Implementing Regulations of the Enterprise Income Tax Law of the People's Republic of China

Order of the State Council [2007] No. 512

December 6, 2007

The Implementing Regulations of the Enterprise Income Tax Law of the People's Republic of China, adopted at the 197th Executive Meeting of the State Council on November 28, 2007, are hereby promulgated and shall come into effect as of January 1, 2008.

Premier: Wen Jiabao

Appendix: Implementing Regulations of the Enterprise Income Tax Law of the People's Republic of China

Chapter I General Provisions

Article 1 These Regulations are formulated in accordance with the provisions of the Enterprise Income Tax Law of the People's Republic of China (hereinafter called the "Enterprise Income Tax Law").

Article 2 Individual proprietorship enterprises and partnership enterprises as stated in Article 1 of the Enterprise Income Tax Law refer to the individual proprietorship enterprises and the partnership enterprises established in accordance with the provisions of Chinese laws and administrative regulations.

Article 3 The enterprises established legally within the territory of China, as stated in Article 2 of the Enterprise Income Tax Law, include the companies, public institutions, social organizations, and other organizations with income sources which are established within the territory of China in accordance with Chinese laws and administrative regulations.
The enterprises established in accordance with the laws of a foreign country (region), as stated in Article 2 of the Enterprise Income Tax Law, refer to enterprises and other organizations with income sources which are established in accordance with the laws of the foreign (region).

Article 4 The actual administrative organizations as stated in Article 2 of the Enterprise Income Tax Law refer to the organizations that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of enterprises.

Article 5 The organizations and places as stated in Paragraph 3 of Article 2 of the Enterprise Income Tax Law refer to the organizations and places wherein the production and operation activities within the territory of China are conducted, including:
1. Management offices, business offices, and representative offices;
2. The places used as farms or factories, or for exploitation of natural resources;
3. Places where labor services are provided;
4. Places where the engineer operations like construction, installation, assembly, repair and exploration are conducted; and
5. Other organizations and places wherein other production and operation activities are conducted.
If non-resident enterprises authorize business agents to engage in production and operation activities within the territory of China, including entrusting units or individuals to sign contracts, store goods or deliver goods etc, such business agents shall be deemed as the organization or premise set up by the non-resident enterprises within the territory of China.

Article 6 The incomes as stated in Article 3 of the Enterprise Income Tax Law include the income from selling goods, the income from providing labor service, the income from property transfer, the income from equity investment such as the dividends and bonus, the income from interest, the income from rental, the income from royalty fee, the income from donation and other incomes.

Article 7 The incomes derived from sources in or out of the territory of China, as stated in Article 3 of the Enterprise Income Tax Law, shall be determined in accordance with the following principles:
1. The income from selling goods shall be determined in terms of places where the sales activities happen;
2. The income from providing labor service shall be determined in terms of places where the labor services provide;
3. As to the income from property transfer, if the income from transferring real properties, it shall be determined in terms of the location of the real property; if transferring the movable properties, it shall be determined in terms of the location of the enterprise/organization/place that transfer the movable properties; in the event of transfer of the equity investment assets, it shall be determined in terms of the location of the enterprise accepting the equity investment;
4. For the income from equity investment such as the income from dividend and bonus, it shall be determined in terms of the location of the enterprise distributing the dividend and bonus;
5. For the income from interest, rental and royalty fee, it shall be determined according to the location of the enterprise, organization or place bearing or paying such income; and
6. For other incomes, they shall be determined in terms of the regulations of the competent finance and taxation departments under the State Council.

Article 8 The actual associations as stated in Article 3 of the Enterprise Income Tax Law mean organizations and places established by non-resident enterprises within the territory of China own equities or creditor's rights from which the incomes are obtained, as well as own, manage or control the property from which the incomes are obtained.

Chapter II Taxable Incomes

Section 1 General Provisions

Article 9 The amount of income taxable of enterprise shall be computed on the accrual basis. For the income and expense belonging to the current period, whether they have been received or paid, they shall be recognized as the income and expense in the current period; for the income and expense not belonging to the current period, even if they have been received or paid in the current period, they shall not be recognized as the income and expense in the current period, unless otherwise prescribed in these Regulations and the regulations of the competent finance and taxation departments under the State Council.

Article 10 The loss as stated in Article 5 of the Enterprise Income Tax Law means the negative balance (less than zero) of total income minus tax-exemption income minus various deductions in each tax year in accordance with the provisions of the Enterprise Income Tax Law and these Regulations.

Article 11 The income from liquidation as stated in Article 55 of the Enterprise Income Tax Law means the balance of the realized value of an enterprise's total assets or the transaction price minus net assets value minus liquidating expense and other relevant taxes and fees.
For the part of the residual assets that the investing enterprise has acquired from the liquidated enterprise, which is equal to the total of the accumulative undistributed profit and the accumulative surplus fund of the liquidated enterprise, it shall be recognized as the income from dividend. For the balance of the aforesaid residual assets minus the aforesaid the income from dividend, which is above or below the investment cost, the above or below part shall be respectively recognized as income or loss from the transfer of investment assets.

Section 2 Incomes

Article 12 The currency forms of the income obtained by an enterprise as stated in Article 6 of the Enterprise Income Tax Law include cash, bank deposit, receivable, note receivable, the speculative bonds investment the enterprise intends to possess till they get expired, and exempt of liabilities, etc.
The non-currency forms of the income obtained by an enterprise as stated in Article 6 of the Enterprise Income Tax Law include fixed assets, biology assets, intangible assets, equity investment, inventory, the speculative bond investment the enterprise does not intend to possess till they get expired, labor services and other related equities.

Article 13 An enterprise's acquired non-currency income as stated in Article 6 of the Enterprise Income Tax Law shall be calculated based on the fair value.
The fair value as stated in the preceding paragraph means assets' value determined by market price.

Article 14 The incomes from selling goods as stated in Item 1 of Article 6 of the Enterprise Income Tax Law mean the incomes the enterprise has acquired through selling the commodities, the goods, the raw materials, the packaging, the low-value consumables, and other inventories.

Article 15 The incomes from providing the labor services as stated in Item 2 of Article 6 of the Enterprise Income Tax Law mean the incomes the enterprise has acquired through engaging in the construction and installation, repair and maintenance, transportation, warehouse lease, financial service and insurance, post and telecom, consulting and brokerage, culture and sports, scientific research, technical service, education and training, restaurant and hotel, agent services, hygiene and healthcare, community service, tourism, entertainment, processing and other labor services.

Article 16 The incomes from the property transfer as stated in Item 3 of Article 6 of the Enterprise Income Tax Law mean the incomes that are obtained by an enterprise through the transfer of its fixed assets, biologic assets, intangible assets, equity, creditor's right, or other property.

Article 17 The earning from equity investments like the income from dividend and bonus as stated in Item 4 of Article 6 of the Enterprise Income Tax Law mean the incomes which the enterprise has acquired through equity investment from the invested party.
The realization of earnings from the equity investments like the income from dividend and bonus shall be determined based on the date when the invested party has made its profit distribution plan unless otherwise specified by the competent finance and taxation departments under the State Council.

Article 18 The incomes from interests as stated in Item 5 of Article 6 of the Enterprise Income Tax Law mean the interests the enterprise has acquired through providing the fund not constituting the equity investment to the other party or due to other party's occupying the enterprise's fund, including the savings' interest, the loan interest, the bond interest, and the interest on arrears.
The realization of interest income shall be determined according to the date stipulated in the contract on which the debtors shall pay interests.

Article 19 The incomes from rentals as stated in Item 6 of Article 6 of the Enterprise Income Tax Law mean the incomes that the enterprise has acquired through providing the fixed assets, packaging, and the use right of other tangible assets.
The realization of incomes from rentals shall be determined according to the date stipulated in the contract on which when the lessee shall pay the rentals.

Article 20 The incomes from royalty fees as stated in Item 7 of Article 6 of the Enterprise Income Tax Law mean the incomes that the enterprise has acquired through granting the franchise of the patent right, non-patent technology, trademark, copyright, and other rights.
The realization of incomes from royalty fees shall be determined according to the date stipulated in the contract on which the franchisee shall pay the royalty fees.

Article 21 The incomes from donations as stated in Item 8 of Article 6 of the Enterprise Income Tax Law mean the currency assets or non-currency assets which have been voluntarily and freely given by other enterprise, organization, and individual person.
The recognition of incomes from donations shall be determined according to the date on which the donations are actually received.

Article 22 Other incomes as stated in Item 9 of Article 6 of the Enterprise Income Tax Law mean any incomes the enterprise has acquired except for the incomes specified in Items 1-8 of Article 6 of the Enterprise Income Tax Law, including the assets appreciation surplus, the deposit income due to not returning the packaging on maturity date, the payable due to incapability in payment, the receivable which has been treated as bad debt but collected again, the debt restructuring income, the subsidy, the penalty of breach income and exchange earnings.

Article 23 The realization of the incomes from the following production and business operations may be determined by stages:
1. In case of selling goods in installments, the realization of the income shall be determined according to the payment collection date stipulated in the contract; and
2. In case of engaging in assembly and manufacture of the large-size machinery equipment, ship and aircraft, or in construction, installation, and decoration project, or providing other labor service with the term lasting for over 12 months, the realization of the income shall be determined according to the completion progress and completed workload in the tax year.

Article 24 In case of acquiring the income based on the product distribution plan, the realization of such income shall be determined according to the date on which the enterprise has actually received the product as per the aforesaid product distribution plan, and the amount of such income shall be determined according to the product's fair value.

Article 25 In case of exchanging the non-currency assets, and using the goods, property and labor service as donation, payment of debt, sponsor, money-raising, advertising, sample, employee's benefit and profit distribution, it shall be deemed as selling goods, transferring property, or providing labor service unless otherwise prescribed by the competent finance and taxation departments under the State Council.

Article 26 The financial appropriation as stated in Item 1 of Article 7 of the Enterprise Income Tax Law means the funds which are included in the budget plans of the people's governments at all-levels and appropriated to the organizations like the institution and social organization unless otherwise prescribed by the competent finance and taxation departments under the State Council.
The administrative levying fees as stated in Item 2 of Article 7 of the Enterprise Income Tax Law mean the expenses which the enterprise will, after obtaining the approval in compliance with the procedures ordered by the State Council, during the process of implementing social public management, and providing specific public service to residents, legal persons, or other organization, collect from the special serviced objectives in accordance with the relevant provisions of the laws, administrative regulations or regional laws and regulations, and which shall be included in the budget management.
The government fund as stated in Item 2 of Article 7 of the Enterprise Income Tax Law means the special-purpose treasury fund which the enterprise act for the government to collect in accordance with the laws and the administrative regulations.
Other tax-free incomes specified by the State Council as stated in Item 3 of Article 7 of the Enterprise Income Tax Law mean the acquired treasury funds of enterprises which are specified by the competent finance and taxation departments under the State Council for the special-purposes.

Section 3 Deduction

Article 27 Relevant expenditure as stated in Article 8 of the Enterprise Income Tax Law means the expenditures in connection with acquiring the incomes.
Reasonable expenditure as stated in Article 8 of Enterprise Income Tax Law means the necessary and normal expenditures which are spent on the normal production and operation activities, and shall be accounted into the loss or relevant assets' costs in the current period.

Article 28 An enterprise's expenditures occurred shall be divided into income expenditures and capital expenditures. The income expenditures could be deducted at the happing period while the capital expenditures shall be deducted by stages or accounted into the cost of the assets and shall not be directly deducted in the happening period.
If the tax-free income generates the expense or property due to being spent, the enterprise shall not deduct it, or calculate the correspondent depreciation or amortize the deduction.
Unless otherwise prescribed in the Enterprise Income Tax Law and these Regulations, the cost, expense, tax, loss and other expenditures which have actually happened to the enterprise shall not be repeatedly deducted.

Article 29 The cost as stated in Article 8 of the Enterprise Income Tax Law means the marketing cost, the cost of selling goods, the business expense, and other consumptions.

Article 30 The expenses as stated in Article 8 of the Enterprise Income Tax Law mean the sales expenses, overhead expenses and the financial expenses which the enterprise has generated in the process of manufacturing products, except for those expenses which have be accounted into cost.

Article 31 The taxes as stated in Article 8 of the Enterprise Income Tax Law mean the enterprise's actually happened various taxes and additions except for the income tax and the value-added tax which is allowed to be offset.

Article 32 The losses as stated in Article 8 of the Enterprise Income Tax Law mean the inventory losses, damage and abandonment loss of inventory and fixed assets, losses of property transfer, losses from doubtable accounts, losses from bad debts, abnormal losses due to natural disasters and force majeure, and other losses which are incurred during the production or business operation activities of an enterprise.
The balance of the loss of an enterprise minus the liable party's compensation and the insurance compensation shall be deducted in compliance with the provisions of the competent finance and taxation departments under the State Council.
If an enterprise's assets disposed as the loss have been fully or partly returned in the later tax years, such assets shall be accounted as the income in the current period.

Article 33 Other expenditures as stated in Article 8 of the Enterprise Income Tax Law mean the relevant and reasonable expenditures which are incurred by an enterprise during its production or business operation activities, except for the costs, expenses, taxes and losses.

Article 34 An enterprise's reasonable expenditure for its employee's salaries and wages is allowed to be deducted.
The employee's salaries and wages as stated the preceding paragraph mean all the cash or non-cash remunerations which the enterprise has paid to its full-time or part-time employees in each tax year, including base pay, bonus, allowance, subsidy, year-end pay rise, overtime pay, and other expenditures in connection with appointment or employment.

Article 35 The basic social insurances like the basic old-age insurance, the basic medical insurance, the unemployment insurance, the work injury insurance, and the maternity insurance, and the housing accumulation fund which the enterprise has paid for its employees in compliance with the regulations of the State Council and the provincial-level governments are allowed to be deducted.
If the supplemental old-age insurance and the supplemental medical insurance which the enterprise has paid for its investors or employees fall within the scope and standard prescribed in the regulations of the competent finance and taxation departments under the State Council, they are allowed to be deducted.

Article 36 Except for the personal insurance which the enterprise has paid for the special-job employee in accordance with the relevant state regulations and the commercial insurances which are allowed to be deducted in accordance with the regulations of the competent finance and taxation departments under the State Council, any other commercial insurances which the enterprise has paid for its investors and employees shall not be deducted.

Article 37 Loan expenditures, which do not have to get capitalization and happen during the manufacture and operation process, are allowed to be deducted.
The expenses arising from the enterprise's borrowing monies to purchase and construct the fixed assets and intangible assets and inventory which need a production cycle of over 12 months to reach salable status, together with loan expense happed in the process of capital purchase and construction shall be accounted into the cost of the assets as the capital expenditure and be deducted in light of these Regulations.

Article 38 The following paid interests arising during the production and operation activities of an enterprise are allowed to be deducted:
1. The loan interest paid by the non-financial enterprise to the financial enterprise, various deposit interests and inter-bank loan interest paid by the financial enterprise, the interest paid by the enterprise for its corporate bond which is officially approved to issue; and
2. Part of the interest paid by the non-financial enterprise to the financial enterprise, which does not exceed the amount of interest calculated as per the same-period and same-type loan rate of the financial enterprise.

Article 39 For the exchange loss arising from the enterprise's converting the foreign currency-assets and liabilities to the RMB-assets and liabilities as per the spot RMB average exchange rate during the foreign exchange transaction at the end of the tax year, excluding the part which has been accounted into the costs of relevant assets or distributed to the owners as the profit, it is allowed to be deducted

Article 40 For the expenditure which the enterprise has paid as the employee's welfare and for the part not exceeding 14% of the total employee's salary and wage, it is allowed to be deducted.

Article 41 When enterprise allocates money for labor union expenditure and for the part of allocation no more than 2 % of enterprise total salary, it is allowed to be deducted.

Article 42 Unless otherwise prescribed by the competent finance and taxation departments under the State Council, for the expenditure which the enterprise has paid for the employee's education, if not exceeding 2.5% of the total employee's salary and wage, it is allowed to be deducted; the remaining part exceeding 2.5% is allowed to be carried forward and deducted in the following tax years.

Article 43 The business entertainment expense arising during the production and operation activities of an enterprise shall be deducted as per 60% of what it has actually happened, but its maximum amount shall not exceed 5‰ of the enterprise's sales (business) revenue of the current year.

Article 44 For the expenditure which the enterprise has paid for its advertisement and sales promotion, unless otherwise prescribed by the competent finance and taxation departments under the State Council, if not exceeding 15% of the enterprise's sales (business) revenue of the current year, it is allowed to be deducted; the remaining part is allowed to be carried forward and deducted in the following tax years.

Article 45 The special funds which the enterprise has withdrawn in accordance with the relevant state laws and administrative regulations for the protection of the environment and the restoration of ecosystem are allowed to be deducted. In case of the purposes of the aforesaid funds being changed, they shall not be deducted.

Article 46 The expenses arising from the enterprise's purchasing the property insurance are allowed to be deducted.

Article 47 The rentals which the enterprise has paid for renting the fixed assets according to the requirements of production and operation activities shall be deducted as per the following methods:
1. The expenditure for the rentals arising from renting the fixed assets in the form of operating lease shall be deducted equally based on the lease term; and
2. With regard to the expenditure for the rentals arising from renting the fixed assets in the form of financing lease, the depreciation for the part constituting the value of the fixed assets rented through such financing lease according to the regulations shall be drawn, and shall be deducted by stages.

Article 48 The reasonable expenditures for labor protection are allowed to be deducted.

Article 49 The overhead expense paid between enterprises, the rentals and royalty fees paid between the internal business offices of an enterprise, and the interest paid between the internal business offices of a non-financial enterprise shall not be deducted.

Article 50 If a non-resident enterprise which has established any organization or place within the territory of China can provide the documents, issued by its headquarters out of the territory of China, showing the bases and methods, etc. for the collection scope, rating and apportioning of the expenses relating to the production or business operation of the aforesaid organization or place incurred by its headquarters, such expenses are allowed to be deducted.

Article 51 The public welfare donations indicated in Article 9 of the Enterprise Income Tax Law mean the donations which the enterprise has contributed to the welfare social organizations or people's governments and relevant administrative departments above county level for public welfare causes as specified in the Law of the People's Republic of China on Donations for Public Welfare:

Article 52 The welfare social organizations indicated in Article 51 of these Regulations mean the funds and the charitable organizations that meet the following conditions:
1. Legally established and having the capacity of corporate body;
2. Devoted to the public welfare causes and non-profit seeking;
3. All the assets and appreciation thereof belonging to the legal person;
4. Proceeds and operation surplus being mainly used for the purpose for which the legal person establishes the enterprise;
5. The residual properties not belonging to any individual person or profit-seeking organization when being terminated or dissolved;
6. Not conducting activities irrelevant to its purpose;
7. Establishing a sound financial accounting system;
8. The donator not being involved in property distribution of such social organizations in any forms;
10. Other conditions prescribed by the competent finance and taxation departments under the State Council in conjunction with the civil registration department and other departments under the State Council.

Article 53 If the enterprise's public welfare donation actually happened in the current period is no more than 12% of the annual total profit, it is allowed to be deducted. The annual total profit means the annual accounting profit calculated in compliance with the uniform state accounting system.

Article 54 The payout for the sponsorship-contribution indicated in Item 6 of Article 10 of the Enterprise Income Tax Law means the various non-advertising contributions of the enterprise which has nothing to do with manufacture and operation activities of the enterprise.

Article 55 The unchecked payout for the reserve funds indicated in Item 7 of Article 10 of the Enterprise Income Tax Law means the reserve funds like the provision for the assets depreciation and the provision for the risk, which have not yet been ratified by the competent finance and taxation departments under the State Council.

Section 4 Taxation Treatment of Assets

Article 56 The enterprise's various assets, including the fixed assets, the biology assets, the intangible assets, the long-term expense to be apportioned, the investment assets, and the inventory, shall be taxed based on their historical costs.
The above-mentioned historical cost means the expenditure which the enterprise has paid when acquiring the assets.
During possessing the assets, in case of occurrence of the appreciation or loss (depreciation) of the aforesaid assets, except that the profit or loss could be confirmed in accordance with the provisions of the finance and taxation departments under the State Council, the enterprise shall not adjust the taxation basis of the aforesaid assets.

Article 57 The fixed assets indicated in Article 11 of the Enterprise Income Tax Law mean the non-currency assets which the enterprise has possessed and used for over 12 months in manufacturing products, providing labor service, leasing, or operation management, including house, building, machine, transportation vehicle, and other equipment, apparatus and tools in connection with the production operation.

Article 58 The fixed assets shall be recognized in accordance with the following methods:
1. For the fixed assets purchased outside, their purchase prices, the relevant taxes and duties paid, and other expenditures directly ascribing to the intended purpose of such fixed assets shall be used as the taxation basis;
2. For the self-made fixed assets, the actually happened expenditures prior to the completion shall be used as the taxation basis;
3. For the fixed assets acquired by financing lease, the sum of payment money specified in the lease contract and the relevant expenses arising from the lessee's process of executing the lease contract shall be used as the taxation basis. If the lease contract fails to stipulate the sum of payment money, the fair value of such fixed assets and the relevant expenses arising from the lessee's process of executing the lease contract shall be used as the taxation basis;
4. For the fixed assets having inventory surplus, the repurchase price of the same-type fixed assets shall be used as the taxation basis;
5. For the fixed assets acquired through donation, investment, exchange of non-currency assets and debt restructuring, the fair value of such assets and the relevant payable taxes and expenses shall be used as the taxation basis.
6. For the re-constructed fixed assets, besides the expenditures prescribed in Item 1 and Item 2 of Article 13 of the Enterprise Income Tax Law, the expenditures arising from the process of re-constructing such fixed assets shall be added to the taxation basis.

Article 59 The depreciation of the fixed assets calculated by the straight-line method is permitted to be deducted.
The depreciation of the fixed assets shall be calculated as from the next month when the fixed assets are put into use; and in case of stopping use of the fixed assets, the calculation of the depreciation shall be stopped in the next month of stopping use of the fixed assets.
The enterprise shall, in terms of the nature and operating conditions of the fixed assets, reasonably evaluate the net residual value of the fixed assets. Upon the aforesaid net residual value is determined, it shall not be changed.

Article 60 Unless otherwise prescribed in the regulations of the competent finance and taxation departments under the State Council, the minimum term of calculating the depreciation of the fixed assets are as follows:
1. For house and building, it shall be 20 years;
2. For airplane, locomotive, ship, machine, and other production facilities, it shall be 10 years;
3. For apparatus, tools and furniture in connection with the production operation, it shall be 5 years;
4. For transportation facilities other than airplane, locomotive and ship, it shall be 5 years;
5. For the electronic equipment, it shall be 3 years.

Article 61 For the enterprise engaging in mining such mineral resources as oil and natural gas, the methods for depletion and depreciation of the happening expenses prior to its commercial production and the relevant fixed assets shall be separately prescribed by the competent finance and taxation departments under the state council.

Article 62 For the manufacture-purpose biology assets, the relevant taxation basis is as the following:
1. For the manufacture-purpose biology assets purchased outside, the purchasing price and relevant tax paid shall be used as the taxation basis;
2. For the manufacture-purpose biology assets acquired through donation, investment, exchange of non-currency assets and debt restructuring, the fair value of such fixed assets and the relevant payable taxes and expenses shall be used as the taxation basis;
The manufacture-purpose biology assets indicated in the foregoing
Article mean the production materials which are possessed for the purpose of producing farm products, providing farm hands or lease out, including the production forest, the firewood forest, the productive animals and the working animals.

Article 63 The depreciation of the manufacture-purpose biology assets which are calculated as per the straight-line method is permitted to be deducted.
The depreciation of the manufacture-purpose biology assets shall be calculated as from the next month when the manufacture-purpose biology assets are put into use; and in case of stopping use of the manufacture-purpose biology assets, the calculation of the depreciation shall be stopped in the next month of stopping use of the manufacture-purpose biology assets.
The enterprise shall, in terms of the nature and operating conditions of the manufacture-purpose biology assets, reasonably evaluate the net residual value of the manufacture-purpose biology assets. Upon the aforesaid net residual value is determined, it shall not be changed.

Article 64 The minimum term of calculating the depreciation of the manufacture-purpose biology assets are as follows:
1. For the forest-type biology assets, it shall be 10 years;
2. For the animal-type biology assets, it shall be 3 years.

Article 65 The intangible assets indicated in Article 12 of the Enterprise Income Tax Law mean the nonmaterial and non-currency long-term assets which the enterprise has possessed for producing the commodities, providing labor service, leasing, or managing, including the patent right, the trademark privileges, the copyright, the land use right, the non-patent technology, and the credit.

Article 66 The following methods will be adopted as taxation basis for intangible assets:
1. For the intangible assets purchased outside, the purchasing price, the relevant taxes paid, and other expenditures being directly contributed to the anticipated purpose of such assets shall be used as the taxation basis;
2. For the self-developed intangible assets, the actually happened expenditures during the development period after meeting the capitalized conditions of the intangible assets and prior to reaching the anticipated purpose shall be used as the taxation basis;
3. For the intangible assets acquired through donation, investment, exchange of non-currency assets and debt restructuring, the fair value of such assets and the relevant payable taxes and expenses shall be used as the taxation basis.

Article 67 The amortized expenses calculated as per the straight-line method for the intangible assets are permitted to de deducted.
The term of amortization for the intangible assets shall be no less than 10 years.
For the intangible assets used as investment or transferred intangible assets, if the term of validity is prescribed by the relevant laws, or the agreement/contract, the amortization may be calculated by stages based on such term of validity.
The expenditures arising from purchasing the credit outside are permitted to be deducted when the enterprise is wholly transferred or liquidated.

Article 68 The expenditures arising from reconstructing the fixed assets, which are indicated in Item 1 and Item 2 of Article 13 of the Enterprise Income Tax Law, mean the expenditures which the enterprise has paid for changing the structure of house/building and extending the lifetime of house/building.
For the expenditures prescribed in Item 1 of Article 13 of Enterprise Income Tax Law, they shall be amortized by stages as per the estimated life-time of the fixed assets; for the expenditure prescribed in the Item 2 of Article 13 of Enterprise Income Tax Law, it shall be amortized by stages as per the remaining lease term stipulated in the lease contract.
If the re-constructed fixed assets need to extend the life-time, besides being subject to the provisions of the Item 1 and the Item 2 of Article 13 of Enterprise Income Tax Law, their term of depreciation shall be properly extended.

Article 69 The expenditures arising from overhauling the fixed assets as indicated in the Item 3 of Article 13 of Enterprise Income Tax Law, mean the expenditures meeting the following conditions:
1. The repair expenditure reaching up to over 50% of the taxation basis of acquiring the fixed assets;
2. The life time of the overhauled fixed assets extending over 2 years;
For the expenditure prescribed in the Item 3 of Article 13 of Enterprise Income Tax Law, it shall be amortized by stages as per the remaining life-time of the fixed assets.

Article 70 The long-term expense to be apportioned, which is indicated in the Item 4 of Article 13 of the Enterprise Income Tax Law, means that as from the next month after such expense is happened, it shall be apportioned by stages with the term lasting for no less than 3 years.

Article 71 The investment assets indicated in Article 14 of the Enterprise Income Tax Law mean the assets arising from the enterprise's equity investment and investment of creditor's rights.
When enterprise transfers or disposes its investment assets, the cost of investment assets could be deducted.
Cost of investment of assets could be decided by the following method:
1. In case of investment assets being acquired by paying cash, the purchasing price shall be used as the taxation basis;
2. In case of investment assets being acquired through means other than paying cash, the fair value of such investment assets and the relevant payable taxes and expenses shall be used as the taxation basis.

Article 72 The inventory indicated in Article 15 of the Enterprise Income Tax Law means the finished products or commodities which the enterprise has possessed for sale, the in-progress products during production, and the stuffs and materials consumed in the process of production or providing labor service.
For the inventory, the cost shall be determined in light of the following methods:
1. For the inventory acquired by payment in cash, its purchase price and the relevant taxes and expenses paid shall be used as its cost;
2. For the inventory acquired through means other than paying cash, the fair value of such inventory and the relevant payable taxes and expenses shall be used as cost.
3. For the inventory belonging to the manufacture-purpose biology assets or the farm products, all the necessary expenditures like the materials cost, the labor cost and the apportioned overhead cost which have happened in the process of producing or collecting shall be used as cost.

Article 73 In case of using or selling the inventory, the method for calculating the real cost of such inventory may be selected from one of the following methods: first-in first-out (FIFO) method, the weighted average method, and separate pricing method. Upon the above-mentioned method being selected, it shall not be freely changed.

Article 74 The net value of assets indicated Article 16 and Article 19 of the Enterprise Income Tax Law means the balance of taxation basis of related assets and property deducting the depreciation, the loss, the apportionment, the provision fund .

Article 75 Unless otherwise prescribed by the competent finance and taxation departments under the State Council, in the process of the enterprise's restructuring, the incomes or losses from transferring the relevant assets shall be recognized at the time when the transactions thereof are happened, and for the relevant assets, their taxation basis shall be re-determined as per their transaction prices.

Chapter III Tax Payable

Article 76 The tax payable shall be computed pursuant to Article 22 of the Enterprise Income Tax Law using the following formula:
Tax payable = taxable income × applicable tax rate - tax amount deducted - tax amount exempted
Tax amount deducted and tax amount exempted are the deducted and exempted tax payment as prescribed in the Enterprise Income Tax Law or in the regulations enacted by the State Council on tax preferential treatments.

Article 77 "The income tax paid overseas" as referred to in Article 23 of the Enterprise Income Tax Law is the enterprise income tax payable and paid for the income sourced outside the territory of China pursuant to foreign Enterprise Income Tax Laws and pertinent regulations.

Article 78 The limit of deductible tax amount as referred to in Article 23 of the Enterprise Income Tax Law is the tax payable calculated for the enterprise's incomes sourced outside of the territory of China in accordance with the Enterprise Income Tax Law and these Regulations. The limit of tax deduction shall be calculated per country (region) without being itemized except otherwise stipulated by finance and taxation departments under the State Council.
The calculation formula is as follows:
The limit of tax deduction = the total domestic and overseas tax payable calculated in accordance with the Enterprise Income Tax Law × the taxable income sourced from a country (region) ?the total domestic and overseas incomes combined

Article 79 "The subsequent five years" as referred to in Article 23 of the Enterprise Income Tax Law are the five consecutive years subsequent to the year when the income tax paid overseas on overseas incomes exceeds the limit of the tax deduction.

Article 80 The direct control mentioned in Article 24 of the Enterprise Income Tax Law means that the resident enterprise directly holds over 20% share in the foreign enterprise.
The indirect control mentioned in Article 24 of the Enterprise Income Tax Law means that the resident enterprise indirectly holds over 20% share in the foreign enterprise. The specific method for identifying "indirect control" shall be separately prescribed by the competent finance and taxation departments under the state council.

Article 81 Where an enterprise is entitled to tax deduction as prescribed in Article 23 of the Enterprise Income Tax Law, the enterprise shall provide the tax payment certificate of the tax year issued by the overseas taxation authority for the year in which the tax was incurred.

Chapter IV Preferential Tax Treatments

Article 82 "The interest incomes from treasury bonds" as referred to in Item 1 of Article 26 of the Enterprise Income Tax Law are the interest incomes from government bonds issued by the finance departments under the State Council and bought by an enterprise.

Article 83 "Dividends, bonuses and other equity investment gains generated between qualified resident enterprises" as referred to in Item 2 of Article 26 of the Enterprise Income Tax Law are the returns of investment made directly by one resident enterprise in another resident enterprise. The income from such equity investments as the dividend and the bonus, as mentioned in the Item 2 and the Item 3 of Article 26 of the Enterprise Income Tax Law, shall not include the investment yield acquired by continuously holding the listed common share of the resident enterprise for less than 12 months.

Article 84 "Incomes of qualified not-for-profit organizations" as referred to in Item 4 of Article 26 of the Enterprise Income Tax Law are incomes from the organizations that meet the following conditions:
1. They are registered by law as non-profit-seeking organization;
2. They conduct pubic welfare or non-profit-seeking activities;
3. All revenues generated after disbursing reasonable expenditures related to the organization are used for the registered and verified public welfare or non-profit-seeking undertakings as prescribed in their Articles of association;
4. Their properties and interests accrued thereon are not distributed;
5. Their residuum properties are used for public welfare or non-profit-seeking purposes after the organization is cancelled in light of registration verification or
Articles of association; where the properties are donated by the registration administration authority to organizations similar in nature and purpose, with a public notification published to the society;
6. None of their founders and key investors retains or enjoys any of such organizations' property;
7. The expenditure for the staff's salary and welfare shall be controlled within a certain proportion, and the disguise distribution of such organization's properties shall be prohibited.
The method for identifying the non-profit-seeking organization mentioned above shall be jointly prescribed by the competent finance and taxation departments under the state council.

Article 85 "Incomes of qualified non-profit-seeking organizations" as referred to in Item 4 of Article 26 of the Enterprise Income Tax Law do not include incomes from profit-seeking activities of non-profit-seeking organization, except otherwise stipulated by finance and taxation departments under the State Council.

Article 86 "The incomes generated from the engagement in agriculture, forestry, husbandry and fishery, which are subject to enterprise income tax reduction or exemption" as referred to in Item 1 of Article 27 of the Enterprise Income Tax Law shall mean:
1. The income of an enterprise engaged in the following operations shall be exempted from enterprise income tax:
(1) Growing vegetable, corn, potato, oil plant, soybean, cotton, China grass, sugarcane, fruit and nut;
(2) Growing new verity of agricultural plants
(3) Growing Chinese medicinal plants or herbs
(4) Cultivating and planting woods and trees;
(5) Farming cattle and poultry.
(6) Collection of forestry products.
(7) Immigration and primary process of agricultural product, veterinary, agricultural technology promotion, agricultural mechanical operation and maintenance and other projects of agricultural, forestry, herd and fishing industries.
(8) Open sea catch
2. The income of an enterprise engaged in the following operations shall be subject to one half of enterprise income tax:
(1) Growing flower, tee, and other beverage and fragrance plants;
(2) Seawater farming, inland farming and ocean fishing;
Any operations banned or restricted by the state for development are not entitled to preferential tax treatments.

Article 87 The important public infrastructure projects supported by the state are the port, airport, railway, highway, urban public transportation, electricity and water conservancy projects as listed in the Item 2 of Article 27 of Catalogue of Public Infrastructure Projects for Preferential Enterprise Income Tax Treatment.
For the income from the enterprise's investment and operation of the infrastructure projects heavily supported by the government as mentioned above, from the tax year when such project has obtained the first income from putting into the commercial production and operation to the third year, the enterprise income tax is exempted, and in the following 3 years, the enterprise income tax is half exempted.
An enterprise contracting for operation and construction of the aforesaid projects or building such projects for its own use is not entitled to preferential enterprise income tax treatments.

Article 88 The projects of environmental protection as well as energy and water conservation that satisfy the related requirements include the projects for public sewage treatment, public waste treatment, firedamp integrated development and utilization, technical reform on power-saving and emission reduction, seawater desalination etc. The specific conditions and scope of such projects will be separately promulgated by the finance and taxation departments under the State Council.
For the income from the enterprise's engaging in the approved project of environmental protection, saving energy and saving water as mentioned above, from the tax year when such project has obtained the first income from putting into the commercial production and operation to the third year, the enterprise income tax is exempted, and in the following 3 years, the enterprise income tax is half exempted.

Article 89 For the project which enjoys the tax preferential policy prescribed in Article 87 and Article 88 herein, if it is transferred during the term of tax preferential policy, the assignee may enjoy the tax preferential policy during the remaining term as from the transferring date; if it is transferred after the term of tax preferential policy is matured, the assignee may not re-enjoy the tax preferential policy.

Article 90 If the enterprise has acquired the income from the technology transfer meeting the provisions prescribed in the Item 4 of Article 27 of the Enterprise Income Tax Law, the tax-exemption and tax-deduction of its enterprise income tax means that in one tax year, if the resident enterprise's income from its technology transfer does not exceed CNY5 million, its enterprise income tax may be exempted; but for the part of its income exceeding CNY5 millon, its enterprise income tax shall be half exempted.

Article 91 The incomes as provided for in Item 5 of Article 27 of the Enterprise Income Tax Law are subject to an enterprise income tax of 10%. The following incomes can be exempted from enterprise income tax:
1. Interest incomes from loan lent by foreign government to Chinese government,
2 The income from the interest of the preferential loan provided by the international financial institution to the Chinese government and Chinese resident enterprise;
3. Other incomes approved by the State Council.

Article 92 "A small meager-profit enterprise satisfying the prescribed conditions as referred to in Clause 1 of Article 28 of the Enterprise Income Tax Law" shall mean an enterprise that operates in an industry not restricted by the state and satisfies the following conditions:
1. Operating in the industrial industry, with an annual taxable income of no more than CNY300,000, a payroll size of at most 100 persons, and a total amount of assets not exceeding CNY30 million;
2. Other industry, with an annual taxable income of no more than CNY300,000, a payroll size of at most 80 persons, and a total amount of assets not exceeding CNY10 million;

Article 93 "The important high and new technology enterprises to be supported by the state" as referred to in Clause 2 of Article 28 of the Enterprise Income Tax Law refer to the enterprises which own key intellectual property rights and satisfy the following conditions:
1. Complying with the scope of the Key State Supported High and New Technology Areas;
2. The proportion of the research and development expense in the sales revenue shall be no less than the prescribed proportion;
3. The proportion of the income from high-tech technology/product/service in the enterprise's total revenue shall be no less than the prescribed proportion
4. The proportion of the technical personnel in the enterprise's total employees shall be no less than the prescribed proportion;
5. Other conditions prescribed in the Measures for the Administration of High-Tech Enterprise Identification
Measures for the Administration of High-Tech Enterprise Identification and Key State Supported High and New Technology Areas shall be jointly formulated by the technology, finance and taxation departments under the State Council and come into effect after approved by State Council

Article 94 "An autonomous region of ethnic minorities" as referred to in Article 29 of the Enterprise Income Tax Law shall mean an autonomous region, autonomous prefecture and autonomous county as provided for in the Law of the People's Republic of China on Regional Ethnic Autonomy to pursue autonomous governance of an ethnic region or area.
Enterprises operating in an industry restricted by the state for development shall not be entitled to tax reduction or exemption.

Article 95 Additional deduction of R&D expenditures mentioned in Item 1 of Article 30 of Enterprise Income Tax Law means that the R&D expenditures incurred for the purpose to develop new technologies, new products and new crafts do not form intangible assets and accounted into current term profit and loss, such expenditures shall be subject to 50% more additional deduction after being deducted in full amount in light of actual situation; where the above-mentioned R&D expenditures form intangible assets, they are subject to amortization based on 150% of intangible asset costs.

Article 96 The additional deduction of salary payment made by the enterprise for settling its disabled employees as mentioned in the Item 2 of Article 30 of the Enterprise Income Tax Law, means that when the enterprise makes the settlement for its disabled employees, the enterprise could deduct all the salary payment for the disabled employees in light of true situation and again deduct additional 100% of the aforesaid salary payment. The applicable scope for the disabled people shall be subject to the relevant provisions of the Law of the People's Republic of China on the Protection of Disabled Persons.
The methods for additional deduction of salary payment made by the enterprise for settling its other laid-off employees as mentioned in the Item 2 of Article 30 of the Enterprise Income Tax Law shall be separately prescribed by the state council.

Article 97 Deduction of taxable income stipulated in Article 31 of Enterprise Income Tax Law means that where a venture capital investment enterprise has made equity investment in an unlisted new and high technology enterprise of small and medium size for 2 or more years, 70% of the investment made by the VC investment enterprise can be deducted from taxable income at the year when VC investment enterprise has held equity shares for two years. Where taxable income is not enough for such deduction, the balance can be carried forward to subsequent tax year(s) for further deduction.

Article 98 The fixed assets subject to a deduction of shortening depreciation duration or accelerating deduction pace as prescribed in Article 32 of the Enterprise Income Tax Law mainly include:
1. Fixed assets susceptible to fast obsolescence due to technological progress;
2. Fixed assets in the state of strong vibration and high corrosion throughout years;
In the case of adopting a shorter-period depreciation method, the minimum term of deprecation shall not be less than 60% of the depreciation duration as set forth in Article 60 of this provisions; in the event of using an accelerating depreciation method, fixed assets shall be depreciated using the double declining balance method or sum-of-the-years-digits method (SYD) method

Article 99 Deduction income stipulated in Article 33 of Enterprise Income Tax Law means that where an enterprise generates incomes from producing products that are not restricted by the state and satisfy state and industry standards by using the resources listed in the Catalogue of Preferential Tax Treatments for Comprehensive Resource Utilization Enterprises as key raw materials, taxable incomes of such enterprises are 90% of income.
A total percentage of the aforesaid key raw materials to the raw materials for manufacture of such products are not less than the rates specified in the Catalogue of Preferential Tax Treatments for Comprehensive Resource Utilization Enterprises.

Article 100 The tax counteraction mentioned in Article 34 of the Enterprise Income Tax Law means that if the enterprise purchases and actually uses the special equipment of environmental protection, energy-saving and water-saving, as prescribed in the Catalogue of Preferential Enterprise Income Tax for Enterprises Adopting Environmental-Protection Equipments, Catalogue of Preferential Enterprise Income Tax for Enterprises Adopting Energy-Saving/Water-Saving Equipments and Catalogue of Preferential Enterprise Income Tax for Enterprises Adopting Production Safety Equipments, 10% of money invested on the aforesaid equipments may be counteracted from the enterprise's tax amount payable in the current year when the aforesaid equipment is purchased; and if enterprise taxable income is not sufficient for counteraction, the remaining part of the aforesaid 10% of the money invested may be counteracted in the following tax years.
The enterprises actually purchasing and using the equipment mentioned above are entitled to enjoy the preferential enterprise income tax mentioned above. If the enterprise transfers or leases the equipment mentioned above within 5 years after purchasing the aforesaid equipment, it shall no longer enjoy the preferential enterprise income tax, and shall repay the amount of enterprise income tax which has been counteracted.

Article 101 The catalogues of preferential enterprise income tax mentioned in Article 87, Article 99 and Article 100 herein shall be formulated by the competent finance and taxation departments under the State Council, and shall get the approval of the State Council before they are published for enforcement.

Article 102 Where an enterprise undertakes operations or projects subject to different preferential enterprise income taxes, it shall independently calculate each project for different preferential enterprise income tax treatment and reasonably allocate its current period expenses, in the case of failing to making a separate calculation in this regard, the enterprise is not entitled to any preferential enterprise income tax.

Chapter V Withholding at Source

Article 103 If the non-resident enterprises shall apply withholding of enterprise income tax at source in accordance with the Enterprise Income Tax Law, the calculation of its taxable income shall be subject to the provisions of Article 19 of the Enterprise Income Tax Law.
The full income mentioned in Article 19 of the Enterprise Income Tax Law means the total of the price money and the extra fees which the non-resident enterprise has collected from the payer.

Article 104 The payer as referred to in Article 37 of the Enterprise Income Tax Law means an organization or individual directly responsible for making related payment for non-resident enterprise as prescribed by laws and regulations or as set forth in contract.

Article 105 The payment as referred to in Article 37 of the Enterprise Income Tax Law means payment in cash, by wire and via transfer, or equity consideration payment and other monetary or non-monetary payment.
The amount due as referred to in Article 37 of the Enterprise Income Tax Law shall mean the accounts payable recorded by payer enterprise into costs and expenses on an accrual basis.

Article 106 Article 38 of the Enterprise Income Tax Law stipulates the following situations in which tax obligator could be designated:
1. The expected period for engineering work or provision of services is less than one tax year, and there is evidence on failure to fulfill tax payment obligations;
2. Failure to complete tax registration or temporary tax registration, and failing to entrust representative or agent domiciled within the territory of China to handle tax registration;
3. Failing to file enterprise income tax returns or file for advance tax payment;
In the event of designating a tax payment obligator, taxation authorities at or above the county level shall simultaneously notify the tax withholder of the calculation basis, calculation method and withholding period and methods for withholding tax

Article 107 "The place where the income has occurred" as referred to in Article 39 of the Enterprise Income Tax Law refers to the place of income as set forth in Article 7 of these Regulations. In the presence of multiple places or sources of income within the territory of China, the taxpayer shall choose one place to file enterprise income tax.

Article 108 "The other income items within the territory of China which ought to be paid by the payer" as referred to in Article 39 of the Enterprise Income Tax Law shall mean the incomes earned by the taxpayer from other sources within the territory of China.
In the event of collecting tax payment from such a taxpayer, the taxation authorities shall notify the taxpayer of the reasons for tax collection, the amount of tax payment, and the period and method of withholding.

Chapter VI Special Tax Adjustments

Article 109 The affiliated parties of an enterprise as referred to in Article 41 of the Enterprise Income Tax Law refer to enterprises, organizations or individuals who have any of the following affiliation relationship with the enterprise:
1. Existence of direct or indirect ownership or control relationship in respect of funds, operation, purchase and sales;
2. Owned or controlled directly or indirectly by the same third person;
3. Other relationship in respect of financial interests.

Article 110 "The arm's length principle" as referred to in Article 41 of the Enterprise Income Tax Law means the principle observed by arm's length parties in consummating transactions with each other at a fair price and as per business norms.

Article 111 "A reasonable method" as referred to in Article 41 of the Enterprise Income Tax Law shall mean:
1. Comparable uncontrolled price method is the pricing method adopted by arm's length parties in conducting same or similar transactions;
2. Resale price method is a product purchase pricing method that begins with the resale price to arm's length parties (of a product purchased from an affiliated party), reduced by a gross margin of the same or similar transactions;
3. Cost-plus method is the pricing method that adds cost, reasonable fees and profits;
4. Transactional net profit method is a method by which profits are determined as per the net profit margins of arm's length parties in conducting same or similar transactions.
5. Profit split method is a price method by which the consolidated profits or losses of an enterprise and its affiliated parties are allocated between or among them using a reasonable rate.
6. Other methods complying with the arm's length principle.

Article 112 The enterprises may, in accordance with the provisions of Paragraph 2 of Article 41 of the Enterprise Income Tax Law, jointly bear the cost arising from the associated transaction with affiliated parties in terms of the arm's length principle, and reach an agreement of cost sharing with the affiliated parties.
If the enterprise shares the cost with its affiliated party, it shall conduct the cost sharing in accordance with the principle of cost and expected income matching, and shall send the relevant documents to the taxation authorities within the prescribed period.
If the enterprise violates the provisions of Paragraph 1 and Paragraph 2 of this Article herein when sharing the cost with its affiliated party, the part of the cost apportioned by them shall not be deducted from the tax payable.

Article 113 The subscription price arrangement as referred to in Article 42 of the Enterprise Income Tax Law refers to the agreement, which is reached between an enterprise and the taxation authorities to which the former files a request with regard to the pricing methods and calculation bases for related-party transactions in the coming year and concluded after mutual consultations of the two parties based on independent transaction principle.

Article 114 The related materials as referred to in Article 43 of the Enterprise Income Tax Law mean:
1. Current period materials concerning the prices, expense rates, calculation methods and descriptions of affiliated transactions;
2. Materials concerning resale (or transfer) prices or final sales (or transfer) prices for the property, property usage rights, labor involved in related affiliated transactions;
3. The materials about the product prices, pricing methods and profit margins, which is concerned with affiliated transactions under investigation, shall be provided by other enterprises, and comparable with invested enterprise(s);
4. Other materials concerned with affiliated transactions.
"Other enterprises in relation to the affiliated transactions under investigation" as referred to in Article 43 of the Enterprise Income Tax Law refer to the enterprises similar in business scope and approach to the enterprise under investigation.
Enterprise shall provide to taxation authorities within time limit materials concerning affiliated transactions such as prices, standard for expenses, calculation methods and descriptions of transactions. The materials provided by affiliated parties and other enterprises related to transactions under investigation shall be submitted to the taxation authorities within the time period as agreed upon between the taxation authorities and the enterprise.

Article 115 When assessing or determining the taxable income of an enterprise pursuant to Article 44 of the Enterprise Income Tax Law, the taxation authorities can use the following methods:
1. Determine the taxable income of an enterprise with reference to the profit margins of similar enterprises in same or similar industries;
2. Determine the taxable income of an enterprise using the cost plus method (costs plus reasonable fees and profits);
3. Determine the tax payable of an enterprise by extending the total profits of the group of affiliated enterprises by an applicable percentage;
4. Determine the taxable income using other reasonable methods.
If an enterprise disagrees with the taxable income amount determined by the taxation authorities using an applicable method prescribed herein, the enterprise shall provide the related materials, but can adjust the taxable income amount only after receiving approval from the taxation authority.

Article 116 "A Chinese resident" as referred to in Article 45 of the Enterprise Income Tax Law refers to an individual person obligated to pay individual income tax for domestic and foreign sources of income as provided for in the Law of the People's Republic of China on Individual Income Tax. .

Article 117 The control as referred to in Article 45 of the Enterprise Income Tax Law include:
1. The resident enterprise or Chinese resident directly or indirectly holds 10% or more of the voting shares of a foreign enterprise, and jointly holds 50% or more of the voting shares of the foreign enterprise;
2. The shareholding proportion of the resident enterprise or the resident enterprise and Chinese resident fails to meet the standard prescribed in the Clause 1 mentioned above, but materially controls such foreign enterprise in the aspects of share, fund, operation, and purchase/sale.

Article 118 "The actual tax burden is apparently lower than the tax rate as prescribed in Clause 1 of Article 4 of the Enterprise Income Law" as referred to in Article 45 of the Enterprise Income Tax Law shall mean that the tax rate is lower than 50% of the tax rate as set forth in Clause 1 of Article 4 of the Enterprise Income Tax Law.

Article 119 "Investments in debt securities" as referred to in Article 46 of the Enterprise Income Tax Law refer to the financing arrangements which are received directly or indirectly by an enterprise from its affiliated parties and for which principal and interests shall be paid or any other form of compensation which can pay the interest shall be arranged instead.
Investments in debt securities indirectly by an enterprise from its affiliated parties include:
1. Investment in debt securities provided by an affiliated party through an arm's length third party;
2. Investment in debt securities provided by an arm's length third party and guaranteed or secured by a related party who assumes joint liabilities;
3. Other Investments in debt securities received from an affiliated or related party which assumes the nature of debts
The "equity investment" mentioned in Article 46 of the Enterprise Income Tax Law means the investment for which the invested enterprise need not to repay the principal and pay the interest, and by which the investor has the ownership to the net assets of the invested enterprise.
The "standard" mentioned in Article 46 of the Enterprise Income Tax Law shall be determined by the competent finance and taxation departments of the State Council.

Article 120 "Without any reasonable commercial purpose" as referred to in Article 47 of the Enterprise Income Tax Law shall mean principally for the purpose of reducing, waiving and delaying tax payments.

Article 121 In case the taxation authority makes an special adjustment to a tax payment pursuant to the provisions of the Enterprise Income Tax Law and administrative regulations, as for the tax payment additionally levied, an additional interest accrued for the tax recovery period beginning from 1, June of the year subsequent to the applicable tax year to the date of tax payment.
The interest charges as prescribed in the above paragraph shall not be deducted when calculating taxable income.

Article 122 The interests as referred to in Article 48 of the Enterprise Income Tax Law shall be charged at an interest rate of 5 percentage points above the benchmark lending interest rate published by the People's bank of China for the yea in which tax payment occurs.
Where the enterprise can effectively provide relevant materials pursuant to the provisions as prescribed in Article 43 of the Enterprise Income Tax Law and in these Regulations, the interest rate can be calculated in light of the benchmark interest rate as specified in the above paragraph.

Article 123 For the transactions between the enterprise and its affiliated party, if not meeting the principle of independent transaction, or if done by the enterprise for unreasonable commercial purpose, the taxation authorities shall have the right to do tax adjustment within 10 years as from the tax year when such transactions are happened.

Chapter VII Administration of Tax Levy

Article 124 The registration place of an enterprise as referred to in Article 50 of the Enterprise Income Tax Law shall be the locality at which the enterprise has been registered pursuant to the provisions as prescribed by the state.

Article 125 The tax income of an enterprise shall be accounted for in a unified approach when tallying and calculating its enterprise income tax. The specific rules will be promulgated separately by the finance and taxation departments under the State Council.

Article 126 "The main organ or establishment" as referred to in Article 51 of the Enterprise Income Tax Law refers to the main organ or establishment that satisfy the following conditions simultaneously:
1. Overseeing the business and operation of other entities and establishments:
2. Setting up complete books and documents capable of accurately reflecting the revenues, costs, expenses, and profits or losses of each entity or establishment.

Article 127 "Examination and approval by the taxation authorities" as referred to in Article 51 of the Enterprise Income Tax Law shall mean examination and approval by the common higher taxation authority of the local taxation authorities of all entities or establishments.
In the event of organization or establishment addition, merger, relocation, winding up, closure and termination after a non-resident enterprise has been approved to file tax returns on a consolidated basis, the non-resident enterprise shall have its main organ or establishment responsible for collection and application of enterprise income tax report to the local tax authority. Any change in main organ or establishment responsible for collection and application of enterprise income tax shall be handled as per provisions set forth in the preceding paragraph.

Article 128 The payment of enterprise income tax on a monthly or quarterly basis shall be determined by the taxation authority in accordance with actual situations.
When making advance tax payment on a monthly or quarterly basis pursuant to Article 54 of the Enterprise Income Tax Law, the enterprise shall make tax payment in advance based on actual monthly or quarterly profits; where it is difficult to make advance tax payment based on actual monthly or quarterly profits, the enterprise can make tax payment based on one twelfth or one fourth of the prior year's taxable income of last tax paying year or using any other method as recognized by the taxation authority. Once determined, the advance tax payment method shall remain unchanged in a tax year.

Article 129 Regardless of realizing profits or suffering losses in a tax year, the enterprise shall file to the taxation authority the Enterprise Income Tax Advance Payment Form, the Annual Enterprise Income Tax Returns Form, the financial statements and any other materials as required by the taxation authority within the time period as prescribed in Article 54 of the Enterprise Income Tax Law.

Article 130 When paying enterprise income taxes in advance for incomes denominated in a currency other than RMB, the enterprise shall calculate its taxable income at the RMB average exchange rate prevailing as of the last day of the month or quarter. When filing annual enterprise income tax returns for the settlement of tax payments with the taxation authority at yearend, the enterprise does not need to adjust the amount of tax paid in advance. Instead, the enterprise only needs to convert into RMB the remaining tax payable in accordance with the RMB average exchange rate.
Upon the assessment and confirmation by the taxation authorities, if the enterprise calculates less or more of taxable income amount mentioned above, it shall re-calculate the "less" or "more" amounts using the RMB average exchange rate on the end day of the month prior to the "less" or "more" amount is assessed or confirmed, based on which the additional payment or refund of the enterprise income tax shall be calculated.

Chapter VIII Supplementary Provisions

Article 131 "An enterprise which has already been approved and established before the promulgation of the present Law" as referred to in Clause 1 of Article 57 of the Enterprise Income Tax Law shall mean the enterprise which has been registered with the administrative authority for industry and commerce before the Enterprise Income Tax Law is promulgated.

Article 132 For enterprises established in Hong Kong SAR, Macao SAR and Taiwan Region, the relevant provisions in Paragraph 2 and Clause 3 of Article 2 of the Enterprise Income Tax Law of PRC shall be applicable.

Article 133 These Regulations shall come into effect as of January 1, 2008. The Implementing Rules of the Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises promulgated by the State Council as of June 30, 1991 and the Implementing Rules of the Interim Regulations of the People's Republic of China on Enterprise Income Tax promulgated by the Ministry of Finance as of February 4, 1994 shall be simultaneously repealed.