Implementing Rules of the Interim Regulations of the People's Republic of China on Enterprise Income Tax
Implementing Rules of the Interim Regulations of the People's Republic of China on Enterprise Income Tax
Implementing Rules of the Interim Regulations of the People's Republic of China on Enterprise Income Tax
Cai Fa Zi [1994] No. 3
February 4, 1994
Chapter I General Provisions
Article 1 These Rules are formulated in accordance with the provisions of Article 19 of the Interim Regulations of the People's Republic of China on Enterprise Income Tax (hereinafter referred to as "the Regulations").
Article 2 "Income from production and business operations" mentioned in Article 1 of the Regulations means income from production and business operations in manufacturing, communications and transportation, commodity circulation, service industries and other profitable trades specified by the financial departments under the State Council.
"Income from other sources" mentioned in Article 1 of the Regulations means dividends, interest, rentals, income from the transfer of properties, income from the provision or transfer of patents, royalties as well as other non-business income.
Article 3 "State-owned enterprises, collective enterprises, private enterprises, joint venture enterprises and joint stock enterprises" mentioned in Items from (i) to (v) of Article 2 of the Regulations refer to the above-listed enterprises registered in accordance with the relevant rules of the State.
"Any other organizations deriving income from production and business operations and other income" mentioned in Item (vi) of Article 2 of the Regulations means the institutional organizations and social organizations approved by the State and registered in accordance with laws.
Article 4 "Enterprises or organizations, which independently account for their respective financial results" mentioned in Article 2 of the Regulations means the enterprises or organizations concurrently meeting the conditions of opening clearance accounts in banks, independently setting up books and records and preparing financial statements, and independently accounting profits and losses.
Article 5 The formula for computing the "income tax payable" mentioned in Article 3 of the Regulations is:
Income Tax Payable = Taxable Income x Tax Rate
Chapter II Computation of Taxable Income
Article 6 The formula for computing the "Taxable Income" mentioned in Article 3 and Article 4 of the Regulations is as follows:
Taxable Income = Gross Income - Deductible Items
Article 7 "Income from production and business operations" mentioned in Item (1), Article 5 of the Regulations means the income derived by taxpayers from their major operational activities, including income from sales of commodities (products), income from provision of labor services, operational income, income from clearance of projects, income from activities of industrial nature and other income.
"Income from the transfer of properties" mentioned in Item (2), Article 5 of the Regulations means the income derived by taxpayers from chargeable transfer of various properties including fixed assets, convertible securities, titles of shares and other properties.
"Interest income" mentioned in Item (3), Article 5 of the Regulations means interest income from convertible securities of various bonds purchased, paid by other units for debts and other interest income.
"Income from leasing" mentioned in Item (4), Article 5 of the Regulations means the rental income derived by taxpayers from leasing fixed assets, packaging materials and other properties.
"Income from royalties and licence fees" mentioned in Item (5), Article 5 of the Regulations means the income derived by taxpayers from provision or transfer of patents, non-patented know- how, trademarks, rights of works and other franchises.
"Dividend income" mentioned in Item (6), Article 5 of the Regulations means the dividend income derived by taxpayers from outward investments.
"Other income" mentioned in Item (7), Article 5 of the Regulations means all income rather than the above listed kinds of income, including income from inventory profit of fixed assets, income from fines, payments unable to be paid due to the creditors, income from material and cash premiums, pay-back of educational fees, income from cash pledge for packaging materials and other income.
Article 8 "Costs, expenses and losses incurred by the Taxpayer in earning that income" mentioned in Article 6 of the Regulations include:
(1) Losses, i.e. manufacturing and business operational costs which refers to the various direct and indirect expenses incurred by taxpayers in manufacturing and dealing commodities and in providing labor services;
(2) Expenses refer to the selling (business operation) expenses, overhead expenses and financial expenses incurred by taxpayers in manufacturing and dealing commodities and in providing labor services;
(3) Taxes refer to Consumption Tax, Business Tax, City Maintenance and Construction Taxƒ, Resource Tax and Land Appreciation Tax paid by taxpayers according to laws. The educational fees paid are deemed as tax paid;
(4)Losses refer to non-business expenditures, operational losses, investment losses and other losses incurred by taxpayers in the process of production and business operation.
Any inconformity with the tax provisions in the taxpayer's financial and accounting treatment shall be adjusted according to tax rules. The items shall be deductible if they are stipulated allowable by tax rules.
Article 9 "Financial institutions" mentioned in Item (1), Article 6 of the Regulations refer to all banks, insurance companies and non-bank financial institutions approved by the People's Bank of China to be engaged in financial activities.
Article 10 "Interest expenses" mentioned in Item (1), Article 6 of the Regulations refer to the loan interest payments after the fixed assets constructed and acquired have been completed, and finally accounted and put into operation.
"Interest expenses incurred by a Taxpayer on borrowings from financial institutions" mentioned in Item (1), Article 6 of the Regulations include interest payments on borrowings from insurance companies and borrowings from non-bank financial institutions.
Interest expenses beyond the interest expenses incurred by taxpayers in constructing and acquiring fixed assets, developing and acquiring intangible assets as well as beyond the interest expenses incurred during the course of preparation, including inter-taxpayer offered interest expenses. The deductions of interest expenses are allowed in accordance with Item (i) of Article 6 of the Regulations.
Article 11 "Taxable salaries and wages" mentioned in Item (2) , Article 6 of the Regulations means the amount of wages deductible in computing the taxable income, including the basic wage, floating wage, various subsidies, allowances and bonuses paid by enterprises to the employees in all forms.
Article 12 "Donations for community benefits and charitable donations" mentioned in Item (4), Article 6 of the Regulations means donations made by taxpayers to educational institutions, civil administration organs and areas suffering from natural disasters or poverty through non-profit social organizations or governmental organs located inside The People's Republic of China.
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