The Law of the People´s Republic of China on Enterprise Income Tax

Order of the President [2007] No.63

16 March, 2007

(Adopted at the 5th Session of the 10th National People´s Congress on

16 March 2007, promulgated

by Order No. 63 of the President of the People´s Republic of China and effective as of 1 January

2008)ˇˇ

Table of Content

Chapter One General Provisions

Chapter Two Taxable Income

Chapter Three Payable Tax

Chapter Four Preferential Tax Treatment

Chapter Five Tax Withheld at Source

Chapter Six Special Tax Payment Adjustment

Chapter Seven Administration of Tax Levying and Collection

Chapter Eight Supplementary Provisions

Chapter One General Provisions

Article 1 Taxpayers of enterprise income tax shall be enterprises and other organizations that obtain

income within the People´s Republic of China (hereinafter referred to as ˇ°Enterprisesˇ±) and shall

pay enterprise income tax in accordance with the provisions of this Law.

This Law shall not apply to wholly individually-owned enterprises and partnership enterprises.

Article 2 Enterprises are divided into resident enterprises and non-resident enterprises.

For the purposes of this Law, the term ˇ°resident enterprisesˇ± shall refer to Enterprises that are set

up in China in accordance with the law, or that are set up in accordance with the law of the foreign

country (region) whose actual administration institution is in China.

For the purposes of this Law, the term ˇ°non-resident enterprisesˇ± shall refer to Enterprises that are

set up in accordance with the law of the foreign country (region) whose actual administration

institution is outside China, but they have set up institutions or establishments in China or they have income originating from China without setting up institutions or establishments in China.

Article 3 Resident enterprises shall pay enterprise income tax originating both within and outside

China.

Non-resident enterprises that have set up institutions or premises in China shall pay enterprise income tax in relation to the income originating from China obtained by their institutions or establishments, and the income incurred outside China but there is an actual relationship with the institutions or establishments set up by such enterprises.

Where non-resident enterprises that have not set up institutions or establishments in China, or where institutions or establishments are set up but there is no actual relationship with the income obtained by the institutions or establishments set up by such enterprises, they shall pay enterprise income tax in relation to the income originating from China.

Article 4 The rate of enterprise income tax shall be 25%.

Non-resident enterprises that have obtained income in accordance with the provisions of Paragraph Three of Article 3 hereof, the applicable tax rate shall be 20%.

Chapter Two Taxable Income

Article 5 The balance derived from the total income in each taxable year of Enterprises, after deduction of the non-taxable income, tax exempted income, other deductions and the making up of losses of previous years shall be the taxable income.

Article 6 Income obtained by Enterprises from various sources in monetary and non-monetary terms shall be the total income, including

1.income from sale of goods;

2.income from provision of labour services;

3.income from transfer of property;

4.income from equity investment such as dividend and bonus;

5.interest income;

6.rental income;

7.income from royalties;

8.income from donations; and

9.other income.

Article 7 The following income from the total income shall not be taxable

1.financial funding;

2.administrative fees and government funds obtained and included in financial management in accordance with the law; and

3.other non-taxable income prescribed by the State Council.

Article 8 Reasonable expenses that are relevant to the income actually incurred and obtained by Enterprises, including costs, fees, tax payments, losses and other fees may be deducted from the taxable income.

Article 9 In relation to the expenses from charitable donations incurred by Enterprises, the portion within 12% of the total annual profit may be deducted from the taxable income.

Article 10 The following expenses may not be deducted from the taxable income

1.income from equity in