企業(yè)所得稅實施細(xì)則CITImplicationRul

1、dezan shira & associateschina tax overview & cit unification update 2007 dezan shira & associates ltd. all rights reserved. index part onechina cit unificationpart threeimplementation rule of eit & feit v.s. new rpart one china cit upart one: china cit unification5expenses deduction4grandfathering r

2、ule312 residence concepttax ratetax iresidence conceptitem definition tax implicationchina tax residententerprises established in chinatax on worldwide incomeforeign enterprises established outside china but its effective management is based in chinanon-china tax residententerprises established outs

3、ide chinatax on china-sourced example help you to understand the dconclusion of the samplesource of income current tax lawnew lawincome derived from chinape, pay taxpay tax as residenceincome derived from outside chinaexemptionpay tax as 5expenses deduction4grandfathering rule312 residence conceptta

4、x ratetax incentivespart one: china cit umain changestax rateitemtax rateapplicable enterprisesstandard rate25% most enterprisesreduced rate20% small and thin-profit enterpriseswithholding income tax (“wht”)20%(reduced to 10%) incomes derived from profits, interest, rentals, royalties and other inco

5、mes from sources in cillustration for small and thin profit enterprisetax rate20% n recognition criteria for manufacturing enterprises total assets rmb 30 million total employees 100 persons taxable income rmb 300,000for non-manufacturing enterprises total assets rmb 10 million total employees 80 pe

6、rsons taxable income rmb 300,tax rate for high-tech enterprisetax rate15% n recognition criteria enterprises which satisfies the high-tech recognition criteria are whose who have its own intellectual property and satisfies following criteria (no specific percentage): percentage of r&d expenses of to

7、tal sales revenue. percentage of sales revenue generates from high-tech products sales and technological sales of total revenue. percentage of employees who have qualifications above diploma of total n definition high-tech products high-tech industry “ key high-tech industries supported by nations”

8、which would be issued by state council. tax incentive for non-resident enterprisestax incentive10%non-resident enterprises generate income as article 27 defines and corporate income tax rate is reduced to 10%. tax incentive“exempted”interest income derived from loans to china government, banks withi

9、n china and resident enterprises lent by international finance organizations; interest income derived within china on loans or bonds with preferential interest rate by foreign banks ; dividends on investment in high-tech industry for non-resident enterprise without establishment or places in c5expen

10、ses deduction4grandfathering rule312 residence concepttax ratetax incentivespart one: china cit upossible forms of incentivespossible eligible industrial sectortax holidays (3 years exemption, 3 years half since first sales recognizing year)environment protecting/energy saving industry/infrastructur

11、e projectscomplete exemptionagriculture, forestry and fishery projects income will be 100% exempted from citreduced tax ratetechnical transferring (annual technology transferring income rmb5m, exempted from tax; the part exceeds rmb5m could enjoy 50% tax incentives.tax itax incentive for high-tech e

12、nterprisetax incentive15% n recognition criteria enterprises which satisfies the high-tech recognition criteria are whose who have its own intellectual property and satisfies following criteria (no specific percentage): percentage of r&d expenses of total sales revenue. percentage of sales revenue g

13、enerates from high-tech products sales and technological sales of total revenue. percentage of employees who have qualifications above diploma of total n definition high-tech products high-tech industry “ key high-tech industries supported by nations” which would be issued by state council. tax ince

14、ntive for infrastructure projectstax incentive “three years exemption, three years half” n recognition criteria for income generating from investment in public infrastructure projects investments, such as harbour, port, airport, railway, highway, electric power and water power; the tax incentive is

15、effective from the day on which the first operation sales is generated. tax incentive for environmental protecting and energy saving projectstax incentive “three years exemption, three years half” n recognition criteria if the enterprises operate the projects relating to environment protection, ener

16、gy and water saving;e.g. sewage processing, public littering processing, marsh gas utilization, electricity generating by wind power, solar power, or tide power, seawater desalting etc tax incentive is effective from the day on which first operation sales is generated. tax incentive for agriculture,

17、 forestry and fisherytax incentive“exempted” for corn, leguminous plants, potatoes, oil plants, cotton, sugar etc; chinese traditional medicine planting; animal husbandry such as pig, cows and sheep. service industry for agriculture, forestry, husbandry and fishery.tax incentive“50%” agriculture pro

18、ducts planting such as followers, tea etc. farm culture and sea culture. tax incentive for technology transfertax incentive“ exempted” and “50%” n recognition criteria for transfer income is within rmb 5m - exempted for income part above rmb 5 m , - 50% tax incentive tax incentive for venture capita

19、l tax incentive 70% of total investment in small and medium high-tech enterprise is deductible for cit purpose since the second investment year n recognition criteria equity investment in small and medium high-tech enterprises which are not listed; investment more than 2 years criteria for small and

20、 medium high-tech enterprises are employee = 500, sales revenue less than rmb 200m, total assets is less than rmb 200m. tax incentive for r&d expenses of new technology, products and know-how-super deductiontax incentive super 150% deduction if r&d expense is not capitalized; 150% amortization if r&

21、d is capitalized as intangible assets; n recognition criteria r&d expenses include products design fees, salary of research organization, depreciation of research equipment etc;speedy depreciation for qualified fixed assettax incentive depreciation period could be shorter than current rule, but coul

22、d not be less than 60% of prescribed rate.n recognition criteria need to updated/upgrade frequently since high/new technology; always in the cauterization or vibration expansion“encouraged” hi-tech enterprise will be eligible for a reduced income tax rate of 15%, irrespective of the location of such

23、 enterprises in china. currently, only those hi-tech enterprises located in hi-tech industry development zone are covered by such preferential policies;more tax incentives will be granted to start-up companies, and enterprises investing in environmental protection, energy and water savings.existing

24、preferential tax policies for investments in infrastructure facilities will be retained;retainingexisting preferential tax policies for agricultures, forestry, animal husbandry and fishery industries will be retained;replacementexisting tax incentives available to those qualifying enterprises which

25、employ laid-off or handicapped workers, (after changing: additional 100% salary of handicapped workers could be super deducted as expenses.) 5expenses deduction4grandfathering rule312 residence concepttax ratetax incentivespart one: china cit utax rates n for the enterprises who enjoyed 15% tax rate

26、, tax rate will be raised per “3%, 2%, 2%, 2% and 1%” in five years. (from 2008 to 2012);n for the enterprises who enjoyed 24% tax rate, tax rate will be reached to 25% directly in fy2008;enterprises that already enjoy tax incentives or not enjoyedn for production fies which have not fully utilized

27、their five-year tax holiday (i.e. two-year exemption and three-year 50% reduction of the applicable tax rate), they will be allowed to continue to receive such a tax holiday during the five-year grand-fathering period.n for those fies which have not yet embarked on their tax holiday, the holiday wil

28、l be deemed to have commenced from the effective date of the new law. 5expenses deduction4grandfathering rule312 residence concepttax ratetax incentivespart one: china cit uexpenditurecurrent lawnew lawlocal enterprisesforeignsalaryrmb1600/monthfor local employeesno upper limitno upper limitdonation

29、s to charitiesupper limit:nnormally-3% of taxable income nfinancial institutions-1.5% of taxable income no upper limitmore reasonable upper limit (12% of total accounting profit)advertisementsaccording to different industries, 0%-25% of salesno upper limitnot exceed 15% of sales revenue of current p

30、eriodkey expense dpart twoimplementation rule of eit & feit vs. new rcategories of tax incentivesapplicationpreferential tax treatmentshigh/new tech areahigh/new tech enterprisesenjoy a reduced tax rate of 15% but not 25%super r&d deductionadditional 50% deduction of qualified r&d expensestechnology

31、 transfer incometax exemption/deduction applies to income arising from the transfer of technology by a chinese tax resident enterprise: the first rmb5m of such income on a yearly basis is fully exempt, with the excess enjoying a 50% tax reduction.venture capital enterprises70% of investment amount i

32、n those small-medium hntes with prescribed criteria on the industry, sales size, holding period, assets value etc., may be credited against the taxable income of of the venture capital enterprise with a carry forward period.other encouraged industriesbasic public infrastructure, environmental protec

33、tion, energy/water conservation, production safety3 year zero, 3 years half tax incentives since first sales year.agricultural, forestry, husbandry, fishery incometax exemption/deduction will apply.encouraged assets investmentinvestment in equipment of environmental protection, energy/water conserva

34、tion, production safety 10% of investment amount for this type of equipments is creditable against the tax payable with a 5 years carrying forward periods.small enterprisessmall or thin-profit enterprise20% low ratetax ratedividend10%summary of changes of new r12 expense deductions tax incentives im

35、plementation rule of eit & feit vs. new reit financial institutions and insurance companies: the maximum deduction permitted is 1.5% of enterprises annual taxable income. for enterprises other than financial institutions and insurance companies 3% of enterprises annual taxable income since 1 july 20

36、01, donations to educational institutions through state institutions and non-profit making social organizations are fully deductible. donations made to designated non-profit making cultural organizations are deductible for amounts up to 10% of the annual taxable profits. donations to other enterpris

37、es through china culture development foundation are deductible for up to 3% of the annual taxable profits. deduction - donationsfeit only those donations which are used within china fro public welfare or relief purpose can be deducted from taxable income. all other donations are not deductible. new

38、rulen 12% of annual taxable profit is deductible; eit maximum monthly deductible rmb 800 (since 2000); specific limits for deduction are determined by the relevant provincial autonomous and directly administered municipal peoples government; deduction - salaryfeit no limitation. new rule no limitati

39、on. eit social welfare would be fully deductible if they are medical insurance, pensions, job insurance, job injury insurance, maternity insurance, unemployment insurance, and housing fund. deduction - welfarefeit same with eitnew rule social welfare- same as before. supplemental pension and medical

40、 insurance are eit not deductible deduction commercial insurance feit not deductible new rule same as before. insurance for workers doing special type of work is deductible. (special injury insurance for special industry)eit interest for loans from financial organizations deductible interest for loa

41、ns from non-financial organizations deductible for part lower than interest rate indicated by financial organizations. deduction borrowing costs feit borrowings costs that lower than interest calculated with commercial loan rate. new rule same as eit definition change from “financial organization” t

42、o “financial enterprise”. eit exchange gains and losses deductible in current accounting perioddeduction exchange gains and losses feit same as eit. new rule same as before. eit employees welfare maximum 14% of total salary deductible; labor union fees maximum 2% of total salary deductible; employee

43、s education fees maximum 1.5% of total salary deductible. deduction employee welfare, labor union fees and education feesfeit same as eit. new rule employees welfare same as before;labor union fees same as before. employees education fees 2.5% of total salary eit total sales revenue below rmb 15 m ,

44、 less than 0.5% of net sales deductible; the part above less than 0.3% of net sales deductible deduction entertaining fees feit sales revenue: total sales revenue below rmb 15 m , less than 0.5% of net sales deductible; the part above less than 0.3% of net sales deductible service revenue: annual se

45、rvice revenue below rmb 5 m less than 1% of total sales revenues are deductible; excess part - less than 0.5% of excess sales revenue;new rule 60% of entertaining expenses actually occurred are deductible. maximum limitation is 0.5% of annual sales income. eit less than 2% of sales revenue is deduct

46、ible, excess would be carried forward to next years;advertisement fees for foodstuff and wines are not deductible;8% for some special industries as medicine, food, communication, software development etc. deduction advertising fees feit no specific regulations. refer to regulations for different ind

47、ustries. new rule maximum 15% of annual sales income deductible expenses exceed 15% of annual sales income could be carried forward to next year. eit sponsor fees as advertisement fees -less than 2% of sales revenue is deductible sponsor fees other than advertisement- not deductible. deduction spons

48、or expenses feit no identification. new rule same as before. 12 deductions tax incentives implementation rule of eit & feit vs. new rtax incentive environment protection and energy, water saving eit feitnew rulen/a n/a “three years exemption, three years half” since the first sales year but not prof

49、it year. tax incentive income from technology transfer eit feitnew rule annual net profit below rmb 300,000 exempted excess part above rmb 300,000- liable to eit exempted for income generated from technology importation contract. for transfer income is within rmb 5m - exempted for income part above

50、rmb 5 m , - 50% tax incentive tax incentive income for non-resident enterpriseseit feitnew rule no regulations income generated within china for foreign enterprises which are outside china- 10% interest income derived from loans to china government and china national bank by international financial

51、organization- exempted interest income derived within china on loans or bonds with preferential interest rate by foreign banks ; profit generated from foreign invested enterprises for foreign investors- exempted ( high-tech enterprises with key support from nations) non-resident enterprises generate

52、 income as article 27 defines and corporate income tax rate is reduced to 10%. interest income derived from loans to china government let by foreign government.- exempted; interest income derived within china on loans or bonds with preferential interest rate by foreign financial organizations-exempt

53、ed;other income approved by state council. tax incentive criteria for small and thin enterprises eit feitnew ruleannual taxable income is = rmb 30,000 18% annual taxable income is between rmb 30,000 and rmb 100,000, - 27% n/a 20% n for manufacturing enterprises total assets rmb 30 million total empl

54、oyees 100 persons taxable income rmb 300,000nfor non-manufacturing enterprises total assets rmb 10 million total employees 80 persons taxable income rmb 300,tax incentive high-tech enterprises eit feitnew rule high-tech enterprise set up in high-tech zone approved by state council 15% newly set-up h

55、igh-tech enterprises two years exemption since set uphigh-tech enterprises recognition 1) high-tech products or projects; 2) research and development expenses should be above 5% of annual total sales; 3）revenue from high-tech is more than 60% of total revenue. feit rate is 15% and “three years exemption and three years half”. criteriahigh-tech enterprises established in high-tech development zone which are approved by state council, or high-tech enterprises established in beijing new technology development zone tax