprise income tax on income sourced from both inside and outside China.

A non-resident enterprise that has an establishment or a place in China shall pay enterprise income tax on the income sourced from inside China that is derived by its establishment or place and the income sourced from outside China but which is effectively connected with the aforesaid establishment or place established in China.

Where a non-resident enterprise has no establishment or place in China, or it has an establishment or a place in China but the income derived is not effectively connected with the aforesaid establishment or place, it shall pay enterprise income tax on the portion of its income sourced from inside China.

Article 4 The rate of enterprise income tax shall be 25 percent.

On the income derived by a non-resident enterprise, as specified in the third paragraph of Article 3 of this Law, the applicable tax rate shall be 20 percent.

Chapter II The Amount of Taxable Income

Article 5 The amount of taxable income of an enterprise in each tax year shall be the amount of its gross income reduced by untaxed income, tax-exempt income, other deductions and allowable losses carried forward from previous years.

Article 6 Gross income refers to the monetary and non-monetary income derived by enterprises from various sources, which includes:

(1) income from sale of goods;

(2) income from provision of services;

(3) income from transfer of property;

(4) benefits from equity investment, such as dividends and profit distribution;

(5) interest income;

(6) rental income;

(7) income from royalties;

(8) income from donations; and

(9) income from other sources.

Article 7 The following of gross income are untaxed income:

(1) government appropriations;

(2) administrative fees and government funds collected and administered in accordance with the law; and

(3) other untaxed income prescribed by the State Council.

Article 8 When calculating the amount of taxable income, an enterprise may deduct its reasonable expenses which are actually incurred in relation to the generation of income, including costs, fees, taxes, losses and other expenses.

Article 9 The portion of the donations made by an enterprise for public welfare which does not exceed 12 percent of the total amount of its annual profits shall be deductible; and the portion that exceeds such percentage is allowed to be carried forward and deducted when calculating the amount of its taxable income in the following three years.

Article 10 When calculating the amount of taxable income, the following expenses shall not be deducted:

(1) payment made to the investors related to equity investment, such as dividends and profit distribution;

(2) payment of enterprise income tax;

(3) surcharges for overdue tax payment;

(4) penalties, fines, and losses caused by property confiscation;

(5) donation expenses other than what is specified in Article 9 of this Law;

(6) sponsorship expenses;

(7) unverified provisions; and

(8) other expenses that are not related to the generation of income.

Article 11 When calculating taxable income, an enterprise may deduct the depreciation of fixed assets calculated in accordance with relevant regulations.

No depreciation shall be allowed for the following fixed assets:

(l) fixed assets that have not been put to use other than buildings and structures;

(2) fixed assets leased-in by way of operating leasing;

(3) fixed assets leased-out by way of financing leasing;

(4) fixed assets that have been depreciated in full but are still in use;

(5) fixed assets that are irrelevant to business activities;

(6) land which is separately evaluated and entered into accounts as fixed assets; and

(7) other fixed assets the depreciation of which shall not be calculated for deduction.

Article 12 When calculating the amount of taxable income, an enterprise may deduct the amortization of intangible assets calculated in accordance with relevant regulations.

No amortization shall be allowed for the following intangible assets:

(l) expenses for self-developed intangible assets which have already been deducted in calculating the amount of taxable income;

(2) self-created goodwill;

(3) intangible assets that are irrelevant to business activities; and

(4) other intangible assets the amortization of which shall not be calculated for deduction.

Article 13 When calculating the amount of taxable income, the following expenses, as incurred by an enterprise as long-term deferred expenses, may be deducted if amortized in accordance with relevant regulations:

(1) expenses for reconstruction of the fixed assets that have been fully depreciated;

(2) expenses for reconstruction of the leased-in fixed assets;

(3) expenses for major repairs of the fixed assets; and

(4) other expenses that shall be treated as long-term deferred expenses.

Article 14 During the period when an enterprise makes external investment, the cost of the investment in the form of assets shall not be deducted when calculating the amount of taxable income.

Article 15 Where an enterprise uses or sells inventory, it may deduct the cost of the inventory calculated in accordance with relevant regulations when calculating the amount of taxable income.

Article 16 Where an enterprise transfers its assets, it may deduct the net value of the assets when calculating the amount of taxable income.

Article 17 When an enterprise calculates its enterprise income tax on a consolidated basis, the losses of its business establishments outside China shall not offset the profits of the business establishments inside China.

Article 18 The losses incurred during a tax year by an enterprise is allowed to be carried forward to the succeeding years and offset by the profits of the succeeding years, but the carry-forward period shall not exceed a maximum of five years.

Article 19 With respect to the income derived as prescribed in the third paragraph of Article 3 of this Law, a non-resident enterprise shall calculate the amount of taxable income in accordance with the following methods:

(1) for income derived from equity investment such as dividends and profit distribution, and income from interest, rental and royalty, the total amount of such income shall be the amount of taxable income;

(2) for income derived from property transfer, the total amount of the income reduced by the net value of the property shall be the amount of taxable income; and

(3) for other sources of income, the amount of taxable income shall be calculated in accordance with the methods specified in the preceding two Subparagraphs.

Article 20 The detailed scopes and criteria relating to income and deduction, and the detailed methods relating to tax treatments of assets as specified in this Chapter, shall be formulated by the finance and taxation departments of the State Council.

Article 21 In calculating the amount of taxable income, where financial and accounting methods of an enterprise are inconsistent with provisions of the laws and administrative regulations governing taxation, the calculation shall follow the tax laws and administrative regulations.

Chapter III The Amount of Tax Payable

Article 22 The amount of taxable income of an enterprise multiplied by the applicable tax rate, minus the amount of tax reduction, exemption and credits in accordance with the provisions of this Law on tax preferences, shall be the amount of tax payable.

Article 23 Income tax paid outside China on the following incomes derived by an enterprise may be credited against the tax payable for the current period, and the credit limit shall be the tax payable on the aforesaid income as calculated in accordance with provisions of this Law; any amount exceeding the credit limit in the current year may be carried forward for five years, and the carry-forward credit can be utilized in such future years to the extent that the credit limit for a year exceeds the income tax paid outside China of that year:

(1) taxable income sourced from outside China by a resident enterprise; and

(2) taxable income sourced from outside China by a non-resident enterprise that has an establishment or a place in China but which is effectively connected with the aforesaid establishment or place.

Article 24 For income from equity investment, such as dividends and profit distribution, which is sourced from outside China by a resident enterprise from foreign enterprises that are under its direct or indirect control, the portion of the income tax actually paid outside China by the foreign enterprises on the aforesaid income, may credit income tax on the income sourced from outside China by the resident enterprise, within the credit limit specified in Article 23 of this Law.

Chapter IV Tax Preferences

Article 25 The State offers tax preferences to the industries and projects which have the major support of, and the development of which is encouraged by, the State.

Article 26 The following incomes of an enterprise shall be income exempted from tax:

(1) income from interest on government bonds;

(2) income from equity investment, such as dividends and profit distribution, between qualified resident enterprises;

(3) income from equity investment, such as dividends and profit distribution, which is received from a resident enterprise by a non-resident enterprise that has an establishment or a place in China, and which is effectively connected with the aforesaid establishment or place; and

(4) income derived by a qualified non-profit organization.

Article 27 Tax on the following incomes of an enterprise may be exempted or reduced:

(1) income derived from projects of farming, forestry, animal husbandry, and fisheries;

(2) income from investment in and operation of infrastructure projects which have the major support of the State;

(3) income derived from qualified projects of environmental protection or energy and water conservation;

(4) income from qualified technology transfer; and

(5) income as specified in the third paragraph of Article 3 of this Law.

Article 28 With respect to a qualified small and low-profit enterprise, the tax on its income shall be levied at a reduced rate of 20 percent.

With respect to a high-tech enterprise that is specifically supported by the State, the tax on its income shall be levied at a reduced rate of 15 percent.

Article 29 The autonomous authority of an ethnic autonomous region may grant reduction or exemption out of the locally retained portion of enterprise income tax payable by an enterprise located at the aforesaid area. Tax reduction or exemption decided on by an autonomous prefecture or county shall be subject to approval by the government of a province, autonomous region or municipality directly under the Central Government.

Article 30 Super deduction may be made for the following expenses when the amount of taxable income of an enterprise is calculated:

(1) expenses on research and development incurred for developing new technologies, products or techniques; and

(2) wages paid for job placement of the disabled and of other persons as encouraged by the State.

Article 31 For a venture capital enterprise that invests in pioneering undertaking, which the State deems necessary to give major support and encouragement, a certain percentage of the investment may be deducted from the taxable income.

Article 32 Where accelerated depreciation of the fixed assets of an enterprise is deemed necessary due to technology advancement or other reasons, depreciation period may be shortened, or accelerated depreciation methods may be adopted.

Article 33 For income derived by an enterprise from manufacturing products which are compliant with the industrial policies of the State by way of comprehensive utilization of resources, the amount may be deducted when calculating taxable income.

Article 34 The amount of money an enterprise invests in the purchase of special equipment for environmental protection, energy and water conservation, and safe production may be credited against the tax payable at a certain proportion.

Article 35 The specific tax preferences specified in this Law shall be formulated by the State Council.

Article 36 To meet the needs of national economic and social development, or due to the challenges of unexpected incidents, etc., which have a major impact on the business activities of enterprises, the State Council may formulate special tax preferences with respect to enterprise income tax and submit them to the Standing Committee of the National People’s Congress for the record.

Chapter V Tax Withheld at Source

Article 37 The tax payable on the income derived by a non-resident enterprise, as specified in the third paragraph of Article 3 of this Law, shall be withheld at source, with the payer of the income serving as the withholding agent. When making such payment or when such payment is due, the withholding agent shall withhold the income tax from such payment.

Article 38 With respect to the tax payable on income derived by a non-resident enterprise from contractor projects and services in China, the tax authority may designate the payer of the project fee or the service charge as the withholding agent.

Article 39 With respect to the income tax that shall be withheld in accordance with the provisions in Articles 37 and 38 of this Law, where the withholding agent fails to withhold tax in accordance with the law, or cannot perform the withholding obligation, the taxpayer shall pay the tax at the place where the income is derived. If the taxpayer fails to pay the tax in accordance with the law, the tax authority may recover the tax to be paid by the non-resident enterprise from other income items of the non-resident enterprise in China which shall be paid by the payer of these income items.

Article 40 The withholding agent shall pay the tax withheld in each installment to the State treasury within seven days after the date of withholding, and shall submit a withholding enterprise income tax return to the local tax authority.

Chapter IV Special Tax Adjustment

Article 41 Where a business transaction effected between an enterprise and its associated party is at variance with arm’s length principle and the taxable gross income or the amount of taxable income of the enterprise or its associated party is reduced, the tax authority shall have the right to make adjustment with appropriate methods.

The cost incurred by an enterprise and its associated party in joint development, obtaining of intangible assets, or in joint provision or receiving of services shall be shared by them under arm’s length principle when calculating taxable income.

Article 42 An enterprise may propose, the principle of pricing and the method of calculation for the transactions effected with its associated parties, to the tax authority. The tax authority and the enterprise may, after consultation and confirmation, conclude an advance pricing arrangement.

Article 43 When an enterprise files its annual enterprise income tax return, it shall enclose a statement of its annual business transactions effected with its associated party.

When the tax authority conducts investigation on transactions between associated parties, the enterprise, its associated party and other enterprises related to the investigation shall provide the relevant information in accordance with relevant regulations.

Article 44 Where an enterprise fails to provide the information of its business transactions effected with an associated party, or provides false or incomplete information, not reflecting truthfully transactions between associated parties, the tax authority shall have the right to verify and determine the amount of its taxable income in accordance with the law.

Article 45 Where a resident enterprise controls, or a resident enterprise and a Chinese individual resident jointly control, an enterprise that is established in a country (region) whose effective tax burden is substantially lower than the tax rate as specified in the first paragraph of Article 4 of this Law, if the profit is not distributed or is under-distributed not for reasonable business needs, the portion of the aforesaid profit which is attributable to the resident enterprise shall be included in the income of the resident enterprise in the current period.

Article 46 Where the ratio of debt investment to equity investment from associated parties exceeds the prescribed standard, the interest expense so incurred shall not be deducted when calculating the amount of taxable income.

Article 47 Where an enterprise lowers its taxable income or amount of income because it implements plans without reasonable business purposes, the tax authority shall have the right to make adjustment with appropriate methods.

Article 48 Where the tax authority makes tax adjustment in accordance with this Chapter, resulting in additional tax payable, such tax payable shall be collected, and interest shall be levied additionally in accordance with relevant regulations of the State Council.

Chapter VII Tax Collection and Administration

Article 49 In addition to the provisions of this Law, collection and administration of enterprise income tax shall be implemented in accordance with the provisions of Tax Collection and Administration Law of the People’s Republic of China.

Article 50 Unless otherwise specified by the laws and administrative regulations governing taxation, the location for paying tax of a resident enterprise shall be its place of registration; if the enterprise is registered outside China, the location for paying tax shall be where its effective management is located.

Where a resident enterprise establishes a business institution that does not have the status of a legal person in China, it shall consolidate the calculation and payment of its enterprise income tax.

Article 51 A non-resident enterprise that derives income as specified in the second paragraph of Article 3 of this Law shall pay tax at the place where its establishment or place is located. A non-resident enterprise that has two or more establishments or places in China may, in conformity with the conditions prescribed by the department in charge of taxation under the State Council, choose a principal establishment or place to pay the consolidated enterprise income tax.

A non-resident enterprise that derives income as specified in the third paragraph of Article 3 of this Law shall pay tax at the place where its withholding agent is located.

Article 52 An enterprise may not consolidate enterprise income tax with another enterprise, unless otherwise prescribed by the State Council.

Article 53 Enterprise income tax shall be computed on a tax year basis, which begins on January 1 and ends on December 31 of a calendar year.

If an enterprise commences business or terminates its business activities in the middle of a tax year, making the actual business period less than 12 months, the actual business period shall be deemed as a tax year.

When an enterprise is being liquidated in accordance with the law, the period of liquidation shall be deemed as one tax year.

Article 54 Enterprise income tax shall be prepaid on a monthly or quarterly basis.

For prepayment of tax, an enterprise shall file an enterprise income tax prepayment return within 15 days after the end of a month or quarter.

For consolidated tax payment, an enterprise shall file an annual enterprise income tax return within five months after the end of a tax year and settle the tax to be paid or refunded.

When filing the enterprise income tax return, an enterprise shall enclose financial statements and other relevant information in accordance with relevant regulations.

Article 55 Where an enterprise terminates its business activities in the middle of a year, it shall, within 60 days after the date it actually terminates its business, settle its enterprise income tax of the current period on a consolidated basis with the tax authority.

Before going through the procedure for deregistration, an enterprise shall file the return on the income settled and pay enterprise income tax in accordance with the law.

Article 56 Enterprise income tax to be paid in accordance with this Law shall be calculated in terms of Renminbi. Where the income is calculated in a currency other than Renminbi, it shall be converted into Renminbi for tax payment.

Chapter VIII Supplementary Provisions

Article 57 For an enterprise set up upon approval prior to the promulgation of this Law that enjoys the preference of a reduced tax rate in accordance with the laws and administrative regulations governing taxation of the time, in accordance with relevant regulations of the State Council, its applicable tax rate may transition to the tax rate prescribed by this Law within five years after this Law enters into force. An enterprise that enjoys the tax preferences in the form of periodic tax exemption or reduction may, in accordance with relevant regulations of the State Council, continue enjoying such preferences after this Law enters into force, until the period for such preferences expires; however, if it has not enjoyed such preferences because it makes no profit, the period for such preferences shall be calculated from the year this Law enters into effect.

High-tech enterprises that are set up in specific zones in accordance with the law for the purposes of economic cooperation and technological exchanges with other countries (regions) and that are newly set up in an area where special policies adopted for the aforesaid zones are implemented as prescribed by the State Council, all of which the State deems it necessary to give major support, may enjoy transitional tax preferences, and specific measures shall be prescribed by the State Council.

Other enterprises of the encouraged type as confirmed by the State may enjoy preferences of tax reduction and exemption in accordance with relevant regulations of the State Council.

Article 58 Where the provisions in the tax treaties concluded by the Government of the People’s Republic of China with the governments of other countries are different from the ones in this Law, the provisions in the treaties shall prevail.

Article 59 Implementation regulations for this Law shall be formulated by the State Council.

Article 60 This Law shall enter into force from January 1, 2008. Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises of the People’s Republic of China, which was adopted at the Forth Session of the Seventh National People’s Congress on April 9, 1991, and Provisional Regulations of Enterprise Income Tax of the People’s Republic of China, which was promulgated by the State Council on December 13, 1993, shall be repealed simultaneously.

All information in this document is authentic in Chinese. English is provided for reference only. In case of any discrepancy, the Chinese version shall prevail.