Laws of the People's Republic of China

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

    Income tax shall be paid in accordance with the provisions of this Law by
foreign enterprises on their income derived from production, business
operations and other sources within the territory of the People's Republic of
China.

    Article 2  "Enterprises with foreign investment" referred to in this Law
mean Chinese-foreign equity joint ventures, Chinese-foreign contractual joint
ventures and foreign-capital enterprises that are established in China.

    "Foreign enterprises" referred to in this Law mean foreign companies,
enterprises and other economic organizations which have establishments or
places in China and engage in production or business operations, and which,
though without establishments or places in China, have income from sources
within China.

    Article 3  Any enterprise with foreign investment which establishes its
head office in China shall pay its income tax on its income derived from
sources inside and outside China. Any foreign enterprise shall pay its income
tax on its income derived from sources within China.

    Article 4  The taxable income of an enterprise with foreign investment
and an establishment or a place set up in China to engage in production or
business operations by a foreign enterprise, shall be the amount remaining
from its gross income in a tax year after the costs, expenses and losses have
been deducted.

    Article 5  The income tax on enterprises with foreign investment and the
income tax which shall be paid by foreign enterprises on the income of their
establishments or places set up in China to engage in production or business
operations shall be computed on the taxable income at the rate of thirty
percent, and local income tax shall be computed on the taxable income at the
rate of three percent.

    Article 6  The State shall, in accordance with the industrial policies,
guide the orientation of foreign investment and encourage the establishment
of enterprises with foreign investment which adopt advanced technology and
equipment and export all or greater part of their products.

    Article 7  The income tax on enterprises with foreign investment
established in Special Economic Zones, foreign enterprises which have
establishments or places in Special Economic Zones engaged in production or
business operations, and on enterprises with foreign investment of a
production nature in Economic and Technological Development Zones, shall be
levied at the reduced rate of fifteen percent.

    The income tax on enterprises with foreign investment of a production
nature established in coastal economic open zones or in the old urban
districts of cities where the Special Economic Zones or the Economic and
Technological Development Zones are located, shall be levied at the reduced
rate of twenty-four percent.

    The income tax on enterprises with foreign investment in coastal economic
open zones, in the old urban districts of cities where the Special Economic
Zones or the Economic and Technological Development Zones are located or in
other regions defined by the State Council, within the scope of energy,
communications, harbour, wharf or other projects encouraged by the State, may
be levied at the reduced rate of fifteen percent. The specific measures shall
be drawn up by the State Council.

    Article 8  Any enterprise with foreign investment of a production nature
scheduled to operate for a period of not less than ten years shall, from the
year beginning to make profit, be exempted from income tax in the first and
second years and allowed a fifty percent reduction in the third to fifth
years. However, the exemption from or reduction of income tax on enterprises
with foreign investment engaged in the exploitation of resources such as
petroleum, natural gas, rare metals, and precious metals shall be regulated
separately by the State Council. Enterprises with foreign investment which
have actually operated for a period of less than ten years shall repay the
amount of income tax exempted or reduced already.

    The relevant regulations, promulgated by the State Council before the
entry into force of this Law, which provide preferential treatment of
exemption from or reduction of income tax on enterprises engaged in energy,
communications, harbour, wharf and other major projects of a production
nature for a period longer than that specified in the preceding paragraph, or
which provide preferential treatment of exemption from or reduction of income
tax on enterprises engaged in major projects of a nonproduction nature, shall
remain applicable after this Law enters into force.

    Any enterprise with foreign investment which is engaged in agriculture,
forestry or animal husbandry and any other enterprise with foreign investment
which is established in remote underdeveloped areas may, upon approval by the
competent department for tax affairs under the State Council of an
application filed by the enterprise, be allowed a fifteen to thirty percent
reduction of the amount of income tax payable for a period of another ten
years following the expiration of the period for tax exemption or reduction
as provided for in the preceding two paragraphs.

    After this Law enters into force, any modification to the provisions of
the preceding three paragraphs of this Article on the exemption from or
reduction of income tax on enterprises shall be submitted by the State
Council to the Standing Committee of the National People's Congress for
decision.

    Article 9  The exemption from or reduction of local income tax on any
enterprise with foreign investment which operates in an industry or
undertakes a project encouraged by the State shall, in accordance with the
actual situation, be at the discretion of the people's government of the
relevant province, autonomous region or municipality directly under the
Central Government.

    Article 10  Any foreign investor of an enterprise with foreign investment
which reinvests its share of profit obtained from the enterprise directly
into that enterprise by increasing its registered capital, or uses the profit
as capital investment to establish other enterprises with foreign investment
to operate for a period of not less than five years shall, upon approval by
the tax authorities of an application filed by the investor, be refunded
forty percent of the income tax already paid on the reinvested amount. Where
regulations of the State Council provide otherwise in respect of preferential
treatment, such provisions shall apply. If the investor withdraws its
reinvestment before the expiration of a period of five years, it shall repay
the refunded tax.

    Article 11  Losses incurred in a tax year by any enterprise with foreign
investment and by an establishment or a place set up in China by a foreign
enterprise to engage in production or business operations may be made up by
the income of the following tax year. Should the income of the following tax
year be insufficient to make up for the said losses, the balance may be made
up by its income of the further subsequent year, and so on, over a period not
exceeding five years.

    Article 12  Any enterprise with foreign investment shall be allowed, when
filing a consolidated income tax return, to deduct from the amount of tax
payable the foreign income tax already paid abroad in respect of the income
derived from sources outside China. The deductible amount shall, however, not
exceed the amount of income tax otherwise payable under this Law in respect
of the income derived from sources outside China.

    Article 13  The payment or receipt of charges or fees in business
transactions between an enterprise with foreign investment or an
establishment or a place set up in China by a foreign enterprise to engage in
production or business operations, and its associated enterprises, shall be
made in the same manner as the payment or receipt of charges or fees in
business transactions between independent enterprises. Where the payment or
receipt of charges or fees is not made in the same manner as in business
transactions between independent enterprises and results in a reduction of
the taxable income, the tax authorities shall have the right to make
reasonable adjustment.

    Article 14  Where an enterprise with foreign investment or an
establishment or a place set up in China by a foreign enterprise to engage in
production or business operations is established, moves to a new site, merges
with another enterprise, breaks up, winds up or makes a change in any of the
main entries of registration, it shall present the relevant documents to and
go through tax registration or a change or cancellation in registration with
the local tax authorities after the relevant event is registered, or a change
or cancellation in registration is made with the administrative agency for
industry and commerce.

    Article 15  Income tax on enterprises and local income tax shall be
computed on an annual basis and paid in advance in quarterly instalments.
Such payments shall be made within fifteen days from the end of each quarter
and the final settlement shall be made within five months from the end of
each tax year. Any excess payment shall be refunded and any deficiency shall
be repaid.

    Article 16  Any enterprise with foreign investment and any establishment
or place set up in China by a foreign enterprise to engage in production or
business operations shall file its quarterly provisional income tax return in
respect of advance payments with the local tax authorities within the period
for each advance payment of tax, and it shall file an annual income tax
return together with the final accounting statements within four months from
the end of the tax year.

    Article 17  Any enterprise with foreign investment and any establishment
or place set up in China by a foreign enterprise to engage in production or
business operations shall report its financial and accounting systems to the
local tax authorities for reference. All accounting records must be complete
and accurate, with legitimate vouchers as the basis for entries.

    If the financial and accounting bases adopted by an enterprise with
foreign investment and an establishment or a place set up in China by a
foreign enterprise to engage in production or business operations contradict
the relevant regulations on tax of the State Council, tax payment shall be
computed in accordance with the relevant regulations on tax of the State
Council.

    Article 18  When any enterprise with foreign investment goes into
liquidation, and if the balance of its net assets or the balance of its
remaining property after deduction of the enterprise's undistributed profit,
various funds and liquidation expenses exceeds the enterprise's paidin
capital, the excess portion shall be liquidation income on which income tax
shall be paid in accordance with the provisions of this Law.

    Article 19  Any foreign enterprise which has no establishment or place in
China but derives profit, interest, rental, royalty and other income from
sources in China, or though it has an establishment or a place in China, the
said income is not effectively connected with such establishment or place,
shall pay an income tax of twenty percent on such income.

    For the payment of income tax in accordance with the provisions of the
preceding paragraph, the income beneficiary shall be the taxpayer and the
payer shall be the withholding agent. The tax shall be withheld from the
amount of each payment by the payer. The withholding agent shall, within five
days, turn the amount of taxes withheld on each payment over to the State
Treasury and submit a withholding income tax return to the local tax
authorities.

    Income tax shall be exempted or reduced on the following income:

    (1) the profit derived by a foreign investor from an enterprise with
foreign investment shall be exempted from income tax;

    (2) income from interest on loans made to the Chinese government or
Chinese State banks by international financial organizations shall be
exempted from income tax;

    (3) income from interest on loans made at a preferential interest rate to
Chinese State banks by foreign banks shall be exempted from income tax; and

    (4) income tax of the royalty received for the supply of technical
know-how in scientific research, exploitation of energy resources,
development of the communications industries, agricultural, forestry and
animal husbandry production, and the development of important technologies
may, upon approval by the competent department for tax affairs under the
State Council, be levied at the reduced rate of ten percent. Where the
technology supplied is advanced or the terms are preferential, exemption from
income tax may be allowed.

    Apart from the aforesaid provisions of this Article, if preferential
treatment in respect of reduction of or exemption from income tax on profit,
interest, rental, royalty and other income is required, it shall be regulated
by the State Council.

    Article 20  The tax authorities shall have the right to inspect the
financial, accounting and tax affairs of enterprises with foreign investment
and establishments or places set up in China by foreign enterprises to engage
in production or business operations, and have the right to inspect tax
withholding of the withholding agent and its payment of the withheld tax into
the State Treasury. The entities and the withholding agents being so
inspected must report the facts and provide relevant information. They may
not refuse to report or conceal any facts.

    When making an inspection, the tax officials shall produce their identity
documents and be responsible for confidentiality.

    Article 21  Income tax payable according to this Law shall be computed in
terms of Renminbi (RMB). Income in foreign currency shall be converted into
Renminbi according to the exchange rate quoted by the State exchange control
authorities for purposes of tax payment.

    Article 22  If any taxpayer fails to pay tax within the prescribed time
limit, or if the withholding agent fails to turn over the tax withheld within
the prescribed time limit, the tax authorities shall, in addition to setting
a new time limit for tax payment, impose a surcharge for overdue payment,
equal to 0.2 percent of the overdue tax for each day in arrears, starting
from the first day the payment becomes overdue.

    Article 23  The tax authorities shall set a new time limit for
registration or submission of documents and may impose a fine of five
thousand yuan or less on any taxpayer or withholding agent which fails to go
through tax registration or make a change or cancellation in registration
with the tax authorities within the prescribed time limit, or fails to submit
income tax return, final accounting statements or withholding income tax
return to the tax authorities within the prescribed time limit, or fails to
report its financial and accounting systems to the tax authorities for
reference.

    Where the tax authorities have set a new time limit for registration or
submission of documents, they shall impose a fine of ten thousand yuan or
less on the taxpayer or withholding agent which again fails to meet the time
limit for going through registration or making a change in registration with
the tax authorities, or for submitting income tax return, final accounting
statements or withholding income tax return to the tax authorities. Where the
circumstances are serious, the legal representative and the person directly
responsible shall be investigated for criminal responsibility by applying
mutatis mutandis the provisions of Article 121 of the Criminal Law.

    Article 24  Where the withholding agent fails to fulfil its obligation to
withhold tax as provided in this Law, and does not withhold or withholds an
amount less than that should have been withheld, the tax authorities shall
set a time limit for the payment of the amount of tax that should have been
withheld, and may impose a fine up to but not exceeding one hundred percent
of the amount of tax that should have been withheld.

    Where the withholding agent fails to turn the tax withheld over to the
State Treasury within the prescribed time limit, the tax authorities shall
set a time limit for turning over the taxes and may impose a fine of five
thousand yuan or less on the withholding agent; if the withholding agent
fails to meet the time limit again, the tax authorities shall pursue the
taxes according to law and may impose a fine of ten thousand yuan or less on
the withholding agent. If the circumstances are serious, the legal
representative and the person directly responsible shall be investigated for
criminal responsibility by applying mutatis mutandis the provisions of
Article 121 of the Criminal Law.

    Article 25  Where any person evades tax by deception or concealment or
fails to pay tax within the time limit prescribed by this Law and, after the
tax authorities pursued the payment of tax, fails again to pay it within the
prescribed time limit, the tax authorities shall, in addition to recovering
the tax which should have been paid, impose a fine up to but not exceeding
five hundred percent of the amount of tax which should have been paid. Where
the circumstances are serious, the legal representative and the person
directly responsible shall be investigated for criminal responsibility in
accordance with the provisions of Article 121 of the Criminal Law.

    Article 26  Any enterprise with foreign investment, foreign enterprise or
withholding agent, in case of a dispute with the tax authorities on payment
of tax, must pay tax according to the relevant regulations first. Thereafter,
the taxpayer or withholding agent may, within sixty days from the date of
receipt of the tax payment certificate issued by the tax authorities, apply
to the tax authorities at the next higher level for reconsideration. The
higher tax authorities shall make a decision within sixty days after receipt
of the application for reconsideration. If the taxpayer or withholding agent
is not satisfied with the decision, it may institute legal proceedings in the
people's court within fifteen days from the date of receipt of the
notification on decision made after reconsideration.

    If the party concerned is not satisfied with the decision on punishment
by the tax authorities, it may, within fifteen days from the date of receipt
of the notification on punishment, apply for reconsideration to the tax
authorities at the next higher level than that which made the decision on
punishment. Where the party is not satisfied with the decision made after
reconsideration, it may institute legal proceedings in the people's court
within fifteen days from the date of receipt of the decision made after
reconsideration. The party concerned may, however, directly institute legal
proceedings in the people's court within fifteen days from the date of
receipt of the notification on punishment. If the party concerned neither
applies for reconsideration to the higher tax authorities, nor institutes
legal proceedings in the people's court within the time limit, nor complies
with the decision on punishment, the tax authorities which made the decision
on punishment may apply to the people's court for compulsory execution.

    Article 27  Where any enterprise with foreign investment which was
established before the promulgation of this Law would, in accordance with the
provisions of this Law, otherwise be subject to higher tax rates or enjoy
less preferential treatment of tax exemption or reduction than before the
entry into force of this Law, in respect to such enterprise, within its
approved period of operation, the law and relevant regulations of the State
Council in effect before the entry into force of this Law shall apply. If any
such enterprise has no approved period of operation, the law and relevant
regulations of the State Council in effect before the entry into force of
this Law shall apply within the period prescribed by the State Council.
Specific measures shall be drawn up by the State Council.

    Article 28  Where the provisions of a tax agreement concluded between the
government of the People's Republic of China and a foreign government are
different from the provisions of this Law, the provisions of the agreement
shall prevail.

    Article 29  Rules for implementation shall be formulated by the State
Council in accordance with this Law.

    Article 30  This Law shall enter into force on July 1, 1991. The Income
Tax Law of the People's Republic of China for ChineseForeign Equity Joint
Ventures and the Income Tax Law of the People's Republic of China for Foreign
Enterprises shall be annulled as of the same date.