Chapter I General Rules
Article 1 The enterprises and other organizations which have incomes (hereinafter referred to as the enterprises) within the territory of the People's Republic of China shall be payers of the enterprise income tax and shall pay their enterprise income taxes according to the present Law.
The sole individual proprietorship enterprises and partnership enterprises are not governed by the present Law.
Article 2 Enterprises are classified into resident enterprises and non-resident enterprises.
The term "resident enterprise" as mentioned in the present Law means an enterprise which is set up under Chinese laws within the territory of China, or set up under the laws of a foreign country (region) but whose actual management organ is within the territory of China.
The term "non-resident enterprise" as mentioned in the present
Law means an enterprise which is set up under the laws of a foreign country (region) and whose actual management organ is not within the territory of China but who has organs or establishments within the territory of China, or who does not have any organ or establishment within the territory of China but has incomes sourced in China.
Article 3 For its incomes sourced from both inside and outside the territory of China, a resident enterprise shall pay the enterprise income tax.
In case a non-resident enterprise sets up an organ or establishment within the territory of China, it shall pay enterprise income tax on its incomes sourced inside the territory of China and incomes sourced outside the territory of China but actually connected with the said organ or establishment.
In case a non-resident enterprise has no organ or establishment within the territory of China, or its incomes have no actual connection with its organ or establishment inside the territory of China, it shall pay enterprise income tax on the incomes sourced inside the territory of China.
Article 4 The enterprise income tax shall be levied at the rate of 25 percent.
In case a non-resident enterprise obtains incomes as mentioned in Paragraph 3, Article 3 of the present Law, the tax rate shall be 20 percent.
Chapter II Taxable Income Amount
Article 5 The balance after the tax-free and tax-exempt incomes, each deduction item as well as the permitted remedies for losses of the previous year(s) being deducted from an enterprise's total income amount of each tax year shall be the taxable income amount.
Article 6 An enterprise's total income amount refers to the monetary and non-monetary incomes from various sources and includes:
(1) Income from selling goods;
(2) Income from providing labor services;
(3) Income from transferring property;
(4) Equity investment gains, such as dividend and bonus;
(5) Interest income;
(6) Rental income;
(7) Royalty income;
(8) Income from accepting donations; and
(9) Other incomes.
Article 7 The tax-free income refers to the following incomes which are included in the total income amount:
(1) The treasury appropriations;
(2) The administrative fees and the governmental funds which are levied in accordance with the law and fall under the treasury administration; and
(3) Other tax-free incomes as prescribed by the State Council.
Article 8 When calculating the taxable income amount, the reasonable expenditures which actually happened and have actual connection with the business operations of an enterprise, including the costs, expenditures, taxes, losses, etc. may be deducted.
Article 9 As regards an enterprise's expenditures for public welfare donations, the portion within 12 percent of the total annual profits is permitted to be deducted.
Article 10 When calculating the taxable income amount, none of the following expenditures may be deducted:
(1) Such equity investment gains as dividend and bonus paid to the investors;
(2) Payment for enterprise income tax;
(3) Overdue fine for taxes;
(4) Pecuniary punishment, fines, and losses of confiscated properties;
(5) Expenditures for donations other than those prescribed in Article 9;
(6) Sponsorship expenditures;
(7) Unverified reserve expenditures;
(8) Other expenditures in no relation with the obtaining of revenues;
Article 11 An enterprise's depreciations of fixed assets, which are calculated pursuant to the related provisions, are permitted to be deducted in the calculation of the taxable income amount.
As regards any of the following fixed assets, no depreciation may be calculated for deduction:
(1) The fixed assets which have not yet been put into use, among which houses and buildings are not included;
(2) The fixed assets which are rented in through operating lease;
(3) The fixed assets which are rented out through financial lease;
(4) The fixed assets for which depreciation has been fully allocated but which are still in use;
(5) The fixed assets in no relation with the business operations;
(6) The land which is separately evaluated and entered into account as an item of fixed assets; and
(7) Other fixed assets for which no depreciation may be calculated for deduction.
Article 12 An enterprise is allowed to deduct the amortized expenditures of intangible assets calculated under the related provisions when calculating the taxable amount of incomes.
For the following intangible assets, no amortized expense may be calculated:
(1) The intangible assets which are developed by the enterprise itself and the expenditures have been deducted when calculating the taxable income amount;
(2) The self-created good will;
(3) The intangible assets in no relation with the business operations; and
(4) Other intangible assets for which no amortized expense may be calculated for deduction.
Article 13 The following expenditures incurred by an enterprise shall be deemed as long-term deferred expenditures when calculating the taxable income amount. Those amortized pursuant to the related provisions are permitted to be deducted:
(1) The expenditures for rebuilding a fixed asset, for which depreciation has been fully allocated;
(2) The expenditures for rebuilding a rented fixed asset;
(3) The expenditures for heavily repairing a fixed asset; and
(4) Other expenditures which shall be deemed as long-term deferred expenditures.
