Detailed Rules and Regulations for the Implementation of theForeign Enterprise Income Tax Law of the People's Republic of China

Detailed Rules and Regulations for the Implementation of theForeign Enterprise Income Tax Law of the People's Republic of China

Cai Shui Zi [1982] No.63

February 21, 1982
　
Article 1 The Detailed Rules and Regulations are formulated in accordance with the provisions of Article 18 of the Income Tax Law of the People's Republic of China Concerning Foreign Enterprises (hereinafter called Tax Law).
　
Article 2 "Establishments" mentioned in Article 1 of the Tax Law refer to organizations, places or business agents established in Chinese territory by foreign enterprises and engaged in production and business operations.
The organizations and places mentioned in the preceding paragraph mainly include management offices, branches, representative offices, factories and places where natural resources are exploited and where contracted projects of building, installations, assembly and exploration are operated.
　
Article 3 Foreign enterprises and Chinese enterprises engaged in any cooperative production or joint business operation should, unless separate provisions are stipulated, each pay their income taxes respectively.
　
Article 4 "Income derived from production and business" mentioned in Article 1 of the Tax Law refers to income from the production and business operations by foreign enterprises in industry, mining, communications, transportation, agriculture, forestry, animal husbandry, fisheries,
poultry farming, commerce, service and other trades.
Income from other sources as mentioned in Article 1 of the Tax Law covers dividends, interest, income from lease or sale of property, income from transfer of patents, technical know-how, trademark interests, or copyright and other non-business income.
　
Article 5 The taxable income for assessing the local income tax as mentioned in Article 4 of the Tax Law is the same as the taxable income mentioned in Article 3 of the Tax Law, i.e. it is calculated according to the formulas given in Article 9 of the Detailed Rules and Regulations.
　
Article 6 Enterprises engaged in small-scaled production or business and enterprises of low profits, as mentioned in Paragraph 2 of Article 4 of the Tax Law, refer to foreign enterprises with an annual income of less than 1,000,000 RMB yuan.
　
Article 7 Foreign enterprises scheduled to operate in low-profit occupations, as mentioned in Article 5 of the Tax Law, include those low- profit enterprises engaged in exploiting coal mineral resources in deep wells.
　
Article 8 The tax year for foreign enterprises starts from January 1 and ends on December 31 on the Gregorian Calendar.
Where a foreign enterprise finds it difficult to compute its income of the tax year as stipulated in the preceding paragraph, it may apply to the local tax authorities for approval to use its own 12-month fiscal year for tax computation and payment.
　
Article 9 The taxable income shall be calculated in accordance with the
following formulas:
a. Industry:
1. Production costs of the year = Direct materials used up in production of the year + direct wages + manufacturing expenses
2. Cost of the product of the year = Production costs of the year + inventory of products semi-finished and in process of production at the beginning of the year - inventory of products semi-finished and in process of production at the end of the year
3. Cost of the sales of the product = Cost of the product of the year + inventory of the product at the beginning of the year – inventory of the product at the end of the year
4. Net sales of the product = Gross sales of the product - (sales return + sales allowance)
5. Profit from sales of the product = Net sales of the product - tax on the sales of the product - cost of the sales of the product - (selling expenses + overhead expenses)
6. Taxable Income = Profit from sales of the product + profit from other operations + non-business income - non-business expenditure
b. Commerce:
1. Net sales = Gross sales - (sales return + sales allowance)
2. Cost of sales = Inventory of merchandise at the beginning of the year + [Purchases of the year - (purchase returned + purchase discount) + purchase expenses] - inventory of merchandise at the end of the year
3. Profit of sales = Net sales - cost of sales - tax on sales (selling expenses + overhead expenses)
4. Taxable income = Profit of sales + profit from other operations + non-business income - non-business expenditure
c. Service trades:
1. Net business income = Gross business income - (tax on business + operating expenses + overhead expenses)
2. Taxable income = Net business income + non-business income - non-business expenditure
d. Other trades: For other trades, refer to the above mentioned formulas for calculation.
　
Article 10 The following items shall not be counted as cost, expenses or loss in
calculating the taxable income:
1.
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