Table of Contents

Chapter 1 General Provisions

Chapter 2: Taxable Income

Chapter 3: Taxable Amount

Chapter 4: Tax Incentives

Chapter 5 Withholding at Source

Chapter Six: Special Tax Adjustments

Chapter 7: Collection and Management

Chapter VIII Supplementary Provisions

Chapter 1 General Provisions

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

Sole proprietorships and partnerships are not subject to this law.

Article 2: Enterprises are classified as resident enterprises and non-resident enterprises.

For the purposes of this Law, a “resident enterprise” refers to an enterprise established within the territory of China in accordance with Chinese law, or an enterprise established under the laws of a foreign (region) but whose actual management body is located within the territory of China.

For the purposes of this Law, a non-resident enterprise refers to an enterprise established under the laws of a foreign (region) jurisdiction and whose actual management body is not located within China, yet which has established institutions or places of business within China; or an enterprise that has not established any institutions or places of business within China but derives income from sources within China.

Article 3: Resident enterprises shall pay enterprise income tax on income derived from sources within and outside China.

A non-resident enterprise that establishes an institution or place of business within China shall pay corporate income tax on the income derived from sources within China obtained by such institution or place of business, as well as on income arising outside China but having a genuine connection with its established institution or place of business.

If a non-resident enterprise has not established any institutions or places of business in China, or although it has established such institutions or places of business, the income it derives has no actual connection with those institutions or places of business, it shall pay corporate income tax on the income derived from sources within China.

Article 4: The corporate income tax rate is 25%.

Non-resident enterprises that obtain income as specified in Paragraph 3 of Article 3 of this Law shall be subject to a tax rate of 20%.

Chapter 2: Taxable Income

Article 5: The taxable income shall be the balance remaining after deducting non-taxable income, tax-exempt income, various deductions, and losses from previous years that are permitted to be carried forward from the total revenue of an enterprise in each tax year.

Article 6: The total revenue of an enterprise comprises all income obtained from various sources, whether in monetary or non-monetary form. This includes:

(1) Revenue from sales of goods;

(2) Revenue from rendering services;

(3) Income from the transfer of property;

(4) Equity investment income such as dividends and bonuses;

(5) Interest income;

(6) Rental income;

(7) Royalty income;

(8) Accepting donated income;

(9) Other income.

Article 7: The following income items within the total income are non-taxable income:

(1) Fiscal appropriations;

(2) Administrative and public service charges, as well as government funds, collected in accordance with the law and incorporated into fiscal management;

(3) Other income exempt from taxation as prescribed by the State Council.

Article 8: Reasonable expenditures actually incurred by an enterprise that are related to the generation of income—including costs, expenses, taxes, losses, and other expenditures—are deductible when calculating taxable income.

Article 9: Charitable donation expenses incurred by enterprises, to the extent not exceeding 12% of the annual total profit, may be deducted when calculating taxable income.

Article 10: The following expenses shall not be deductible when calculating taxable income:

(1) Dividends, bonuses, and other equity investment income paid to investors;

(2) Corporate income tax;

(3) Late payment penalties for taxes;

(4) Losses incurred from fines, penalties, and confiscated property;

(5) Donation expenses not covered by Article 9 of this Law;

(6) Sponsorship expenses;

(7) Unapproved reserve expenditures;

(8) Other expenses not related to the generation of income.

Article 11: When calculating taxable income, depreciation of fixed assets calculated by enterprises in accordance with regulations shall be allowed as a deduction.

The following fixed assets are not eligible for depreciation deductions:

(1) Fixed assets other than houses and buildings that are not yet put into use;

(2) Fixed assets leased under an operating lease;

(3) Fixed assets leased out under a finance lease arrangement;

(4) Fixed assets for which depreciation has been fully provided but are still in use;

(5) Fixed assets unrelated to operating activities;

(6) Land valued separately and recorded as fixed assets;

(7) Other fixed assets for which depreciation deductions are not allowed.

Article 12: When calculating taxable income, enterprises may deduct the amortization expenses of intangible assets calculated in accordance with applicable regulations.

The following intangible assets are not eligible for amortization expense deductions:

(1) Intangible assets for which expenditures incurred in self-development have already been deducted when calculating taxable income;

(2) Self-created goodwill;

(3) Intangible assets unrelated to operating activities;

(4) Other intangible assets for which amortization expenses cannot be deducted.

Article 13: When calculating taxable income, the following expenses incurred by an enterprise, which are treated as long-term deferred expenses and amortized in accordance with regulations, shall be allowed as deductions:

(1) Renovation expenditures for fixed assets for which depreciation has been fully provided;

(2) Renovation expenses for leased fixed assets;

(3) Major repair expenditures for fixed assets;

(4) Other expenditures that should be treated as long-term deferred expenses.

Article 14: During the period when an enterprise makes overseas investments, the cost of the invested assets may not be deducted when calculating taxable income.

Article 15: The cost of inventory calculated in accordance with the regulations when an enterprise uses or sells inventory shall be deductible when calculating taxable income.

Article 16: When an enterprise transfers assets, the net value of such assets shall be deductible when calculating taxable income.

Article 17: When enterprises calculate and pay their enterprise income tax on a consolidated basis, losses incurred by their overseas business entities may not be used to offset profits earned by their domestic business entities.

Article 18: Losses incurred by an enterprise in a tax year may be carried forward to subsequent years and offset against income earned in those subsequent years; however, the carryforward period shall not exceed five years.

Article 19: For income earned by non-resident enterprises as stipulated in Paragraph 3 of Article 3 of this Law, the taxable income shall be calculated according to the following methods:

(1) Equity investment income such as dividends and bonuses, as well as income from interest, rent, and royalties, shall be treated as taxable income based on the full amount of the income received.

(2) Income derived from the transfer of property shall be calculated as the balance remaining after deducting the net value of the property from the full amount of income;

(3) Other income shall have its taxable income calculated by reference to the methods specified in the preceding two items.

Article 20: The specific scope, standards for income and deductions, and detailed methods for the tax treatment of assets stipulated in this chapter shall be prescribed by the financial and tax authorities under the State Council.

Article 21: When calculating taxable income, if the financial and accounting treatment methods adopted by an enterprise are inconsistent with the provisions of tax laws and administrative regulations, the enterprise shall calculate taxable income in accordance with the provisions of tax laws and administrative regulations.

Chapter 3: Taxable Amount

Article 22: The amount of tax payable shall be the balance obtained by multiplying the enterprise’s taxable income by the applicable tax rate and then subtracting any tax reductions, exemptions, or credits allowed under the provisions of this Law.

Article 23: The income tax paid abroad on the following income earned by an enterprise may be credited against its current tax liability, provided that the credit amount shall not exceed the tax payable calculated in accordance with this Law on such income. Any portion of the tax paid abroad that exceeds the credit limit may be carried forward and offset against the remaining tax liability for each of the subsequent five years, up to the annual credit limit for each year.

(1) Taxable income of resident enterprises derived from sources outside China;

(2) A non-resident enterprise that establishes an institution or place of business in China and derives taxable income arising outside China but having a genuine connection with such institution or place of business.

Article 24: Equity investment income, such as dividends and bonuses, derived from sources outside China and distributed by a resident enterprise to a foreign enterprise directly or indirectly controlled by it may, to the extent corresponding to the portion of income tax actually paid by the foreign enterprise abroad that is attributable to such income, be credited against the resident enterprise’s foreign income tax payable within the credit limit prescribed in Article 23 of this Law.

Chapter 4: Tax Incentives

Article 25: The State shall grant preferential corporate income tax treatment to industries and projects that receive key support and encouragement for development.

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

(1) Interest income from government bonds;

(2) Equity investment income such as dividends and bonuses received by resident enterprises that meet the relevant conditions;

(3) Non-resident enterprises that have established institutions or places of business within the territory of China and receive equity investment income, such as dividends and bonuses, from resident enterprises that are actually connected to these institutions or places of business;

(4) Income of eligible nonprofit organizations.

Article 27: The following income earned by enterprises may be exempted from or subject to reduced corporate income tax:

(1) Income derived from agricultural, forestry, animal husbandry, and fishery projects;

(2) Income derived from the investment and operation of public infrastructure projects that are key priorities for national support;

(3) Income derived from qualified environmental protection, energy-saving, and water-saving projects;

(4) Income from technology transfers that meet the relevant conditions;

(5) Income specified in Paragraph 3 of Article 3 of this Law.

Article 28: Small, low-profit enterprises that meet the relevant conditions shall be subject to the enterprise income tax at a reduced rate of 20%.

High-tech enterprises that the state prioritizes for support are subject to the enterprise income tax at a reduced rate of 15%.

Article 29: The self-governing organs of ethnic autonomous areas may decide to reduce or exempt the portion of enterprise income tax payable by enterprises located in their respective autonomous areas that is shared by the local authorities. If an autonomous prefecture or autonomous county decides to reduce or exempt such tax, it must obtain approval from the people's government of the province, autonomous region, or municipality directly under the central government.

Article 30: The following expenditures of an enterprise may be subject to an additional deduction when calculating taxable income:

(1) Research and development expenses incurred in the development of new technologies, new products, and new processes;

(2) Wages paid to persons with disabilities and other employees whom the state encourages to be employed.

Article 31: Venture capital enterprises engaging in venture investments that the state prioritizes supporting and encouraging may deduct a certain percentage of their investment amount from their taxable income.

Article 32: If, due to technological advancements or other reasons, a company’s fixed assets genuinely require accelerated depreciation, the company may shorten the depreciation period or adopt an accelerated depreciation method.

Article 33: Income derived by enterprises from the comprehensive utilization of resources to produce products that comply with national industrial policies may be deducted when calculating taxable income.

Article 34: Enterprises may, at a certain percentage, offset their tax liability against the investment amount spent on purchasing specialized equipment used for environmental protection, energy conservation and water saving, and safe production.

Article 35: The specific measures for the tax incentives provided under this Law shall be prescribed by the State Council.

Article 36: Based on the needs of national economic and social development, or in cases where unforeseen events or other circumstances significantly impact business operations, the State Council may formulate special preferential policies for corporate income tax, which shall be submitted to the Standing Committee of the National People's Congress for record.

Chapter 5 Withholding at Source

Article 37: The income tax payable by non-resident enterprises on income falling under the provisions of Paragraph 3 of Article 3 of this Law shall be withheld at source, with the payer serving as the withholding agent. The tax shall be withheld by the withholding agent from each payment or from the amount due and payable at the time of such payment or due payment.

Article 38: With regard to the income tax payable by non-resident enterprises on income derived from engineering operations and labor services obtained within China, the tax authorities may designate the payer of the project payment or service fee as the withholding agent.

Article 39: If the withholding agent fails to withhold the income tax that should be withheld pursuant to Articles 37 and 38 of this Law, or is unable to fulfill its withholding obligations, the taxpayer shall pay the tax at the place where the income was generated. If the taxpayer fails to pay the tax in accordance with the law, the tax authority may recover the tax due from any payments payable by the payer of other income items of the taxpayer within China.

Article 40: The withholding agent shall remit the tax withheld each time to the state treasury within seven days from the date of withholding, and shall submit a corporate income tax withholding report to the tax authority in its jurisdiction.

Chapter Six: Special Tax Adjustments

Article 41: If business transactions between an enterprise and its associated party do not comply with the arm’s length principle and result in a reduction of the taxable income or profits of the enterprise or its associated party, the tax authority shall have the right to make adjustments using a reasonable method.

When an enterprise and its associated party jointly develop or acquire intangible assets, or jointly provide or receive services, the costs incurred shall be allocated in accordance with the arm’s length principle when calculating taxable income.

Article 42: Enterprises may submit to the tax authorities the pricing principles and calculation methods for business transactions with their associated enterprises. After consultation and confirmation by the tax authorities and the enterprise, a Advance Pricing Arrangement shall be reached.

Article 43: When submitting the annual corporate income tax return to the tax authorities, an enterprise shall, with respect to its business transactions with related parties, also submit the Annual Report on Related Party Transactions.

When conducting investigations into related-party transactions, enterprises and their associated parties, as well as other enterprises involved in the investigation of related-party transactions, shall provide the relevant materials as required.

Article 44: If an enterprise fails to provide information on its business transactions with related parties, or provides false or incomplete information that does not accurately reflect the nature of its related-party transactions, the tax authority shall have the right, in accordance with the law, to determine its taxable income.

Article 45: If a resident enterprise, or an enterprise established in a country (or region) whose effective tax rate is significantly lower than the tax rate prescribed in paragraph 1 of Article 4 of this Law and which is controlled by a resident enterprise or a Chinese resident, does not distribute profits or reduces profit distributions without justifiable business reasons, the portion of such profits attributable to the resident enterprise shall be included in the resident enterprise’s current-period income.

Article 46: Interest expenses incurred by an enterprise from its related parties due to the ratio of debt investments to equity investments exceeding the prescribed standard shall not be deductible when calculating taxable income.

Article 47: If an enterprise engages in other arrangements that lack a reasonable commercial purpose and thereby reduces its taxable income or profits, the tax authorities shall have the right to adjust such arrangements using a reasonable method.

Article 48: If the tax authority makes a tax adjustment in accordance with the provisions of this chapter and needs to collect additional tax, it shall collect the additional tax and impose interest at the rate prescribed by the State Council.

Chapter 7: Collection and Management

Article 49: With regard to the collection and administration of enterprise income tax, except as otherwise provided in this Law, the provisions of the "Law of the People's Republic of China on Tax Collection and Administration" shall apply.

Article 50: Except as otherwise provided by tax laws and administrative regulations, a resident enterprise shall take its place of business registration as the tax domicile; however, if its place of business registration is located overseas, its actual management institution’s location shall be deemed the tax domicile.

If a resident enterprise establishes a business entity within China that does not have legal personality, it shall calculate and pay its enterprise income tax on a consolidated basis.

Article 51: Non-resident enterprises that derive income as specified in Paragraph 2 of Article 3 of this Law shall have their tax domicile determined by the location of their institutions or establishments. If a non-resident enterprise establishes two or more institutions or establishments within China, it may, upon review and approval by the tax authorities, elect to have its corporate income tax paid collectively by its principal institution or establishment.

For income earned by non-resident enterprises as stipulated in Paragraph 3 of Article 3 of this Law, the place of tax payment shall be the location of the withholding agent.

Article 52: Except as otherwise provided by the State Council, enterprises may not merge for the purpose of paying corporate income tax.

Article 53: Corporate income tax is calculated on a tax year basis. The tax year runs from January 1 to December 31 of the Gregorian calendar.

If an enterprise commences business or ceases operations during a tax year, resulting in an actual operating period of less than twelve months for that tax year, the actual operating period shall be treated as a single tax year.

When an enterprise undergoes liquidation in accordance with the law, the liquidation period shall be treated as a tax year.

Article 54: Corporate income tax shall be paid in advance on a monthly or quarterly basis.

Enterprises shall, within fifteen days from the end of the month or quarter, submit to the tax authorities a provisional corporate income tax return and pay the provisional tax amount.

Enterprises shall, within five months from the end of the fiscal year, submit the annual corporate income tax return to the tax authorities and perform final tax settlement, settling all taxes payable and refunds due.

When filing the corporate income tax return, enterprises shall, as required, attach the financial accounting reports and other relevant materials.

Article 55: If an enterprise ceases its business operations mid-year, it shall, within sixty days from the date on which actual business operations come to an end, file its current-year corporate income tax annual return and final settlement with the tax authorities.

Before applying for deregistration, enterprises shall file a return with the tax authorities regarding their liquidation income and pay enterprise income tax in accordance with the law.

Article 56: The enterprise income tax payable under this Law shall be calculated in Renminbi. If the income is calculated in a currency other than Renminbi, it shall be converted into Renminbi for the purpose of calculating and paying the tax.

Chapter VIII Supplementary Provisions

Article 57: Enterprises that had already been approved for establishment prior to the promulgation of this Law and were enjoying preferential low tax rates in accordance with the tax laws and administrative regulations in effect at the time may, as stipulated by the State Council, gradually transition to the tax rates prescribed by this Law within five years following the effective date of this Law. Enterprises that were enjoying periodic tax reductions or exemptions may continue to benefit from such preferential treatments until the expiration of their respective terms, provided they have not yet begun to enjoy these benefits due to lack of profits; in such cases, the preferential period shall be calculated starting from the year this Law takes effect.

High-tech enterprises newly established within specific regions designated by law for developing foreign economic cooperation and technological exchanges, as well as within regions where the State Council has already stipulated the implementation of special policies for these regions, and which are identified by the state as requiring key support, may enjoy transitional tax incentives. The specific measures shall be prescribed by the State Council.

Other enterprises identified by the state as being eligible for incentives may enjoy tax reduction and exemption benefits in accordance with the regulations of the State Council.

Article 58: If an agreement on taxation concluded between the Government of the People's Republic of China and a foreign government contains provisions that differ from those of this Law, the provisions of the agreement shall prevail.

Article 59: The State Council shall formulate implementing regulations in accordance with this Law.

Article 60: This Law shall come into force on January 1, 2008. The “Law of the People’s Republic of China on Income Tax for Foreign-Invested Enterprises and Foreign Enterprises,” adopted at the Fourth Session of the Seventh National People’s Congress on April 9, 1991, and the “Interim Regulations of the People’s Republic of China on Enterprise Income Tax,” promulgated by the State Council on December 13, 1993, shall be repealed concurrently.