Enterprise Income Tax Law Passed, Same Tax Rate Applied to Domestic and Foreign-invested Enterprise

On March 16, 2007, the Enterprise Income Tax Law was passed by the National People’s Congress. The Law covers 8 chapters and totally 60 articles, including General Provisions, Taxable Amount of Income, Amount of Payable Taxes, Preferential Tax Treatments, Withholding by Sources, Special Adjustments to Tax Payments, Administration of Tax Collection and Supplementary Provisions and will go into effect on January 1st, 2008.

The Enterprise Income Tax Law provides that the payers of the enterprise income tax are classified into resident and non-resident enterprises. "Resident enterprise" as mentioned in this Law refers to an enterprise which is established inside China, or which is established under the law of a foreign country (region) but whose actual institution of management is inside China, and "non-resident enterprise" refers to an enterprise established under the law of a foreign country (region), whose actual institution of management is not inside China but which has institutions or establishments inside China; or which has not any institution or establishment inside China but which has incomes sourced in China. The enterprise income tax rate is 25%, and the tax rate of 20% is applied to those “non-resident enterprises” without the institution or establishment inside China, or those have not any institution or establishment inside China but which has incomes sourced in China.

The government gives preferential income tax treatment to those state-supported and encouraged industries and projects. Furthermore, in terms of those qualified enterprises with insignificant profit, the 20% tax rate shall be applied. And the income tax rate of 15% will be levied against those hi-tech enterprises for key cultivation