Laws of the People's Republic of China

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

    "Foreign enterprises" mentioned in this Law refers, with the exception of
those for whom separate provisions are stipulated in Article 11, to foreign
companies, enterprises and other economic organizations that have
establishments within the territory of the People's Republic of China engaged
in independent business operations or in cooperative production or cooperative
business operations with Chinese enterprises.

    Article 2  The taxable income of 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 3  The income tax on foreign enterprises shall be computed at
progressive rates on amounts in excess of specified amounts of taxable income;
the rates are as follows:

              Range of Income                   Tax Rate (%)

       Annual income not exceeding

               250,000 yuan                        20

     That part of annual income from

           250,000 to 500,000 yuan                 25

     That part of annual income from

           500,001 to 750,000 yuan                 30

     That part of annual income from

           750,001 to 1,000,000 yuan               35

     That part of annual income above

               1,000,000 yuan                      40

    Article 4  When paying the income tax in accordance with the provisions
of the preceding Article, a foreign enterprise shall also pay a local income
tax of ten percent of taxable income. In cases where a foreign enterprise with
small-scale production and low profits warrants a reduction in or exemption
from the local income tax, the decision shall be made by the people's
government of the province, autonomous region, or municipality directly under
the Central Government in which the enterprise is located.

    Article 5  A foreign enterprise scheduled to operate for a period of ten
years or more in farming, foresty, animal husbandry or other low-profit
operations may, upon approval by the tax authorities of an application filed
by the enterprise, be exempted from income tax in the first profit-making year
and allowed a 50 percent reduction of income tax in the second and third years.

    With the approval of the Ministry of Finance, a 15 to 30 percent reduction
in income tax may be allowed for another ten years following the expiration of
the period for exemption and reductions prescribed in the preceding paragraph.

    Article 6  Losses incurred by a foreign enterprise in a tax year may be
made up with a corresponding amount drawn from the next year's income. Should
the income in the subsequent tax year be insufficient to make up for the said
losses, the balance may be made up with further deductions from its income
year by year, but within a period not exceeding five years.

    Article 7  Income tax on foreign enterprises shall be computed on an
annual basis and paid in advance in quarterly instalments. Such advance
payments shall be made within 15 days after the end of each quarter, and the
final settlement shall be made within five months after the end of each tax
year, with a refund for any overpayment or a supplementary payment for any
deficiency.

    Article 8  A foreign enterprise shall file its income tax returns in
respect of advance payments with the local tax authorities within each period
prescribed for advance payments; and it shall file an annual income tax
return, together with the statement of final accounts, within four months
after the end of the tax year.

    Article 9  A report on the financial and accounting systems of a foreign
enterprise shall be submitted to the local tax authorities for reference.

    If the procedures for financial management and accounting of a foreign
enterprise contradict the provisions of the tax laws, tax payments shall be
assessed in accordance with the provisions of the tax laws.

    Article 10  When a foreign enterprise starts or ceases to operate in
accordance with the law, it shall present the relevant certificates to the
local tax authorities and go through tax registration.

    Article 11  Foreign companies, enterprises and other economic
organizations that have no establishments in China, but have gained dividend,
interest, rental, royalty and other income from sources in China, shall pay an
income tax of 20 percent on such income. Such tax shall be withheld by the
paying unit from the amount of each payment.

    For the payment of income tax in accordance with the provisions of the
preceding paragraph, the foreign company, enterprise or other economic
organization which earns the income shall be the taxpayer, and the paying unit
shall be the withholding agent. The tax withheld from each payment by the
withholding agent shall be turned over to the State Treasury and the
withholding income tax return submitted to the tax authorities within five
days.

    Income from interest on loans made to the Chinese Government or Chinese
state banks by international financial organizations shall be exempted from
income tax. Income from interest on loans made at a preferential interest rate
by foreign banks to Chinese state banks shall also be exempted from income tax.

    Foreign banks shall pay tax on their income from interest on deposits in
Chinese state banks and on loans made at a normal interest rate to Chinese
state banks. However, an exemption from income tax may be granted reciprocally
to those foreign banks in whose countries income from interest on
deposits of, and loans made by, Chinese state banks is exempt from income tax.

    Article 12  The tax authorities shall have the right to inspect the
financial, accounting and tax affairs of a foreign enterprise, and the right
to inspect the withholding of tax of a withholding agent and its payment of
the withheld tax into the State Treasury. Foreign enterprises and withholding
agents must make reports according to the facts and provide relevant
information; they may not refuse to cooperate and may not conceal the facts.

    Article 13  The income tax levied on foreign enterprises shall be computed
in terms of Renminbi (RMB). Income in foreign currency shall be taxed on the
equivalent amount converted into Renminbi according to the exchange rate
quoted by the State General Administration of Exchange Control of the People's
Republic of China.

    Article 14  Foreign enterprises and withholding agents must pay taxes
within the prescribed time limit. In case of failure to do so, the tax
authorities, in addition to setting a new time limit for tax payment, shall
impose a surcharge for overdue payment equal to 0.5 percent the overdue tax
for every day in arrears, starting from the first day payment becomes overdue.

    Article 15  The tax authorities may, in the light of the circumstances,
impose a fine on a foreign enterprise that has violated the provisions of
Articles 8, 9, 10 or 12 of this Law.

    In dealing with a withholding agent who has violated the provisions of
Article 11 of this Law, the tax authorities may, in addition to setting a new
time limit for the payment of the amount of tax that should have been
withheld, impose a fine in the light of the circumstances, up to but not
exceeding 100 percent of the amount of tax that should have been withheld.

    In dealing with a foreign enterprise that has evaded or refused to pay
tax, the tax authorities, in addition to pursuing the tax payment, may impose
a fine of up to but not exceeding five times the amount of the tax underpaid
or not paid, in accordance with the seriousness of the case. Cases of gross
violation shall be handled by the local people's courts in accordance with the
law.

    Article 16  In case of a dispute with the tax authorities over tax
payment, a foreign enterprise must pay tax according to the relevant
regulations before applying to higher tax authorities reconsideration. If it
does not accept the decision made after such reconsideration, it may bring a
suit in the local people's court.

    Article 17  When agreements on tax payment have been concluded between
the Government of the People's Republic of China and foreign governments,
matters concerning tax payment shall be handled in accordance with the
provisions of the respective agreements.

    Article 18  Rules for the implementation of this Law shall be formulated
by the Ministry of Finance of the People's Republic of China.

    Article 19  This Law shall go into effect on January 1, 1982.