Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation on Applicable Rate of Income Tax for the Branches of the Enterprises with Foreign Investment

GuoShuiFa [1997] No.49

April 9, 1997

The state and local tax bureaus of various provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan:

Recently, the issues on how to determine the applicable income tax rate for the branches established in the area within the territory of our country where different rates of income tax exist by the enterprises with foreign investment under the Income Tax Law of the People's Republic of China on the Enterprises with Foreign Investment and Foreign Enterprises (hereinafter referred to as Tax Law) have been enquired for many times by the local taxation institutions. In accordance with Article 5 and Article 7 of Law of Income Tax and Article 71 of Rules for the Implementation of it, the above issues should be handled depending on the following situations:

I.

The branches established in our country by the enterprises with foreign investment and undertaking the production, commodity trade and services are applied to the income tax rate of the local enterprises with the same trade. The headquarters of the foreign-funded enterprises should pay the income tax of the branches on a consolidated basis.

II.

The profits of products by the enterprises with foreign investment which produce and sell the products in our country by their own is applied to the income tax rate of the local enterprises in the area where the products are produced, no matter whether the enterprises sell the products through the sales agent or not and no matter how the sales organizations square the account. The income tax should be calculated and paid on a consolidated basis by their headquarters.

III.

The previous settlements opposite to this Circular can be adjusted according to the relevant provisions of this Circular from 1996.