Enterprise Income Tax Law of the People’s Republic of China — Full English Translation (2007, Amended 2017)

Chapter I: General Provisions

Article 1 This Law is enacted for the purposes of regulating the administration of enterprise income tax collection, safeguarding the lawful rights and interests of enterprises, and promoting the development of the socialist market economy.

Article 2 Enterprises shall be classified as resident enterprises and non-resident enterprises. A resident enterprise means an enterprise established in China in accordance with law, or an enterprise established under the law of a foreign country but with its place of effective management in China. A non-resident enterprise means an enterprise established under the law of a foreign country with its place of effective management not in China but with an establishment or place of business in China, or without an establishment or place of business in China but with income derived from inside China.

Article 3 A resident enterprise shall pay enterprise income tax on its income derived from inside and outside China. A non-resident enterprise with an establishment or place of business in China shall pay enterprise income tax on income derived by such establishment or place of business from inside China as well as income derived from outside China that is effectively connected with such establishment or place of business. A non-resident enterprise without an establishment or place of business in China, or whose income is not effectively connected with its establishment or place of business in China, shall pay enterprise income tax on its income derived from inside China.

Article 4 The enterprise income tax rate shall be 25 percent. The enterprise income tax rate applicable to non-resident enterprises under Article 3, paragraph 3, of this Law shall be 20 percent.

Chapter II: Taxable Income

Article 5 The total income of an enterprise in each tax year shall include: (1) income from the sale of goods; (2) income from the provision of services; (3) income from the transfer of property; (4) income from dividends, bonuses, and other equity investments; (5) income from interest; (6) income from rentals; (7) income from royalties; (8) income from donations; (9) other income.

Article 6 The taxable income shall be the balance of the total income of an enterprise in each tax year after deducting non-taxable income, tax-exempt income, various deductions, and the permitted deduction for losses of previous years.

Article 7 Non-taxable income shall include: (1) fiscal appropriations; (2) administrative fees and government funds collected in accordance with law and included in fiscal administration; (3) other non-taxable income prescribed by the State Council.

Article 8 Reasonable expenses actually incurred by an enterprise in connection with the earning of income, including costs, expenses, taxes, and losses, may be deducted in computing the taxable income.

Article 9 Expenditures for donations in the nature of public welfare by an enterprise may be deducted to the extent of not more than 12 percent of the total annual profit.

Article 10 The following expenditures shall not be deducted in computing the taxable income: (1) dividends, bonuses, and other equity investment income distributed to investors; (2) enterprise income tax; (3) tax late payment surcharges; (4) fines, penalties, and losses from confiscation of property; (5) donations other than those specified in Article 9; (6) sponsorship expenditures; (7) unapproved reserve expenditures; (8) other expenditures unrelated to the earning of income.

Article 11 Depreciation of fixed assets calculated in accordance with the provisions on the calculation of enterprise income tax may be deducted. The following fixed assets shall not be subject to depreciation deduction: (1) fixed assets other than houses and buildings that have not been put into use; (2) fixed assets leased under operating leases; (3) fixed assets leased under finance leases; (4) fixed assets that have been fully depreciated but continue to be used; (5) fixed assets unrelated to business operations; (6) land separately valued and recorded as a fixed asset.

Article 12 Expenditures for the amortization of intangible assets calculated in accordance with the provisions may be deducted. The following intangible assets shall not be subject to amortization deduction: (1) intangible assets developed by the enterprise itself for which the development expenditures have been deducted in computing the taxable income; (2) goodwill created by the enterprise itself; (3) intangible assets unrelated to business operations.

Article 13 Losses incurred by an enterprise in a tax year may be carried forward and deducted against income of subsequent years, provided that the carry-forward period shall not exceed five years. For high-tech enterprises and technology-based small and medium-sized enterprises, the carry-forward period may be extended to ten years.

Chapter III: Tax Payable

Article 14 The tax payable shall be the balance of the taxable income multiplied by the applicable tax rate less the tax credits and exemptions provided in this Law.

Article 15 Where an enterprise derives income from outside China, the enterprise income tax paid on such income outside China may be credited against the tax payable, provided that the credit amount shall not exceed the amount of tax that would otherwise be payable under this Law on the same income.

Chapter IV: Preferential Tax Treatment

Article 16 The state shall provide preferential enterprise income tax treatment to key industries and projects whose development is supported and encouraged by the state. High and new technology enterprises (HNTE) that require key state support shall be subject to a reduced enterprise income tax rate of 15 percent.

Article 17 Qualified small and thin-profit enterprises shall be subject to a reduced enterprise income tax rate of 20 percent. Key software enterprises and integrated circuit design enterprises may enjoy preferential tax rates.

Article 18 Income from the following items may be exempted from enterprise income tax: (1) income from agriculture, forestry, animal husbandry, and fishery projects; (2) income from investment in and operation of public infrastructure projects whose development is supported and encouraged by the state; (3) income from environmental protection, energy conservation, and water conservation projects; (4) income from technology transfer that meets the prescribed conditions.

Article 19 An additional deduction may be made for the following expenditures: (1) research and development expenses incurred for developing new technologies, new products, and new processes, where the additional deduction ratio is 75 percent (100 percent for manufacturing enterprises from 2021); (2) wages paid to disabled employees.

Article 20 Income from equity investments such as dividends and bonuses between qualified resident enterprises shall be exempted from enterprise income tax. Where a non-resident enterprise derives dividends, bonuses, and other equity investment income from a resident enterprise, such income shall be exempted from enterprise income tax if the non-resident enterprise holds 25 percent or more of the equity of the resident enterprise for 12 months or more.

Chapter V: Withholding at Source

Article 21 A non-resident enterprise deriving income specified in Article 3, paragraph 3, of this Law shall pay enterprise income tax at source, with the tax payable being the taxable income multiplied by the tax rate. The payer shall be the withholding agent and shall withhold the tax from each payment or upon the due date.

Article 22 The withholding agent shall perform its obligation to withhold tax in accordance with the law. Where the withholding agent fails to perform the withholding obligation, the taxpayer shall pay the tax at the place where the income is derived.

Chapter VI: Special Tax Adjustments

Article 23 Where a business transaction between an enterprise and its related party does not comply with the arm’s length principle and reduces the taxable income of the enterprise or its related party, the tax authorities shall have the authority to make adjustments using reasonable methods.

Article 24 An enterprise may propose to the tax authorities the arm’s length pricing principles and calculation methods for its business transactions with related parties. Upon agreement with the tax authorities, an advance pricing arrangement (APA) may be concluded.

Article 25 Where an enterprise submits its annual enterprise income tax return, it shall attach an annual report on its business transactions with related parties. The tax authorities may, when conducting an investigation and adjustment of related-party transactions, require the enterprise to provide relevant information.

Article 26 Where an enterprise incurs interest expenses on debt investments from a related party in excess of the prescribed proportion, the excess portion shall not be deducted in computing the taxable income.

Article 27 Where an enterprise is controlled by a resident enterprise or by a resident enterprise and a resident individual in a country or region where the effective tax burden is significantly lower than that in China and profits are not distributed or distributed in reduced amounts without reasonable business needs, the portion of such profits attributable to the resident enterprise shall be included in its current-period income.

Chapter VII: Collection Administration

Article 28 Enterprise income tax shall be calculated on an annual basis and prepaid on a monthly or quarterly basis. An enterprise shall submit an annual enterprise income tax return for the tax year to the tax authorities and settle the tax payable or refundable within five months after the end of the year.

Article 29 Where an enterprise is established, merged, divided, or terminated, it shall register with the tax authorities for the relevant matters in accordance with law.

Article 30 The enterprise income tax shall be calculated in RMB. Where income is calculated in a currency other than RMB, the tax payable shall be converted into RMB.

Chapter VIII: Supplementary Provisions

Article 31 The State Council shall formulate the regulations for the implementation of this Law. Tax authorities shall carry out the administration and collection of enterprise income tax in accordance with law.

Article 32 This Law shall come into force on January 1, 2008. The Enterprise Income Tax Law of the People’s Republic of China applicable to foreign-invested enterprises and foreign enterprises and the Interim Regulations of the People’s Republic of China on Enterprise Income Tax shall be repealed simultaneously.