Related stories

iF Juices: Turn a Good Concept into Real Business Pursuing Tax Refunds Supplementary Rules (II) to "Tentative Provisions for the Establishment of Investment-type Companies by Foreign Investors" Management Measures for Trust and Investment Companies Foreign Banks Granted More Freedom in Currency Business

Foreign Companies Lose Hyper-Citizen Tax Treatment

The Rules for the Implementation of the Income Tax Law of P.R.C for Enterprises (hereinafter referred to as Rules) is an explanation of the Income Tax Law of P.R.C for Enterprises (hereinafter referred to as the New Law). The Rules clearly define regulations concerning taxpayers, principles and the scope of and standards for enterprises taking expense-tax deductions, and some concerning preferential policies.

1. Definition of Taxpayers

       Taxpayers refer to enterprises, institutions, social and other organizations that derive incomes through business operations.

       The New Law introduces the concepts of “tax resident enterprise” and “non-tax resident enterprise” to differentiate taxpayers: tax resident enterprises refer to enterprises that have been legally established in China or that were established under foreign laws but are effectively managed in China. (Taxable income is their worldwide income.) Non-tax resident enterprises refer to enterprises that are established under foreign laws, and have their place of effective management outside China. (Taxable income is their China-sourced income.)

2.    Before the New Law came into effect, Chinese enterprises were bound to pay taxes on their expenses for labour; however, for foreign enterprises in China, taxes are paid after deducting labour costs. This was an unfair burden on Chinese enterprises. The New Law establishes equal standards for labour expense deductions, that is, companies must pay taxes after deducting labour costs. The New Law thus results in fairer principles and a better atmosphere for market competition.

3.    At usual times, the entertainment fee includes commercial and individual expense, and the individual expense shall not be construed as business operational expense and is not tax deductible. However, since it is difficult to cut a clear line between the commercial and individual expenses, the international method is to define a tax deductible rate: 60 percent of the total entertainment fee is tax deductible, but the highest (refers to the 60 percent) shall not exceed 0.5 percent of the enterprise income.

4.    Advertisement and business development fees may be deducted from 15 percent of the sales income. For the part which exceeds 15 percent, it can be continuously deducted in the following financial year. The Rules also specifies the scope and methods of preferential tax policies, indirect tax deductions, definitions about small-scale and thin-profit enterprises, tax reduction years and special tax adjustments.

The above regulations undoubtedly will have some effects on foreign enterprises based in China: Some income tax preferences currently available exclusively to foreign enterprises will be revoked, including the:

•      Five-year tax holiday for manufacturing foreign enterprises.

•      Extension of tax holiday to export-oriented foreign enterprises.

•      Reduced 15/24 percent CIT (company income tax) rate applicable to foreign enterprises in special zones.

•      Income tax refund on reinvestment.

•      50 percent income tax reduction for additional three years after the tax holiday for foreign enterprises qualified as “technologically advanced enterprises.”

•      Income tax exemption for after-tax profit repatriation by foreign investors.

However, investment from foreign enterprises will not be impeded just because of the new income tax policy. The big Chinese market and the immense potential have already replaced any other preferential policies as the main advantages. The Rules and the New Law encourage investment in high-tech industries, advanced manufacturing industries, the service trade and in agriculture and environmental protection. Meanwhile, the Rules and the New Law strictly restrict highly polluting and high energy-consuming projects in China.

Background Information:

On March 16, 2007, the newly amended Income Tax Law of the P.R.C for Enterprises was approved by the Fifth Session of The Tenth National People’s Congress. Following that, Rules for the Implementation of the Income Tax Law of P.R.C for Enterprises was approved on November 28, 2007, by the 197th Executive Meeting of the State Council.

Both were effective as of January 1, 2008.

Wang Jihong, Lawyer

Professional fields: Urban Infrastructure

Development and

Real Estate

Environmental and Resource Protection

Government

Legal Affairs

Ms. Wang is a renowned lawyer in the field of urban infrastructure development in China. She has offered legal services to a number of national major construction projects, especially concession projects. These projects cover multiple fields, including public utilities construction projects, rail transportation projects, highway and bridge projects, energy projects and city planning projects such as CCTV New Site, The National Museum of China and the National Indoor Stadium.

Tel: +86 10 8225 5610  

E-mail: jwbj@vtlaw.cn

在华外资企业税收不再享受超国民待遇

2007年3月16日，第十届全国人民代表大会第五次会议通过了新修订的《企业所得税法》；2007年11月28日，国务院第197次常务会议通过了《企业所得税法实施条例》；2008年1月1日，《企业所得税法》与《企业所得税法实施条例》开始施行。

《企业所得税法实施条例》对《企业所得税法》的相关规定进一步细化，对纳税人、企业支出扣除的原则、范围和标准、税收优惠等做出了具体规定。诸如：

1． 细化纳税人范围

实施条例对《企业所得税法》规定的纳税人做了细化规定：企业、事业单位、社会团体以及其它取得收入的组织为企业所得税的纳税人。

《企业所得税法》将纳税人划分为“居民企业”和“非居民企业”，实施条例对“实际管理机构”及对非居民企业所设立的“机构、场所”的含义也予以明确。

2．工资薪金支出税前扣除

现行税则对内资企业的工资薪金支出扣除实行计税工资制度，对外资企业实行据实扣除制度，这是造成内、外资企业税负不均的重要原因之一。《实施条例》的规定统一了企业的工资薪金支出税前扣除原则，有利于构建公平的市场竞争环境。

3．  业务招待费按发生额的60%扣除，最高不超过当年        销售（营业）收入的5‰

业务招待费是由商业招待和个人消费混合而成的，其中，个人消费的部分属于非经营性支出，不应该税前扣除。但商业招待和个人消费之间通常是难以划分的，国际上的处理办法一般是在二者之间人为规定一个划分比例。《实施条例》将业务招待费扣除比例规定为发生额的60%，同时规定最高不得超过当年销售（营业）收入的5‰。

4．  广告和业务宣传费按销售收入的15%扣除，当年未扣除部分结转以后年度扣除

现行税则对内资企业实行的是根据不同行业采用不同的比例限制扣除的政策，对外资企业则没有限制。《实施条例》统一了企业的广告费和业务宣传费支出税前扣除原则。

5.  其它方面

《实施条例》对新税法中规定的税收优惠的范围和办法、间接抵免、高新技术企业的认定标准、小型微利企业的界定指标、减免税的起始年度、特别纳税调整等等均做出了细化规定。

上述规定将对在华外资企业的纳税产生一定的影响，外资企业将不再享有比国内企业低十几个百分点的优惠税率；外资企业单独享受的税前扣除优惠、生产性企业再投资退税优惠、纳税义务发生时间上的优惠等，今后也将与内资企业统一。但是，中国对外商投资企业的综合吸引力不会因此减弱。外商来中国，并不是被税收一个因素所驱动，外商更看重中国巨大的市场潜力。中国鼓励外资今后重点投向高新技术产业、先进制造业、服务业、农业和环保产业，同时，严格限制高污染、高能耗的项目进入。