(Adopted by the Fourth Session of the Fifth National People's Congress
and Promulgated on December 13, 1981)

SUBJECT: TAXATION
ISSUING-DEPT: NATIONAL PEOPLE'S CONGRESS
ISSUE-DATE: 12/13/1981
IMPLEMENT-DATE: 01/01/1982
LENGTH: 1424 words

TEXT:

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

"Foreign enterprises" mentioned in this Law refers, with the exception of those for whom separate provisions are stipulated in Article 11, to foreign companies, enterprises and other economic organizations that have establishments within the territory of the People's Republic of China engaged in independent business operations or in co-operative production or co-operative business operations with Chinese enterprises.

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

Article 3
The income tax on foreign enterprises shall be computed at progressive rates on amounts in excess of specified amounts of taxable income, at tax rates as follows:

(DIAGRAM)

Article 4
When paying the income tax in accordance with the provisions of the preceding Article, a foreign enterprise shall also pay a local income tax of 10% of taxable income.

Whether a foreign enterprise with small-scale production and low profits warrants a reduction in or exemption from the local income tax shall be decided by the people's government of the province, autonomous region or municipality directly under the central authority in which that enterprise is located.

Article 5
A foreign enterprise scheduled to operate for a period of 10 years or more in farming, forestry, animal husbandry or other low-profit operations may, upon approval by the tax authorities of an application filed by the enterprise, be exempted from income tax in the first profit-making year and allowed a 50% reduction of income tax in the second and third years.

With the approval of the Ministry of Finance, a 15 to 30% reduction in income tax may be allowed for another 10 years following the expiration of the period for exemption and reductions specified in the preceding paragraph.

Article 6
Losses incurred by a foreign enterprise 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 7
Income tax on foreign enterprises shall be computed and levied on an annual basis and paid in advance in quarterly instalments. Such advance payments shall be made within 15 days after the end of each quarter, and the final settlement shall be made within five months after the end of each tax year, with a refund for any overpayment or a supplemental payment for any deficiency.

Article 8
A foreign enterprise shall file its income tax returns in respect of advance payments with the local tax authorities within the period prescribed for advance payments; and it shall file an annual income tax return, together with the statements of final accounts, within four months after the end of the tax year.

Article 9
A report on the systems of financial management and accounting of a foreign enterprise shall be submitted to the local tax authorities for reference.

If the procedures for financial management and accounting of a foreign enterprise contradict the provisions of the Tax Law, tax payments shall be assessed in accordance with the provisions of the Tax Law.

Article 10
When a foreign enterprise starts to operate or ceases to operate in accordance with the law, it shall present the pertinent certificates to and go through tax registration with the local tax authorities.

Article 11
Foreign companies, enterprises and other economic organizations that have no establishments in China shall pay an income tax of 20% on all dividend, interest, rental, royalty and other income with a source in China. Such tax shall be withheld by the paying unit from the amount of each payment.

For the payment of income tax in accordance with the provisions of the preceding paragraph, the foreign company, enterprise or other economic organization which earns the income shall be the taxpayer, and the paying unit shall be the withholding agent. The tax withheld from each payment by the withholding agent shall be turned over to the state treasury, and the withholding income tax return submitted to the tax authorities, within five days.

Income from interest on loans made to the Chinese Government or Chinese state banks by international financial organizations shall be exempted from income tax. Income from interest on loans made at a preferential interest rate by foreign banks to Chinese state banks shall also be exempted from income tax.

Foreign banks shall pay tax on their income from interest on deposits in Chinese state banks and on loans made at a normal interest rate to Chinese state banks. However, an exemption from income tax may be granted reciprocally to those foreign banks in whose countries income from interest on deposits of, and loans made by, Chinese state banks is exempt from income tax.

Article 12
The tax authorities have the right to investigate the financial, accounting and tax affairs of a foreign enterprise, and have the right to investigate the withholding and tax payment affairs of a withholding agent. Foreign enterprises and withholding agents 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
The income tax on foreign enterprises 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 14]
Foreign enterprises and withholding agents must pay taxes 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% of the overdue tax for every day in arrears, starting from the first day payment becomes overdue.

Article 15
The tax authorities may exercise their discretion in light of the circumstances to impose a fine on a foreign enterprise that has violated the provisions of Articles 8, 9, 10 or 12 of this Law.

In dealing with a withholding agent who has violated the provisions of Article 11 of this Law, the tax authorities may, in addition to setting a new time limit for the payment of the amount of tax that should have been withheld, exercise their discretion in light of the circumstances to impose a fine of up to but not exceeding 100% of the amount of tax that should have been withheld.

In dealing with a foreign enterprise 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 amount of 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 16
In case of a dispute with the tax authorities over tax payment, a foreign enterprise must first pay the tax as prescribed before applying to higher tax authorities for reconsideration. If it does not accept the decision made after reconsideration, it may bring a suit in the local people's courts.

Article 17
When agreements on tax payment have been concluded between the Government of the People's Republic of China and foreign governments, matters concerning tax payment shall be handled in accordance with the provisions of the respective agreements.

Article 18
Rules for the implementation of this Law shall be formulated by the Ministry of Finance of the People's Republic of China.

Article 19
This Law shall come into force on January 1, 1982.