Circular of the State Administration of Taxation Concerning Several Issues in the Implementation of Law of the People's Republic of China on Income Tax of Enterprises with Foreign Investment and Foreign Enterprises

GuoShuiFa [2000] No.152 August 21, 2000

National taxation bureaus of all provinces, autonomous regions, municipalitie directly under the CentralGovernment and municipalities separately listed on the State plan, Local Taxation Bureaus of Guangdong Province and Hainan Province and Local Taxation Bureau of Shenzhen:

Based on relevant provisions in the Law of the People's Republic of China on Income Tax of Enterprises with Foreign Investment and Foreign Enterprises (hereinafter referred to as "the tax law") and its implementing rules, several issues concerning the implementation hereof are notified as follows:

1. The application for enjoyment of tax break

If any enterprise with foreign investment or foreign enterprise is entitled to periodical tax break under the tax law and its implementing rules, it shall apply to local taxation authorities for confirmation thereof after entering into formal operation. After receipt of the application, the competent taxation authority shall examine the documentation filed by the enterprise and shall issue a document to confirm that the enterprise is entitled to the preferential treatment hereof if such enterprise may enjoy the periodical tax break for meeting the requirements as prescribed in the tax law and implementing rules. The competent taxation authority shall examine relevant documentations filed by the enterprise when it begin to enjoy the periodical tax break in the profit-making year according to Circular of the State Administration of Taxation on How to Enjoy the Tax Preference by Enterprises with Foreign Investment Simultaneously Engaged in Production and Non-production Business (GuoShuiFa [1994] No.209). If, after the annual examination at the end of the year, the income for production of such enterprise is found not in accordance with the requirements stipulated in GuoShuiFa [1994] No.209, the taxation authority shall notify the enterprise to pay the income tax calculated on the basis applicable tax rate.

2. The handling the annual loss before the advance payment of quarterage of income tax

Any enterprise with foreign investment or foreign enterprise shall firstly make up the loss occurred in previous year before the advance payment of quarterage of income tax according to the tax law. If there is remaining sum thereafter, then the enterprise shall pay in advance the quarterage of income tax according to applicable tax rate.

3. The balancing of profits and losses

where income tax is declared by the branches in consolidation Where an enterprise with foreign investment or a foreign enterprise collectively or consolidatedly pays the income tax of their branches or business organizations within China, it shall firstly use the profits of the branches or business organizations with the same tax rate to make up the losses occurred therein; in case no profits thereof, it may use the profits of the bodies under the tax rate similar to that of the branch or business organization that suffers a loss to make up the losses.

4. The said circular shall become effective as of July 1, 2000.

Promulgated by The State Administration of Taxation on 2000-8-21