Circular of the State Administration of Taxation on Issues Concerning Business Operation Handling in the Implementation of the Law on the Income Tax on Foreign-invested Enterprises and Foreign Enterprises

Circular of the State Administration of Taxation on Issues Concerning Business Operation Handling in the Implementation of the Law on the Income Tax on Foreign-invested Enterprises and Foreign Enterprises


Circular of the State Administration of Taxation on Issues Concerning Business Operation Handling in the Implementation of the Law on the Income Tax on Foreign-invested Enterprises and Foreign Enterprises

Guo Shui Fa [1991] No.165

October 15, 1991

To the tax bureaus of the various provinces, autonomous regions, and municipalities directly under the jurisdiction of the Central Government, the tax bureaus of the cities with separate planning, and the various sub-bureaus of the off-shore oil tax administrative bureau:

The Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises (hereinafter referred to as the Tax Law) was implemented on July, 1 of this year. Certain specific business disposal issues concerning the implementation of the Tax Law are hereby clarified as follows:

Article 1 Issues concerning the computation and payment of the enterprise income tax and local income tax for the year 1991
Those foreign-invested enterprises that were established before the implementation of the Tax Law which are required to pay less tax in accordance with the tax rate as prescribed in the Tax Law than in accordance with their former applicable tax rate (including the local income tax rate, the same hereinafter) shall begin to pay tax in accordance with the tax rate as prescribed in the Tax Law as of July 1, 1991. The computation of taxable income for the year 1999 may be done by adding the two taxable incomes based on the annual income multiplied by the former tax rate and the tax rate as prescribed in the Tax Law respectively and then divided by 2.
In regard to enterprises that opened on the first half year of 1991 whose actual operation term for the first half year was less than six months, they must first use the income tax computed based upon the annual income for 1999 and the tax rate as prescribed by the relevant provisions and multiply the proportion of the number of months of actual operation in the first half year by the number of months of actual year-round operation, calculate the income tax payable for the first half year and then, using the income tax computed based on the annual income for 1999 and the tax rate as prescribed by the relevant provisions, multiply the proportion of the number of months of actual operation for the second half year by the number of months of actual year-round operation, calculate the income tax payable for the second half year, then add the income tax payable for the first half year with that for the second half year, and calculate the income tax payable for the year 1991.
For enterprises that are approved to adopt the 12 month accounting year as their taxable year, their annual income may be computed in accordance with the above-mentioned computation principles.

Article 2 Issues concerning the computation of the period of tax reduction or exemption for manufacturing Sino-foreign cooperative enterprises and foreign-invested enterprises established before the implementation of the Tax Law
In accordance with the provisions of Paragraph 2 of Articles 111 and 112 of the Rules for the Implementation of the Tax Law, the manufacturing Sino-foreign cooperative enterprises and foreign-invested enterprises established before the implementation of the Tax Law may be given the treatment of reduction or exemption from the enterprise income tax within the corresponding term based on the following circumstances:
(I) Enterprises that have not began to make profits before the promulgation and implementation of the Tax Law may, in accordance with the provisions of Item 1 of Article 8 of the Tax Law, be exempted from the enterprise income tax for the first and second year, and half- exempted from the enterprise income tax for the third through the fifth year as of the year of making a profit.
(II) For enterprises that have made profits before the promulgation and implementation of the Tax Law but for less than five years, their number of years of profit-making before the promulgation of the Tax Law shall be deducted, and they shall be exempted or deducted from the enterprise income tax in respect of the remaining number of year less than five in accordance with the provisions of Item 1 of Article 8 of the Tax Law.
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