Laws of the People's Republic of China

Circular of the State Administration of Taxation Concerning the Related Matters on Regulating and Intensifying the Administration of Consolidated Declaration and Payment of Income Tax by Foreign-related Enterprises

Guo Shui Fa [2007] No.23

The state taxation bureaus of each province, autonomous region, municipality directly under the Central Government and city specifically designated in the state plan, as well as the local taxation bureaus of Guangdong Province, Hainan Province and Shenzhen Municipality:

In accordance with the provisions of the Income Tax Law on Foreign-funded Enterprises and Foreign Enterprises (hereinafter referred to as foreign-related enterprises) and the Detailed Rules thereof, in case a foreign-funded enterprise obtains incomes from the production and operation of its branches within the territory of China or gains other incomes, , the head office of the enterprise shall, on a consolidated basis, pay the income taxes thereon ; where a foreign enterprise sets up two or more business offices within the territory of China, it may select one of them to declare and pay its income taxes on a consolidated basis. For the purpose of regulating and intensifying the administration of consolidated declaration and payment of income taxes by foreign-related enterprises, the related matters concerning the implementation are hereby prescribed as follows:

1.

Intensifying the administration on Confirming consolidated declaration

The tax authorities at the place where the head office of a foreign-funded enterprise or a foreign enterprise's business office in charge of the declaration and payment of income taxes on a consolidated basis (hereinafter referred to as consolidated taxpayer) is located shall issue a Confirmation Letter on Consolidated Declaration and Payment of Income Tax by Foreign-funded Enterprises (see Affix 1) after registering the tax category of the foreign-related enterprise income taxes paid by the consolidated taxpayer.

A foreign-funded enterprise branch or a foreign enterprise's business office whose income tax is declared and paid on a consolidated basis (hereinafter referred to as branch office) shall, when going through the formalities for the registration of income tax category, attach a photocopy of the Confirmation Letter on Consolidated Declaration and Payment of Income Tax by Foreign-funded Enterprise as issued by the competent tax authorities at the locality of the head office of the foreign-funded enterprise or that of the approval document on approving the foreign enterprise business institution to make a consolidated declaration and payment of income tax as produced by the tax authorities, and the branch offices are not required to separately declare the payment of income tax upon the examination and confirmation of the competent tax authorities.

2.

Intensifying examination and the administration of archive-filing matters

A branch office shall, within two months as of the end of each year, submit the competent tax authorities at its locality such tax-related issues that ought to be subject to examination and archive-filing as pre-tax deduction of property losses, additional deduction of expenses for developing technologies, accelerated depreciation of fixed assets and accelerated amortization of intangible assets, etc. . The competent tax authorities shall, within two months as of its receipt of the aforesaid materials, accomplish the examination work and issue a Confirmation Letter on the Examination and Archive-filing Matters of Branch Offices (see Affix 2).

A consolidated taxpayer shall, when making annual declaration of income tax, submit the materials required under normal circumstance and, meanwhile, attach the Confirmation Letter on the Examination and Archive-filing Matters of Branch Offices issued by the competent tax authorities at the locality of t its subordinate branch office, if not , it may not deduct the corresponding pre-tax deductible items from its pre-tax income.

3.

Intensifying coordination and cooperation

The competent tax authorities at the localities of the consolidated taxpayer and the branch office shall seriously implement the related provisions in the Working Rules and Procedures for the Settlement of Tax Payments by Foreign-funded Enterprises and Foreign Enterprises (Guo Shui Fa [2003] No.12 ), perform their respective duties and intensify mutual coordination and assistance.

The competent tax authorities at the locality the branch office shall, within 30 days as of its receipt of the Letter for Assistance in Investigating the Tax Issues of Business Offices issued by the competent tax authorities at the locality the consolidated taxpayer, take charge of investigating and verifying the related matters and send a reply on the investigating results to the competent tax authorities at the locality of the consolidated taxpayer.

The competent tax authorities at the localities of the consolidated taxpayer and the branch office shall, in accordance with the procedures and steps as prescribed in the Working Rules and Procedures on Joint Tax Auditing for Foreign-related Enterprise conduct trans-regional joint tax auditing.

All the aforesaid provisions shall go into effect since the date when the 2006 settlement of income tax payments by foreign-related enterprise commences. In case any previous provision conflicts with the present Circular, the latter shall prevail.

Affix:

1.

Confirmation Letter on Consolidated Declaration and Payment of Income Tax by Foreign-funded Enterprises

2.

Confirmation Letter on the Examination and Archive-filing Matters of Branch Offices

The State Administration of Taxation

February 28, 2007