(Adopted at the Fourth Session of the Fifth National People's Congress and promulgated by Order No. 13 of the Chairman of the Standing Committee of the National People's Congress on December 13, 1981, and effective as of January 1, 1982) (Editor's Note: This Law has been annulled by Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises promulgated on April 9, 1991 and effective as of July 1,1991) Article 1 Income tax shall be paid in accordance with the provisions of this Law by foreign enterprises on their income derived from production and business operations and other sources in the People's Republic of China.

"Foreign enterprises" mentioned in this Law refers, with the exception of those for whom separate provisions are stipulated in Article 11, to foreign companies, enterprises and other economic organizations that have establishments within the territory of the People's Republic of China engaged in independent business operations or in cooperative production or cooperative business operations with Chinese enterprises.

Article 2 The taxable income of a foreign enterprise shall be the amount remaining from its gross income in a tax year after the costs, expenses and losses have been deducted.

Article 3 The income tax on foreign enterprises shall be computed at progressive rates on amounts in excess of specified amounts of taxable income； the rates are as follows:

Range of Income

Tax Rate (%)

Annual income not exceeding 250,000 yuan

That part of annual income from 250,000 to 500,000 yuan

That part of annual income from 500,001 to 750,000 yuan

That part of annual income from 750,001 to 1,000,000 yuan

That part of annual income above 1,000,000 yuan

Article 4 When paying the income tax in accordance with the provisions of the preceding Article, a foreign enterprise shall also pay a local income tax of ten percent of taxable income. In cases where a foreign enterprise with small-scale production and low profits warrants a reduction in or exemption from the local income tax, the decision shall be made by the people's government of the province, autonomous region, or municipality directly under the Central Government in which the enterprise is located.

Article 5 A foreign enterprise scheduled to operate for a period of ten years or more in farming, forests, animal husbandry or other low-profit operations 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 percent reduction of income tax in the second and third years.

With the approval of the Ministry of Finance, a 15 to 30 percent reduction in income tax may be allowed for another ten years following the expiration of the period for exemption and reductions prescribed in the preceding paragraph.

Article 6 Losses incurred by a foreign enterprise in a tax year may be made up with a corresponding amount drawn from the next 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 from its income year by year, but within a period not exceeding five years.

Article 7 Income tax on foreign enterprises shall be computed on an annual basis and paid in advance in quarterly instalments. Such advance payments shall be made within 15 days after the end of each quarter, and the final settlement shall be made within five months after the end of each tax year, with a refund for any overpayment or a supplementary payment for any deficiency.

Article 8 A foreign enterprise shall file its income tax returns in respect of advance payments with the local tax authorities within each period prescribed for advance payments； and it shall file an annual income tax return, together with the statement of final accounts, within four months after the end of the tax year.

Article 9 A report on the financial and accounting systems of a foreign enterprise shall be submitted to the local tax authorities for reference.

If the procedures for financial management and accounting of a foreign enterprise contradict the provisions of the tax laws, tax payments shall be assessed in accordance with the provisions of the tax laws.

Article 10 When a foreign enterprise starts or ceases to operate in accordance with the law, it shall present there levant certificates to the local tax authorities and go through tax registration.

Article 11 Foreign companies, enterprises and other economic organizations that have no establishments in China, but have gained dividend, interest, rental, royalty and other income from sources in China, shall pay an income tax of 20 percent on such income. Such tax shall be withheld by the paying unit from the amount of each payment.

For the payment of income tax in accordance with the provisions of the preceding paragraph, the foreign company, enterprise or other economic organization which earns the income shall be the taxpayer, and the paying unit shall be the withholding agent. The tax withheld from each payment by the withholding agent shall be turned over to the State Treasury and the withholding income tax return submitted to the tax authorities within five days.

Income from interest on loans made to the Chinese Government or Chinese state banks by international financial organizations shall be exempted from income tax. Income from interest on loans made at a preferential interest rate by foreign banks to Chinese state banks shall also be exempted from income tax.

Foreign banks shall pay tax on their income from interest on deposits in Chinese state banks and on loans made at a normal interest rate to Chinese state banks. However, an exemption from income tax may be granted reciprocally to those foreign banks in whose countries income from interest on deposits of, and loans made by, Chinese state banks is exempt from income tax.

Article 12 The tax authorities shall have the right to inspect the financial, accounting and tax affairs of a foreign enterprise, and the right to inspect the withholding of tax of a withholding agent and its payment of the withheld tax into the State Treasury. Foreign enterprises and withholding agents must make reports according to the facts and provide relevant information； they may not refuse to cooperate and may not conceal the facts.

Article 13 The income tax levied on foreign enterprises shall be computed in terms of RMB. Income in foreign currency shall be taxed on the equivalent amount converted into RMB according to the exchange rate quoted by the State General Administration of Exchange Control of the People's Republic of China.

Article 14 Foreign enterprises and withholding agents must pay taxes within the prescribed time limit. In case of failure to do so, the tax authorities, in addition to setting a new time limit for tax payment, shall impose a surcharge for overdue payment equal to 0.5 percent the overdue tax for every day in arrears, starting from the first day payment becomes overdue.

Article 15 The tax authorities may, in the light of the circumstances, impose a fine on a foreign enterprise that has violated the provisions of Articles 8, 9, 10 or 12 of this Law.

In dealing with a withholding agent who has violated the provisions of Article 11 of this Law, the tax authorities may, in addition to setting a new time limit for the payment of the amount of tax that should have been withheld, impose a fine in the light of the circumstances, up to but not exceeding 100 percent of the amount of tax that should have been withheld.

In dealing with a foreign enterprise that has evaded or refused to pay tax, the tax authorities, in addition to pursuing the tax payment, may impose a fine of up to but not exceeding five times the amount of the tax underpaid or not paid, in accordance with the seriousness of the case. Cases of gross violation shall be handled by the local people's courts in accordance with the law.

Article 16 In case of a dispute with the tax authorities over tax payment, a foreign enterprise must pay tax according to the relevant regulations before applying to higher tax authorities reconsideration. If it does not accept the decision made after such reconsideration, it may bring a suit in the local people's court.

Article 17 When agreements on tax payment have been concluded between the Government of the People's Republic of China and foreign governments, matters concerning tax payment shall be handled in accordance with the provisions of the respective agreements.

Article 18 Rules for the implementation of this Law shall be formulated by the Ministry of Finance of the People's Republic of China.

Article 19 This Law shall go into effect on January 1, 1982.