Laws of the People's Republic of China

INCOME TAX LAW OF THE PEOPLE'S REPUBLIC OF CHINA
CONCERNING JOINT VENTURES USING CHINESE AND
FOREIGN INVESTMENT

Adopted at the Third Session of the Fifth
National People's Congress and promulgated on
10 September 1980

SUBJECT: TAXATION

ISSUING-DEPT: NATIONAL PEOPLE'S CONGRESS

ISSUE-DATE: 09/10/1980

IMPLEMENT-DATE: 09/10/1980

LENGTH: 1384 words

TEXT:

[Article 1] Income tax shall be levied in accordance with this Law on the income derived from production, business and other sources by any joint venture with Chinese and foreign investment (hereinafter called "joint ventures") in the People's Republic of China.

Income tax on the income derived from production, business and other sources by branches within or outside the territory of China of such joint ventures shall be paid by their head office.

[Article 2] The taxable income of a joint venture shall be the net income in a tax year after deduction of costs, expenses and losses in that year.

[Article 3] The rate of income tax on joint ventures shall be 30 per cent.  In addition, a local surtax of 10 per cent of the assessed income tax shall be levied.

The income tax rates on joint ventures exploiting petroleum, natural gas and other resources shall be stipulated separately.

[Article 4] In the case of a foreign participant in a joint venture remitting its share of profit from China, an income tax of 10 per cent shall be levied on the remitted amount.

[Article 5] A newly established joint venture scheduled to operate for a period of 10 years or more 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 per cent reduction in the second and third years.

With the approval of the Ministry of Finance of the People's Republic of China, joint ventures engaged in such low-profit operations as farming and forestry or located in remote, economically underdeveloped outlying areas may be allowed a 15 per cent to 30 per cent reduction in income tax for a period of 10 years following the expiration of the term for exemptions and reductions mentioned in the preceding paragraph.

[Article 6] A participant in a joint venture which reinvests its share of profit in China for a period of not less than five years may, upon approval by the tax authorities of an application filed by the said participant, obtain a refund of 40 per cent of the income tax paid on the reinvested amount.  A participant which withdraws its reinvested funds within five years shall pay back the tax amount refunded.

[Article 7] Losses incurred by a joint venture in a tax year may be carried over to the next tax year and made up with a matching amount drawn from that 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 against income year by year over a period not exceeding five years.

[Article 8] Income tax on joint ventures shall be levied on an annual basis and paid in quarterly instalments.  Such provisional payment shall be made within 15 days after the end of each quarter.  The final settlement shall be made within 3 months of the end of a tax year.  Excess payments shall be refunded by the tax authorities or deficiencies made good by the taxpayer.

[Article 9] Joint ventures shall file their provisional income tax returns with the local tax authorities within the period prescribed for provisional payments.  The taxpayer shall file its final annual income tax return together with its final accounts within 3 months of the end of the tax year.

[Article 10] Income tax levied on joint ventures shall be computed in terms of Renminbi.  Income in foreign currency shall be assessed according to the exchange rate quoted by the State General Administration of Exchange Control of the People's Republic of China and shall be taxed in Renminbi.

[Article 11] When joint ventures go into operation or when they change the nature of their business, change their address, close down, and make changes in or transfer registered capital, such joint ventures shall register with the General Administration for Industry and Commerce of the People's Republic of China, and within 30 days of such registration, present the relevant certificates to the local tax authorities for tax registration.

[Article 12] The tax authorities have the right to investigate the financial affairs, accounts books and tax situation of any joint venture.  The joint venture must make reports according to the facts and provide all relevant information and shall not refuse to cooperate or conceal the facts.

[Article 13] A joint venture must pay its tax within the prescribed time limit.  In case of failure to pay within the prescribed time limit, the appropriate tax authorities, in addition to setting a new time limit for tax payment, shall surcharge overdue payments at one half of one per cent of the overdue tax for every day in arrears, starting from the first day of default.

[Article 14] The tax authorities may, acting at their discretion, impose a penalty on any joint venture which has violated the provisions of Articles 9, 11 and 12 of this Law.

In dealing with any joint venture which has evaded or refused to pay tax, the tax authorities may, in addition to pursuing the tax, impose a penalty of not more than five times the amount of tax underpaid or not paid, according to the seriousness of the offence.  Cases of gross violation shall be handled by the local people's courts according to law.

[Article 15] In cases of disputes with tax authorities about tax payment, joint ventures must pay tax according to the relevant regulations first before applying to higher tax authorities for reconsideration.  If they do not accept the decisions made after such reconsideration, they can bring the matter before the local people's courts.

[Article 16] Income tax paid by a joint venture or its branch in other countries may be credited against the assessed income tax of the head office as foreign tax credit.

Where agreements on avoidance of double taxation have been concluded between the Government of the People's Republic of China and the government of another country, income tax credits shall be handled in accordance with the provisions of the related agreements.

[Article 17] Detailed rules and regulations for the implementation of this Law shall be formulated by the Ministry of Finance of the People's Republic of China.

[Article 18] This Law shall come into force from the date of promulgation.

Appendix: Revision of the "Income Tax Law of the People's Republic of China Concerning Joint Ventures Using Chinese and Foreign Investment" in Articles 5, 8 and 9

The Second Meeting of the Standing Committee of the Sixth National People's Congress held on 2 September 1983 passed the following revisions:

1 In the first paragraph of Article 5, "a newly established joint venture scheduled to operate for a period of 10 years or more 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 per cent reduction in the second and third years", has been changed to "a joint venture scheduled to operate for a period of 10 years or more may, upon approval by the tax authorities of an application filed by the enterprise, be exempted from income tax in the first and second profit-making years and allowed a 50 per cent reduction in the third to fifth years".

2 In Article 8, "income tax on joint ventures shall be levied on an annual basis and paid in quarterly instalments.  Such provisional payment shall be made within 15 days after the end of each quarter.  The final settlement shall be made within 3 months of the end of a tax year.  Excess payments shall be refunded by the tax authorities or deficiencies made good by the taxpayer", the phrase "within 3 months of the end of a tax year" has been changed to "within 5 months of the end of a tax year".

3 In Article 9, "joint ventures shall file their provisional income tax returns with the local tax authorities within the period prescribed for provisional payments.  The taxpayer shall file its final annual income tax return together with its final accounts within 3 months of the end of the tax year", the phrase "within 3 months of the end of the tax year" has been changed to "within 4 months of the end of the tax year".