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Tax

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This is an unofficial translation of Enterprise Income Tax Law (Decree No. 63 of the President of the People's Republic of China) and Implementation Rules of the Enterprise Income Tax Law (Decree No. 512 of the State Council of the People's Republic of China) prepared by Deloitte Touche Tohmatsu CPA Ltd. Deloitte Touche Tohmatsu CPA Ltd. takes no responsibility for the accuracy of this translation. Any decisions must be taken solely on the basis of the original Chinese language documents, which are reproduced herein as a convenience to the reader.

Enterprise Income Tax Law andImplementation Rules ofthe Peoples Republic of China.

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Enterprise Incom

e Tax Law and Im

plementation R

ules of the Peoples R

epublic of China.

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Forward thinking

A publication ofDeloitte Tax Research Foundation

Prepared by Kevin Kwok31 December 2007

Colour: CMYK processMaterials: Polymax matt white 300gsm

Cover for New Tax Law and implementation(227.5 x 152.5mm with 7mm spine for 100pp)

ContentsEnterprise Income Tax Law of the Peoples 2 Republic of China

Implementation Rules of the Enterprise 28 Income Tax Law of the Peoples Republic of China

About Deloitte 94

Deloitte China Tax 1

Enterprise Income Tax Law and Implementation Rules of the Peoples Republic of China

Enterprise Income Tax Law of the Peoples Republic of ChinaPromulgated by Decree No.63 of the President of the Peoples Republic of China on March 16, 2007, effective on January 1, 2008.

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2 Deloitte China Tax

Enterprise Income Tax Law of the Peoples Republic of China

Chapter 1: General Provisions 4

Chapter 2: Taxable Income 6

Chapter 3: Income Tax Payable 12

Chapter 4: Tax Incentive 14

Chapter 5: Withholding at Source 18

Chapter 6: Special Tax Adjustments 18

Chapter 7: Tax Administration 22

Chapter 8: Supplementary Provisions 24

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Chapter 1: General Provisions

Article 1. All enterprises and other income receiving organisations (herein after referred to as enterprises) within the territory of the Peoples Republic of China shall be the taxpayer of the enterprise income tax and shall pay the enterprise income tax in accordance with the provisions of this Law.

Sole proprietorships and partnerships are not under the purview of this law.

Article 2. Enterprises are classified as resident enterprises and non-resident enterprises.

A resident enterprise as referred to in this Law, refers to an enterprise which is established within the territory of China pursuant to Chinese laws or an enterprise established within the territory of another country or other tax region pursuant to that country or that regions laws whose actual management or control is located in China.

A non-resident enterprise as referred to in this Law, refers to an enterprise established within the territory of another country or other tax region pursuant to foreign laws, whose actual management or control is located outside of China but which has an establishment in China or even if it does not have an establishment in China, has income derived from China.

Article 3. Resident enterprises shall pay the enterprise income tax for income sourced within and outside of China.

Non-resident enterprises shall pay the enterprise income tax for income sourced within China derived from its establishment in China and for income sourced outside of China that is effectively connected with its establishment in China.

Non-resident enterprises without any establishment in China deriving income sourced in China and those having an establishment in China earning income sourced in China but is not effectively connected with that establishment shall pay enterprise income tax on income sourced within China.

Article 4. Enterprise income tax shall be levied at the rate of 25%.

Non-resident enterprises deriving income stipulated in the third paragraph of Article 3 hereof shall be levied tax at 20%.



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Chapter 2: Taxable Income

Article 5. The taxable income of an enterprise in a tax year shall be the amount remaining from its gross income after deducting for non-taxable, tax-exempt, other deductible items and the prior years' carry-forward losses.

Article 6. The total revenue of an enterprise refers to the revenues derived from various sources, whether in monetary terms or in-kind, which shall include:

1) Revenue from sales of goods;

2) Revenue from provision of labour services;

3) Gross proceeds from transfer of property;

4) Dividend income from private and listed enterprises and other distributions with respect to equity interests;

5) Interest income;

6) Rental income;

7) Royalty income;

8) Revenue from donations; and

9) Other income.

Article 7. Non-taxable income shall include:

1) Governmental funding

2) Official receipts and administrative charges collected in accordance with relevant laws and included under a governmental budget system; and

3) Other non-taxable income as stipulated by the State Council.

Article 8. Expenditure incurred in connection with operational activities on a reasonable and actual basis, including costs, expenses, taxes, losses and other items, may be deducted when computing taxable income.

Article 9. Expenditure incurred in connection with donations for public interest may be deducted when computing taxable income if it does not exceed 12% of the year's total profits.



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Article 10. The following items shall not be deductible when computing taxable income:

1) Dividends income from private and listed enterprises and other distributions with respect to equity interests paid to investors;

2) Enterprise income tax payments;

3) Surcharge on late tax payments;

4) Fines, penalties, and losses incurred through confiscation of property;

5) Donations other than donations stipulated in Article 9 hereof;

6) Sponsorship fees;

7) Unapproved provisions; and

8) Other expenditures not incurred for the purpose of earning income.

Article 11. When computing taxable income, the deductible depreciation expenses for fixed assets shall be computed in accordance with relevant regulations.

Depreciation expenses are not allowed for the following fixed assets:

1) Fixed assets not in use other than houses and buildings;

2) Fixed assets leased in through an operating lease;

3) Fixed assets leased out through a finance lease;

4) Fully depreciated fixed assets that continue to be used;

5) Fixed assets not used in connection with carrying on a business

6) Land separately recorded as fixed assets; and

7) Other fixed assets for which depreciation is not allowed to be deducted.

Article 12. When computing taxable income, an enterprise may deduct amortisation expenses for intangible assets in accordance with relevant regulations.

Amortisation expenses are not allowed for the following intangible assets:

1) Intangible assets that are self-developed and whose development expenses have been deducted when computing taxable income;

2) Self-developed goodwill;

3) Intangible assets not used in connection with carrying on a business; and

4) Other intangible assets for which amortisation expenses are not allowed to be deducted.



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Article 13. The following expenses incurred by an enterprise should be deemed as long-term prepaid expenses, and the relevant amortisation expenses computed according to the regulations are allowed to be deducted when computing taxable income:

1) Expenses incurred from the reconstruction of fully depreciated fixed assets;

2) Expenses incurred from the reconstruction of leased fixed assets;

3) Expenses incurred from large-scale renovation of fixed assets; and

4) Other expenses that should be deemed as long-term prepaid expenses.

Article 14. When an enterprise makes an external investment by transferring its assets, during the investment period, the costs of the transferred assets shall not be deductible when computing taxable income.

Article 15. When computing taxable income, inventory costs incurred by an enterprise computed in accordance with relevant regulations shall be deductible when the inventory is sold or otherwise used.

Article 16. When an enterprise transfers its assets, the net value of the assets may be deductible when calculating taxable income for the transaction.

Article 17. When calculating the enterprise income tax on a consolidated basis, losses incurred by an enterprise from its overseas operating unit shall not be deductible.

Article 18. The losses incurred by enterprises in a tax year can be offset against the taxable income in successive tax years not exceeding 5 years.

Article 19. The formula for calculating taxable income by non-resident enterprises stipulated in the Paragraph 3 of Article 3 hereof is as follows:

1) Dividends from private and listed enterprises and other distributions with respect to equity interests, interest, rent and royalty are taxable on their full amounts;

2) Gains on transfers of assets are taxable on the excess of the proceeds over the net value of the assets transferred;

3) Other gains, taxable income is to be computed with reference to the methods used in the above two paragraphs.



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Article 20. The provisions governing the scope, standard relating to income and deductions and tax treatment for assets as stipulated in this Chapter shall be determined by the State Council, the Ministry of Finance and State Administration of Taxation.

Article 21. When computing taxable income, where financial and accounting bases adopted by the enterprise contradict tax laws and administrative regulations, taxable income shall be computed in accordance with the provisions of tax laws and administrative regulations.

Chapter 3: Income Tax Payable

Article 22. The formula for computing the enterprise income tax payable is as follows:

Enterprise Income Tax Payable = Taxable Income X Applicable Tax Rate Preferential Tax Credits Other Tax Credits

Article 23. An enterprise shall be allowed to credit its tax payable by the amount of taxes paid overseas in the current period on the gains listed below; the maximum credit shall be the tax otherwise payable computed according to this Law; any excess amount that cannot be credited in the current period can be offset against tax payable within the following five years:

1) Foreign-sourced income by a resident enterprise;

2) Foreign-sourced income by a non-resident enterprise but which is effectively connected with its establishments set up within China.

Article 24. In accordance with Article 23 hereof, a resident enterprise directly or indirectly controlling foreign enterprises may be eligible for credits for its proportional share of taxes paid by such controlled foreign enterprises from which it receives foreign-sourced dividends and other distributions with respect to equity interests.



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Chapter 4: Tax Incentives

Article 25. Enterprise income tax incentives shall be awarded to industries and projects on which the State has placed heavy emphasis to promote their development and growth.

Article 26. Tax-exempt income shall include:

1) Interest income from government bonds;

2) Dividend income and other distributions with respect to equity interests paid between qualifying resident enterprises;

3) Dividend income and other distributions with respect to equity interests derived from resident enterprises received by a non-resident enterprise in connection with its establishment in China;

4) Qualifying income received by non-profit making organisations.

Article 27. Income subject to tax exemptions and deductions shall include:

1) Income earned by enterprises from their activities in agriculture, forestry, animal husbandry and fishery;

2) Income earned from major State-supported public infrastructure facility projects;

3) Income earned from qualifying environment protection projects, water or energy saving projects;

4) Income earned from qualifying transfer of technologies;

5) Income described in Paragraph 3 of Article 3 hereof.

Article 28. Enterprise income tax rate shall be reduced to 20% for small-scale enterprises meeting regulatory requirements.

Enterprise income tax rate shall be reduced to 15% for State-encouraged new technology and high technology enterprises.

Article 29. Government of autonomous areas may choose to reduce or exempt taxes for the portion of enterprise income tax for local distribution paid by an enterprise located in a minority autonomous region. Tax reductions or exemptions decided upon by autonomous prefectures and counties are subject to approval from the People's Governments of provincial and autonomous regions and municipalities.



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Article 30. Supper deductions shall be allowed for the below expenses incurred by an enterprise:

1) Research and development expenses incurred during the development of new technology, new products and new techniques;

2) Salaries paid to disabled persons and other persons in employment that the State has encouraged enterprises to offer assistance to.

Article 31. Venture Capital enterprises in industries where the State has placed heavy emphasis to promote their development and growth are eligible for tax deductions toward their taxable income that are based on a specified percentage set forth of the total investment amount.

Article 32. An enterprise holding fixed assets subject to advancements in technology, etc. that requires accelerating depreciation may shorten depreciation period or apply accelerated depreciation method.

Article 33. When computing taxable income, income derived from the production of goods by an enterprise which ensures the production of goods in line with state production policies as well as a comprehensive utilisation of resources is eligible for deductions against total revenue.

Article 34. Investments by an enterprise in specialised equipment which aid in protecting the environment, conserving water or reducing energy usage, enhancing production safety, etc. are eligible for credit against income tax in accordance with a specified percentage set forth.

Article 35. The actual implementation of tax incentives as stipulated by this Law shall be tailored by the State Council.

Article 36. The State Council shall tailor enterprise income tax incentive policies, to be filed for recording purposes with Standing Committee of the National People's Congress, in accordance with economic and societal development needs, or in the event of unexpected public incidents, etc. which pose significant impacts on enterprises' operational activities.



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Chapter 5: Withholding at Source

Article 37. Income tax payable on income as stipulated in Paragraph 3 of Article 3 hereof of a non-resident enterprise shall be subject to withholding at source, with the payer acting as the withholding agent. The tax amount shall be withheld by the withholding agent during every payment or when the payable amount is due from the payment or due payable amount.

Article 38. For income tax payable on income derived within China from engineering contracts and labour services by non-resident enterprises, tax authorities may designate the payer of the contracted amount or labour service fee as the withholding agent.

Article 39. Should the withholding agent fail or be unable to withhold income tax at source for the non-resident enterprise as stipulated in Articles 37 and 38 hereof, the taxpayer shall pay income tax at where the income is derived. Should the taxpayer still fail to pay tax, tax authorities have the authority to pursue payment to be made from other income derived within China by this enterprise.

Article 40. The withholding tax payments shall be made to the Treasury within 7 days from the withholding date and withholding income tax returns shall be filed with the local tax bureau.

Chapter 6: Special Tax Adjustments

Article 41. For business transactions between an enterprise and a related party which do not comply with the arm's length principle thus resulting in reduced taxable revenue or taxable income for the enterprise or its related enterprise, the tax bureau has the right to make adjustments based on reasonable methods.

Costs associated with the joint development or transfer of intangible assets, or with the provision or receipt of labour services shall be allocated based on the arm's length principle when computing taxable income.

Article 42. If an enterprise desires to enter into an advance pricing agreement, then it can provide pricing principles and computation methods used in business transactions between the enterprise and its related party to the tax bureau for discussion and negotiation about entering into such an agreement.



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Article 43. An enterprise shall submit a form detailing related party transactions during the year in an appendix to its annual income tax return filing.

When the in-charge tax bureau conducts an investigation on related party transactions, the enterprise and its related party, as well as other enterprises involved in the investigation, shall provide relevant documents accordingly.

Article 44. If an enterprise refuses to submit information with regard to its related party transactions, or provides false and incomplete information that does not provide an accurate reflection of its related party transactions, the in-charge tax bureau has the right to assess taxable income in accordance with laws and regulations.

Article 45. For an enterprise controlled by resident enterprises and/or individual residents of China and established in a country (region) where the effective tax rate is significantly lower than the tax rates set forth in Paragraph 1 of Article 4 hereof, and which either does not distribute profits or distributes profits lesser than it should, not because of reasonable operational needs, the portion of the abovementioned profits attributed to the resident enterprises shall be included when computing the taxable income of the resident enterprise in the current period.

Article 46. When the ratio of debt and equity investment that an enterprise receives from its related parties exceeds a specified ratio set forth and results in an interest expense, the portion of interest expense related to debt exceeding that ratio shall not be deductible when computing taxable income.

Article 47. If an enterprise engages in a business arrangement without bona fide commercial purposes that results in reducing its taxable revenue or taxable income, the tax bureau has the right to make adjustments based on reasonable methods.

Article 48. Where the tax bureau makes adjustments to the taxable income in accordance with the provisions of this Chapter, the underpaid tax due to the adjustment will be subject to interest stipulated by the State Council.



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Chapter 7: Tax Administration

Article 49. The administration for the collection of enterprise income tax shall be exercised in accordance with provisions as stipulated in this Law as well as Tax Collection and Administration Law of the Peoples Republic of China.

Article 50. Unless otherwise stipulated by tax laws and administrative regulations, a resident enterprise shall pay tax at its registered address. If the registered address is located outside of China, the enterprise shall pay tax at the location of its actual management or control.

When a resident enterprise within China sets up one or more operating units that are not separate legal entities, it shall combine the income of the home office and units and pay the computed enterprise income tax thereon.

Article 51. Non-resident enterprises deriving income in accordance with Paragraph 2 of Article 3 hereof shall pay tax at the location of its establishment. A non-resident enterprise which has two or more establishments in China, may, upon approval of the tax bureau, select the principal establishment to handle the combined payment of tax.

Non-resident enterprises deriving income in accordance with Paragraph 3 of Article 3 hereof shall pay tax at the location of the withholding agent.

Article 52. Unless otherwise stipulated by the State Council, enterprises shall not be allowed to pay enterprise income tax on a consolidated basis.

Article 53. The enterprise income tax year shall start on January 1 and end on December 31 of each calendar year.

When the actual operational period of an enterprise in a tax year is lesser than 12 months because the enterprise starts or terminates its operating activities in the middle of a tax year, the tax year shall be its actual operational period.

An enterprise that is under liquidation shall use the period of liquidation as its tax year.



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Article 54. Provisional enterprise income tax payments shall be made on a monthly or quarterly basis.

An enterprise shall, within 15 days after the end of each month or quarter, file provisional enterprise income tax returns and make provisional tax payments to the tax bureau.

The enterprise shall submit annual enterprise income tax returns and settle the final tax payment within five months after the end of each tax year.

Financial statements and other relevant information shall be submitted together with the enterprise income tax returns in accordance with regulations.

Article 55. When an enterprise terminates its operating activities during the year, it shall settle the enterprise income tax payment for the current period within 60 days from the actual day of termination.

An enterprise shall, prior to the cancellation of its business registration, file its income tax return and make tax payment to the tax bureau for its liquidation income.

Article 56. Enterprise income tax as stipulated in this Law shall be paid in Renminbi. Income earned in other currencies shall be converted into Renminbi and taxed accordingly.

Chapter 8: Supplementary Provisions

Article 57. Enterprises, which have been approved to be established prior to the promulgation of this Law and which enjoy preferential treatment in the form of reduced enterprise income tax rates in accordance with previous tax laws and regulations, in accordance with the stipulation from the State Council, are allowed for a gradual transition to tax rates stipulated in this Law over the five year period beginning from the effective date of this Law; in accordance with the stipulation from the State Council, enterprises currently enjoying preferential treatment in the form of enterprise income tax reduction or exemption may continue to enjoy such treatment until the end of the preferential treatment period, but enterprises which are entitled to enjoy preferential treatment but have not been profitable yet to enjoy the preferential treatment would have the commencement of the preferential treatment period coincide with the year this Law comes into effect.



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State-encouraged new technology and high technology enterprises located within legally-established special zones for the promotion of foreign trade, economic and technological cooperation and other such zones as administered by the State Council can enjoy transitional benefits, the implementation of which would be determined by the State Council.

Other enterprises in State-encouraged industries can enjoy enterprise income tax exemptions or reductions in accordance with State Council regulations.

Article 58. Where the provisions of a tax treaty/agreement concluded between the government of the People's Republic of China and a foreign government are different from the provisions of this Law, the provisions of the treaty/agreement shall prevail.

Article 59. The State Council shall, in accordance with this Law, formulate rules for its implementation.

Article 60. This Law shall go into effect on January 1, 2008. Income Tax Law of the Peoples Republic of China for Enterprises with Foreign Investment and Foreign Enterprises adopted at the Fourth Session of the Seventh National People's Congress on April 9, 1991 and Provisional Regulations of the Peoples Republic of China on Enterprise Income Tax promulgated by the State Council on December 13, 1993 shall be annulled as of the same date.



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Implementation Rules of Enterprise Income Tax Law of the Peoples Republic of ChinaPromulgated by Decree No.512 of the State Council of the Peoples Republic of China on December 6, 2007, effective on January 1, 2008.

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Implementation Rules of Enterprise Income Tax Law of the Peoples Republic of China

Chapter 1: General Provisions 30

Chapter 2: Taxable Income 34

Chapter 3: Income Tax Payable 62

Chapter 4: Tax Incentive 64

Chapter 5: Withholding at Source 78

Chapter 6: Special Tax Adjustments 80

Chapter 7: Tax Administration 86

Chapter 8: Supplementary Provisions 92

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Chapter 1: General Provisions

Article 1. These Rules are formulated in accordance with the provisions of the Enterprise Income Tax Law of the Peoples Republic of China (hereinafter referred to as the EIT Law).

Article 2. Sole proprietorship enterprises and partnership enterprises as cited in Article 1 of the EIT Law refer to sole proprietorship enterprises and partnership enterprises established pursuant to Chinese laws and regulations.

Article 3. Enterprises established within the territory of China pursuant to Chinese laws as cited in Article 2 of the EIT Law include enterprises, business units, social organisations, and other organisations that earn revenue, which are established within the territory of China in accordance with Chinese laws and regulations.

Enterprises established pursuant to laws of foreign countries (regions) as cited in Article 2 of the EIT Law include enterprises and other organisations that earn revenue, which are established pursuant to laws of foreign countries (regions).

Article 4. Establishments of effective management as cited in Article 2 of the EIT Law refer to establishments that execute substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.

Article 5. The establishment as cited in Article 2, Paragraph 3 of the EIT Law refers to any establishment engaged in manufacturing and business operating activities within the territory of China, including:

1) A place of management, operation or administration;

2) A farm, factory or place of extraction of natural resources;

3) A place where services are rendered;

4) A place of construction, installation, assembly, repair, and exploitation, etc.;

5) Other establishments engaged in manufacturing and business operating activities.

Where a non-resident enterprise entrusts a business agent to engage in manufacturing and business operating activities within the territory of China, including where the entrusted entities or individuals sign contracts, or store and deliver commodities on behalf of the non-resident enterprise on a regular basis, the business agent shall be regarded as an establishment of the non-resident enterprise within the territory of China.



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Article 6. The income as cited in Article 3 of the EIT Law includes income from sales of goods, rendering of services, and transfers of properties, income from equity interests such as dividends or profit distributions and from interest, rental, royalties, donations, and other income.

Article 7. The income sourced within or outside of China as cited in Article 3 of the EIT Law is determined based on the following principles:

1) For income from sales of goods, source is determined in accordance with the place where the trading activities occur;

2) For income from rendering services, source is determined in accordance with the place where the service activities occur;

3) For income from transfers of immovable properties, source is determined in accordance with the place where the immovable properties are located; for income from transfers of movable properties, source is determined in accordance with the place of the transferring enterprise or establishment which transfers the movable properties; for income from transfers of equity interests, source is determined in accordance with the place where the invested enterprise is located;

4) For income from equity interests such as dividends and profit distributions, source is determined in accordance with the place of the enterprise which makes the distribution;

5) For income from interest, rental and royalties, source is determined in accordance with the place of the enterprise or establishment which bears or pays the income, or with the place of domicile of the individual who bears or pays the income;

6) For other income, source will be determined by the government authorities of the State Council in charge of finance and taxation.

Article 8. The effectively connected income as cited in Article 3 of the EIT Law refers to income earned by establishments of non-resident enterprises within the territory of China that own share rights or creditors rights through which income is earned, or that own, manage, or control properties through which income is earned.



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Chapter 2: Taxable Income

Section 1: General Provisions

Article 9. Taxable income of an enterprise is calculated on an accrual basis. Revenues and expenses attributed to the current period shall both be recognised in the current period, regardless of when the actual payments are received or made. Revenues and expenses shall not be recognised in the current period in which they cannot be attributed, even if the actual payments are received or made. Exceptions will apply if so prescribed by the government authorities of the State Council in charge of finance and taxation.

Article 10. Losses as cited in Article 5 of the EIT Law refer to the amount less than zero after non-taxable, tax-exempt and various deductible items are deducted from the gross income of each tax year in accordance with the provisions of the EIT Law and these Rules.

Article 11. Liquidation income as cited in Article 55 of the EIT Law refers to the balance of the realisable value or trading price for the total assets of an enterprise after deducting the net assets value, liquidation expenses and relevant taxes or expenses.

The portion of remaining assets distributed by an liquidated enterprise to an investing enterprise, which is equivalent to the investing enterprises share of accumulated retained earnings and reserves of the liquidated enterprise, shall be recognised as dividend income; for the balance of assets after deducting the aforementioned dividend income, any excess or deficiency compared with the investment cost, shall be recognised as gains or losses from the transfer of investment.

Section 2: Revenue

Article 12. Revenue of an enterprise derived in monetary terms as cited in Article 6 of the EIT Law includes cash, bank deposits, accounts receivables, notes receivables, held-to-maturity bond investments, waiver of liabilities, etc.

Revenue of an enterprise derived in-kind as cited in Article 6 of the EIT Law includes fixed assets, biological assets, intangible assets, equity investments, inventories, un-matured bonds, services and other relevant interests.

Article 13. Revenue of an enterprise derived in-kind as cited in Article 6 of the EIT Law shall be measured at fair market value.

The aforementioned fair market value refers to the value determined in accordance with the market price.



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Article 14. The revenue from sales of goods as cited in Article 6 (1) of the EIT Law refers to the revenue derived by an enterprise from selling goods, products, raw materials, packaging materials, low-value consumables or other inventories.

Article 15. The revenue from provision of labour services as cited in Article 6 (2) of the EIT Law refers to the revenue derived by an enterprise from engaging in construction/installation, repair/maintenance, transportation, storage/leasing, financing/insurance, postal/telecommunication, consulting/brokerage, cultural/ sports, scientific research, technological services, education/training, accommodation/dining, intermediary, sanitation/health-care, social services, tourism, entertainment, processing and other labour services.

Article 16. The gross proceeds from the transfer of property as cited in Article 6 (3) of the EIT Law refers to the gross proceeds derived by an enterprise from transferring fixed assets, biological assets, intangible assets, capital investments, creditors rights, etc.

Article 17. The dividend income and other distributions with respect to equity interests as cited in Article 6 (4) of the EIT Law refer to income derived by an enterprise from profit distributions of equity interests in invested entities.

For dividend income and other distributions with respect to equity interests, unless the government authorities of the State Council in charge of finance and taxation stipulate otherwise, such income is realised on the date when the profit distribution is legally declared by the invested entity.

Article 18. Interest income as cited in Article 6 (5) of the EIT Law refers to interest income derived by an enterprise from provision of funds to other parties that does not constitute equity interests or from the possession of the enterprises funds by other parties, including savings interest, loan interest, bond interest, debt interest, etc.

Interest income shall be recognised when the interest becomes payable as provided in the agreement.

Article 19. Rental income as cited in Article 6 (6) of the EIT Law refers to income derived by an enterprise from providing use rights for fixed assets, packaging materials and other tangible assets.

Rental income shall be recognised when the rental becomes payable as provided in the lease agreement.

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Article 20. Royalty income as cited in Article 6 (7) of the EIT Law refers to income derived by an enterprise from providing use rights for patents, non-patented technology, trademarks, copyrights and other license rights.

Royalty income shall be recognised when the royalty becomes payable by the licensee as provided in the license agreement.

Article 21. Revenue from donations as cited in Article 6 (8) of the EIT Law refers to the monetary or non-monetary assets received by an enterprise from other enterprises, organisations and individuals without return consideration.

Revenue from donations shall be recognised on the date when the donated assets are actually received.

Article 22. Other income as cited in Article 6 (9) of the EIT Law refers to income derived by an enterprise other than those items of income stipulated in Article 6 (1) to (8). It includes revenue derived from asset surplus such as the discovery of unbooked assets, overdue deposits on packaging materials forfeited, accounts payables that cannot be settled, collections from accounts receivables which were previously written off as bad debts, revenue from debt-restructuring, subsidies, penalty income from breach of contracts, exchange gains, etc.

Article 23. Revenue can be recognised by an enterprise under an installment method for the following business activities:

1) For sales of goods where payments are collected by installments, revenue shall be recognised in accordance with the dates of payment as stipulated in the contract.

2) For an enterprise contracted for processing or manufacturing large machinery and equipment, vessels, aircraft, etc., or engaged in construction, installation, assembly, engineering activities or the provision of other services, etc., where the duration of activities lasts more than 12 months, revenue shall be recognised based on the percentage-of- completion basis or upon work completed within each tax year.

Article 24. In a situation where revenue is derived under a production sharing agreement, the revenue shall be recognised on the date when the products are distributed to the participating enterprise, while the amount of income is determined by the fair market value of the products distributed.



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Article 25. Non-monetary assets exchanged by an enterprise, and products, properties and services provided as donations, liability settlements, sponsorships, fund- raising, advertisements, samples, employees welfare, or profit distributions, etc., shall be regarded as sales of products, transfers of properties and provision of services, unless the government authorities of the State Council in charge of finance and taxation stipulate otherwise.

Article 26. Funds as cited in Article 7 (1) of the EIT Law refer to financial funds provided by various levels of the Peoples Government to business units, social organisations, etc., which are regulated under the governmental budget system, unless the government authorities of the State Council in charge of finance and taxation stipulate otherwise.

Administrative charges as cited in Article 7 (2) of the EIT Law refer to charges collected from specific entities in the course of social management and specific public services to citizens, legal entities or other organisations in accordance with relevant laws, regulations, and procedures stipulated by the State Council, which are regulated under the governmental budget system.

Official receipts as cited in Article 7 (2) of the EIT Law refer to amounts collected by an enterprise on behalf of the government for designated purposes in accordance with relevant laws, regulations, etc.

Other non-taxable income as cited in Article 7 (3) of the EIT Law refers to financial funds received by an enterprise for designated purposes stipulated by the government authorities of the State Council in charge of finance and taxation and approved by the State Council.

Section 3: Deduction

Article 27. Expenditures incurred in connection with operational activities, as cited in Article 8 of the EIT Law, refer to expenditures directly in relation to revenue earned.

Expenditures incurred in connection with operational activities on a reasonable basis, as cited in Article 8 of the EIT Law, refer to normal and necessary expenditures that should be included in the costs of relevant assets or in profit and loss of the current period in accordance with the normal course of manufacturing or business operating activities.

Article 28. Expenditures incurred by an enterprise shall be categorised into revenue expenditure and capital expenditure. Revenue expenditures shall be directly deducted in the period of occurrence. Capital expenditures shall be deducted by amortisation over a relevant period of time or included in the cost of relevant assets, and cannot be directly deducted in the period of occurrence.



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Expenses paid or properties acquired using non-taxable income earned by enterprises shall not be deductible nor can they provide deductible depreciation or amortisation.

Unless the EIT Law or these Rules stipulate otherwise, the costs, expenses, taxes, losses and other outgoings can not be deducted more than once.

Article 29. Costs as cited in Article 8 of the EIT Law refer to cost of sales, cost of goods sold, cost of services and other expenditures in the course of manufacturing or business operating activities of enterprises.

Article 30. Expenses as cited in Article 8 of the EIT Law refer to selling expenses, general and administrative expenses, and financial expenses incurred in the course of manufacturing or business operating activities of enterprises, except the relevant expenses which have already been included into costs.

Article 31. Taxes as cited in Article 8 of the EIT Law refer to various taxes and surcharges incurred by an enterprise other than enterprise income tax and recoverable value-added tax.

Article 32. Losses as cited in Article 8 of the EIT Law refer to losses incurred in the manufacturing or business operating activities of enterprises such as losses from counting shortages, damage or disposal of fixed assets and inventories, losses from transfers of properties, losses from doubtful debts and bad debts, losses from natural disasters or other force majeure, and other losses.

The balance of losses incurred by an enterprise, after deducting any compensation from responsible parties and insurance, shall be deducted in accordance with the provisions stipulated by the government authorities of the State Council in charge of finance and taxation.

For assets written-off as losses by an enterprise, they shall be recognised as revenue of the period in which they are fully or partially recovered if so recovered in later tax years.

Article 33. Other items as cited in Article 8 of the EIT Law refer to the relevant and reasonable expenditures incurred in the manufacturing or business operating activities of enterprises other than costs, expenses, taxes, and losses.



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Article 34. Reasonable employee salaries and remuneration incurred by an enterprise are deductible.

The aforementioned employee salaries and remuneration refer to all monetary and non-monetary compensation paid to employees taking positions in or employed by an enterprise in each tax year, including basic salaries, bonuses, allowances, subsidies, annual salary increases, overtime compensation and other expenses in connection with positions or employment.

Article 35. Basic social insurance premiums such as basic pension premiums, basic medical insurance premiums, unemployment insurance premiums, work injury insurance premiums, maternity insurance premiums, etc., and housing fund amounts paid by an enterprise within the range and standard stipulated by relevant in-charge government authorities of the State Council or the Peoples Governments at provincial level are deductible.

Supplemental pension premiums and supplemental medical insurance premiums paid by an enterprise for investors or employees within the range and standard stipulated by the government authorities of the State Council in charge of finance and taxation are deductible.

Article 36. Other than the life/accident insurance premiums paid by an enterprise for employees in special job positions as stipulated by relevant state regulations and other deductible commercial insurance stipulated by the government authorities of the State Council in charge of finance and taxation, commercial insurance paid by an enterprise for investors or employees cannot be deducted.

Article 37. Reasonable borrowing costs incurred by an enterprise in manufacturing or business operating activities, which are not required to be capitalised, are deductible.

For enterprises purchasing and/or constructing fixed assets, intangible assets, or inventories that will not reach estimated saleable condition until after more than 12 months, reasonable borrowing costs incurred during the period of purchasing and/or constructing the relevant assets shall be regarded as capital expenditures and included in the cost of the relevant assets, which shall be deducted in accordance with the relevant provisions of these Rules.



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Article 38. Interest expenses incurred by an enterprise in manufacturing or business operating activities as follows are allowed to be deducted:

1) Interest expenses incurred by a non-financial enterprise on debts borrowed from financial enterprises, interest expenses incurred by a financial enterprise on deposit savings and inter-bank lending, interest expenses incurred by an enterprise on bonds issued as approved;

2) Interest expenses incurred by a non-financial enterprises on debts borrowed from non-financial enterprises, if within the amount calculated using the loan interest rate of the same type and period provided by financial enterprises.

Article 39. Exchange losses incurred in currency transactions, and exchange losses from translations of monetary assets and liabilities in foreign currencies to RMB amounts at the end of the tax year using the year-end middle spot exchange rate are deductible, except those that have already been recorded into costs of assets or in connection with profit distributions to shareholders.

Article 40. Employee welfare expenses incurred by an enterprise are deductible within 14% of total employee salaries and remuneration.

Article 41. Labour union expenses contributed by an enterprise are deductible within 2% of the total employee salaries and remuneration.

Article 42. Education expenses for employees incurred by an enterprise are deductible within 2.5% of the total employee salaries and remuneration, except to the extent that government authorities of the State Council in charge of finance and taxation stipulate otherwise. Any excess is allowed to be carried forward to the following tax years for deduction.

Article 43. Entertainment expenses incurred by an enterprise in relation to the manufacturing or business operations shall be deducted to the extent of 60% of the expenses incurred, but with the total entertainment expenses not exceeding 5 of sales (operating) revenue of the current period.

Article 44. For advertising expenses and marketing expenses incurred that satisfy relevant requirements, the deductible amount shall not exceed 15% of sales (operating) revenues of the current period except to the extent government authorities of the State Council in charge of finance and taxation stipulate otherwise; while the portion above the ceiling can be carried forward to the following tax years for deduction.



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. 2%

. 2.5%

. 60% 5

. 15%



Article 45. Amounts credited to a special liability fund accrued by an enterprise for the purpose of environment protection and ecological restoration in accordance with relevant provisions of laws and regulations are deductible. The accrued amounts cannot be deducted if the purpose of the fund is changed after accrual.

Article 46. Property insurance premiums paid by an enterprise in accordance with relevant provisions are deductible.

Article 47. Leasing expenses paid by an enterprise for fixed assets that are leased based on its manufacturing and business needs can be deducted in the following ways:

1) Leasing expenses incurred for fixed assets under operating leases can be deducted evenly over the leasing period;

2) Where leasing expenses are incurred for fixed assets under finance leases, depreciation expenses shall be accrued on the portion of such lease which constitutes the value of fixed assets in accordance with relevant provisions, and shall be depreciated and deducted over the relevant period.

Article 48. Reasonable worker protection expenses incurred by an enterprise are deductible.

Article 49. Management fees paid between enterprises, rentals and royalties paid between operational units within an enterprise, and interest paid between operational units of a non-financial enterprise shall not be deductible.

Article 50. For establishments of non-resident enterprises set up within the territory of China, expenses incurred by overseas head offices in relation to the manufacturing and business operation of the establishments are deductible, where supporting documents such as the scope of expenses to be allocated, allocation base and methods can be issued by the head offices and hence the expenses can be reasonably computed and allocated.

Article 51. Donations for public interest as cited in Article 9 of the EIT Law refer to the donations made by an enterprise through public interest social organisations or the Peoples Governments and their departments above county level, to be used in the activities for public interest stipulated by the Public Welfare Donation Law of the Peoples Republic of China.



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Article 52. Public interest social organisations as cited in Article 51 of these Rules refer to social organisations that concurrently satisfy the following conditions, such as foundations and charitable organisations:

1) Legally incorporated, with legal person status;

2) With a mission of development for public interest, not for profit making purposes;

3) All assets and their associated earnings and appreciation belong to the legal person;

4) Profits and operating surplus are mainly used in activities that support the established purposes of the organisation;

5) Upon termination, remaining assets do not belong to any individual or profit-making organisation;

6) Not engaged in activities that are irrelevant to established purposes;

7) With complete financial accounting system;

8) Donators do not participate in distribution of the public interest social organisation in any form or manner; and

9) Other conditions stipulated by the government authorities of the State Council in charge of finance and taxation with the departments in charge of civil affairs of the State Council.

Article 53. Expenditures incurred in connection with donations for public interest by an enterprise are deductible within 12% of the years total profit.

The years total profit refer to the years accounting profits (before income tax) calculated in accordance with the state-unified accounting standards.

Article 54. Sponsorship fees as cited in Article 10 (6) of the EIT Law refer to various expenditures incurred by an enterprise having a non-advertising nature and being irrelevant to the manufacturing or business operating activities.

Article 55. Unapproved provisions as cited in Article 10 (7) of the EIT Law refer to various provisions which are not stipulated by the government authorities of the State Council in charge of finance and taxation, such as reserves for assets impairment, risk reserves, etc.



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Section 4 Tax Treatment of Assets

Article 56. For all assets of an enterprise, including fixed assets, biological assets, intangible assets, long-term prepaid expenses, investment assets, inventories, etc., historical cost shall be used as tax basis.

The aforementioned historical cost refers to expenditures actually incurred when an enterprise acquired the assets.

If during the period when the enterprise is holding an asset, the asset experiences an increase or decrease in value, the tax basis of the asset shall not be adjusted unless the corresponding profits or losses may be recognised as stipulated by the government authorities of the State Council in charge of finance and taxation.

Article 57. Fixed assets as cited in Article 11 of the EIT Law refer to non-monetary assets held by an enterprise for use in the manufacturing of goods or the rendering of services, for rental to others, or for administrative purposes, and are used for more than 12 months, including houses, buildings and structures, machinery, mechanical apparatus, transportation vehicles and other equipment, apparatuses or tools in connection with manufacturing or business operations.

Article 58. The tax basis of fixed assets shall be determined in accordance with the following principles:

1) The tax basis of a fixed asset that is purchased shall be based on the purchase price, relevant taxes and expenses paid, and other expenditures directly attributable to putting the asset into condition for its intended use;

2) The tax basis of a fixed asset that is self-constructed shall be based on the expenditures incurred prior to its completion;

3) The tax basis of a fixed asset that is acquired by finance lease shall be based on the total payments as agreed in the leasing contract, as well as relevant expenditures incurred by the lessee in the course of the conclusion of the leasing contract; where no total payments have been agreed in the leasing contract, the tax basis shall be based on the sum of the fair market value of the asset and relevant expenditures incurred by the lessee in the course of the conclusion of the leasing contract;

4) The tax basis of fixed asset surplus shall be based on the complete replacement cost of the same-type fixed assets;

5) The tax basis of a fixed asset that is acquired through donation, investment, non-monetary assets exchange or debt restructuring shall be based on the fair market value of the asset and relevant taxes and expenses paid;



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6) For reconstructed fixed assets, the reconstruction expenditures incurred in the course of reconstruction shall be added to the tax basis except the expenditures as stipulated by Article 13 (1) and (2) of the EIT Law.

Article 59. Depreciation of fixed assets calculated using the straight-line depreciation method is deductible.

An enterprise shall begin computing depreciation for a fixed asset in the month following the month in which the asset is placed into service, and shall cease computing depreciation for a fixed asset in the month following the month in which the assets use is ceased.

The net residual value of a fixed asset shall be reasonably determined by an enterprise according to the nature and condition of the fixed asset. It may not be changed once determined.

Article 60. The minimum number of years for computing depreciation of fixed assets is as follows except to the extent government authorities of the State Council in charge of finance and taxation stipulate otherwise:

1) 20 years for houses and buildings;

2) 10 years for airplanes, trains, ships, machinery, mechanical apparatuses and other equipment used in manufacturing;

3) 5 years for apparatuses, tools, furnishings used in connection with manufacturing and business operations;

4) 4 years for transportation vehicles other than airplanes, trains and ships,

5) 3 years for electronic equipment.

Article 61. For enterprises engaged in the extraction of mineral resources such as petroleum, natural gas, etc., the tax treatment of expenditures incurred prior to the commencement of commercial extraction/production and the method of depreciation/depletion of the relevant fixed assets shall be stipulated by the government authorities of the State Council in charge of finance and taxation separately.



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Article 62. The tax basis for bearer biological assets shall be determined in accordance with the following principles:

1) The tax basis of a bearer biological asset that is purchased shall be based on the purchase price, relevant taxes and expenses paid;

2) The tax basis of a bearer biological asset that is acquired through donation, investment, non-monetary assets exchange or debt restructuring shall be based on the fair market value of the asset, relevant taxes and expenses paid.

The aforementioned bearer biological assets refer to biological assets held for use in the generation of agricultural products or rendering of services, or for lease to others, including economic forest, firewood forest, livestock for generation of other biological assets, draught animals, etc.

Article 63. Depreciation of bearer biological assets computed using the straight-line method is deductible.

An enterprise shall begin computing depreciation for a bearer biological asset in the month following the month in which the asset is placed in service, and cease computing depreciation for a bearer biological asset in the month following the month in which the assets use is ceased.

The net residual value of a bearer biological asset shall be reasonably determined by an enterprise according to the nature and condition of the bearer biological asset. It may not be changed once determined.

Article 64. The minimum number of years for computing depreciation of bearer biological assets is as follows:

1) 10 years for forestry bearer biological assets;

2) 3 years for livestock bearer biological assets.

Article 65. Intangible assets as cited in Article 12 of the EIT Law refer to non-monetary long-term assets without physical substance, which are held by an enterprise for use in the manufacturing of goods or the rendering of services, for lease to others, or for administrative purposes, including patents, trademarks, copyrights, land use-rights, non-patented technologies, goodwill, etc.



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Article 66. The tax basis for intangible assets shall be determined in accordance with the following principles:

1) The tax basis of an intangible asset that is purchased shall be based on the purchase price, relevant taxes and expenses paid, and other expenditures directly attributable to putting the asset into condition for its intended use;

2) The tax basis of an intangible asset that is self-developed shall be based on the expenditures incurred in the development process from meeting capitalisation criteria to reaching the condition for its intended use;

3) The tax basis of an intangible asset that is acquired through donation, investment, non-monetary assets exchange or debt restructuring shall be based on the sum of the fair market value of the asset and relevant taxes paid.

Article 67. Amortisation expenses for intangible assets using the straight-line method are deductible.

The amortisation period for intangible assets shall not be less than 10 years.

Intangible assets acquired through investment or transfer that has a useful life stipulated in accordance with the provisions of relevant laws, or agreed in contracts may be amortised according to the useful life.

Expenditures for purchasing goodwill are deductible when the entire business of an enterprise is sold or the enterprise is liquidated.

Article 68. Expenses incurred from the reconstruction of fixed assets as cited in Article 13 (1) and (2) of the EIT Law refer to expenditures incurred to restructure houses and buildings, extend the useful life, etc.

Expenses as cited in Article 13 (1) of the EIT Law shall be amortised over the remaining expected useful life of the fixed asset; expenses as cited in Article 13 (2) of the EIT Law shall be amortised over the remaining leasing period in accordance with the terms of the applicable contract.

If the useful life of a reconstructed fixed asset is extended, the depreciation period shall be extended appropriately except as stipulated by Article 13 (1) and (2) of the EIT Law.



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Article 69. Expenses incurred on major repair of fixed assets as cited in Article 13 (3) of the EIT Law refer to expenditures meeting all the following conditions:

1) Expenses incurred from repair are more than 50% of the tax basis of the fixed assets when the assets were acquired;

2) The useful lives of the fixed assets after repair is extended by more than 2 years;

Expenses stipulated by Article 13 (3) of the EIT Law shall be amortised over the remaining useful life of the fixed assets.

Article 70. Long-term prepaid expenses as cited in Article 13 (4) of the EIT Law shall be amortised by installments from the month following the occurrence of the expenses with the amortisation period being not less than 3 years.

Article 71. The investment assets as cited in Article 14 of the EIT Law refer to assets formed by an enterprise through external equity investments and debt investments.

The costs of investment assets shall be deductible upon the transfer or disposal of the investment assets.

The costs of investment assets shall be determined based on the following principles:

1) The costs of an investment asset acquired by cash payments shall be based on the purchase price;

2) The costs of an investment asset acquired by means other than cash payments shall be based on the fair market value of the investment asset, relevant taxes and expenses paid.

Article 72. Inventories as cited in Article 15 of the EIT Law refer to finished products or goods held for sale by an enterprise, goods-in-process, raw materials and articles consumed during manufacturing or rendering of services, etc.

The costs of inventories shall be determined based on the following principles:

1) The costs of inventories acquired by cash payments shall be based on the purchase price, relevant taxes and expenses paid;

2) The costs for inventories acquired by means other than cash payments shall be based on the fair market value of the inventories, relevant taxes and expenses paid;

3) The costs of agricultural products harvested from bearer biological assets shall be based on necessary expenditures of harvesting such as material costs, labour costs and indirect expenses allocated.



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Article 73. During its holding period and upon selling, an enterprise may choose to use the first-in-first-out method, the weighted average method or the specific identification method to determine the actual cost of inventories. Once the valuation method has been determined, it shall not be freely changed.

Article 74. The net assets value as cited in Article 16 and 19 of the EIT Law refers to the balances of tax basis of the assets after deducting the depreciation, depletion, amortisation, and asset provisions allowed in accordance with provisions in these Rules.

Article 75. Enterprises shall recognise capital gain or loss of relevant assets in the course of a reorganisation when the transaction is executed and re-determine the tax basis of the relevant assets in accordance with the trading prices unless the government authorities of the State Council in charge of finance and taxation stipulate otherwise.

Chapter 3: Income Tax Payable

Article 76. The formula for tax payable as cited in Article 22 of the EIT Law is as follows:

Tax Payable = Taxable Income X Applicable Tax Rate Preferential Tax Credits Other Tax Credits

Preferential tax credits and other tax credits in this formula refer to the taxes payable that are eligible for reductions, exemptions or tax credits as stipulated by the EIT Law and the State Council's tax preferential policy.

Article 77. Income tax paid overseas as cited in Article 23 of the EIT Law refers to tax of an enterprise income tax nature that has been actually paid on income derived by an enterprise from outside of the territory of China in accordance with foreign tax laws and related regulations.

Article 78. The maximum credit as cited in Article 23 of the EIT Law refers to the tax payable on the income derived by an enterprise from outside of the territory of China computed in accordance with the EIT Law and these Rules hereof. The maximum credit shall be computed with respect to countries (regions) instead of items, except to the extent government authorities of the State Council in charge of finance and taxation stipulates otherwise, in accordance with the following formula:



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Maximum Credit for Income Taxes Paid on Foreign-sourced Income = Total Tax Payable Computed on China-sourced and Foreign-sourced Taxable Income in Accordance with the EIT Law and these Rules X Taxable Income Sourced from a Particular Country (Region) Total China-sourced and Foreign-sourced Taxable Income

Article 79. The five year period as cited in Article 23 of the EIT Law refers to the five consecutive years starting from the year following the year in which the foreign taxes of enterprise income tax nature were paid on foreign-sourced income and such foreign taxes exceeded the maximum allowable credit.

Article 80. Foreign enterprises directly controlled by a resident enterprise as cited in Article 24 of the EIT Law refer to foreign enterprises with more than 20% of their shares directly held by the resident enterprise.

Foreign enterprises indirectly controlled by a resident enterprise as cited in Article 24 of the EIT Law refer to foreign enterprises with more than 20% of their shares indirectly held by the resident enterprise. Detailed provisions are to be stipulated by the government authorities of the State Council in charge of finance and taxation and issued separately.

Article 81. When an enterprise applies for tax credit in accordance with Articles 23 and 24 of the EIT Law, it shall furnish relevant tax documents issued by the foreign tax authorities for the corresponding tax year for the taxes paid.

Chapter 4 : Tax Incentive

Article 82. Interest income from government bonds, as cited in Article 26 (1) of the EIT Law, refers to interest income derived from enterprises holdings of government bonds issued by the government authorities of the State Council in charge of finance.

Article 83. Dividend income and other distributions with respect to equity interests paid between qualifying resident enterprises, as cited in Article 26 (2) of the EIT Law, refer to investment income derived by a resident enterprise from direct investment in another resident enterprise. Dividend income and other distributions with respect to equity interests, as cited in Article 26 (2) and (3) of the EIT Law, do not include investment income derived from the holding of shares less than 12 months, where the shares are publicly listed and traded by resident enterprises.



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Article 84. Qualifying non-profit making organisations, as cited in Article 26 (4) of the EIT Law, refer to organisations which fulfill all the following criteria:

1) Completed registration procedures for a non-profit making organisation in accordance with relevant laws and regulations;

2) Engaged in charitable or non-profit making activities;

3) Other than for reasonable expenses incurred with respect to the organisation, use derived income wholly for charitable or non-profit making activities within the registered scope or in accordance with the provisions of the Articles of Association;

4) Shall not distribute assets and associated interests of the organisation;

5) Use remaining assets after de-registration within the registered scope or in accordance with the provisions of the Articles of Association for charitable or non-profit making purposes; or donate remaining assets along with public announcement to other organisations of similar nature and mission;

6) Founders shall not keep or enjoy any property rights over the asset invested into the organisation;

7) The salaries and welfare of employees shall be limited to a range as stipulated and shall not be used as a means to distribute the organisation's assets.

The regulation on the qualification of the above mentioned organisation will be enacted by the government authorities of the State Council in charge of finance and taxation with the relevant departments of the State Council.

Article 85. Income received by qualifying non-profit making organisations, as cited in Article 26 (4) of the EIT Law, shall not include income derived from profit- making activities by non-profit making organisations unless the government authorities of the State Council in charge of finance and taxation stipulate otherwise.

Article 86. Income subject to tax exemptions and reductions earned by enterprises from their activities in agriculture, forestry, animal husbandry and fishery, as cited in Article 27 (1) of the EIT Law, refers to:

1) Income earned by enterprises from activities in the below categories shall be entitled to exemption from enterprise income tax:

1. Growing vegetables, grains, potatoes, oil plants, beans, cotton, ramie, sugar crops, fruits and nuts;

2. Breeding selection of new variety of agricultural products;

3. Growing Chinese medicinal herbs;



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4. Cultivating and growing trees;

5. Rearing livestock and poultry;

6. Harvesting forestry products;

7. Providing services relating to agriculture, forestry, animal husbandry and fishery, such as irrigation services, preliminary processing of agricultural products, veterinarian services, promotion of agricultural technologies, agricultural machinery services and repair of agricultural machinery, etc., and

8. High seas fishing.

2) In the case of income earned by enterprises from activities in the below categories, there shall be allowed a 50% credit against the enterprise income tax:

1. Growing flowers and crops used for beverages (such as tea, etc.) and flavor;

2. Sea and inland waters aquaculture.

Tax incentives of these Rules shall not be allowed where the income is earned by enterprises from engaging in projects of restricted or prohibited industries by the State.

Article 87. Major State-supported public infrastructure facility projects as cited in Article 27 (2) of the EIT Law refer to projects as listed in the Catalogue of Enterprise Income Tax Incentives for Public Infrastructure Facility Projects, such as pier and dock projects, airports, railroads, roads, urban public transportation, electricity projects, water resources utilisation projects, etc.

In the case of income earned by enterprises from the aforementioned major State-supported public infrastructure facility projects, with effect from the first year to which manufacturing or business operational revenue earned from the project is attributable, there shall be allowed a credit for the entire enterprise income tax on that

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