Regulations On The Implementation Of The Corporate Income Tax Law Of The People's Republic Of China, issued by the State Council of the PRC on December 6,2007 and will take effect on January 1,2008.
1. What are the provisions governing IP transactions under the Regulations?
The Regulations provide legal definitions and additional rules on intellectual property as supplementary provisions to the new Corporate Income Tax Law (CIT Law) that: (1) licensing fees refers to income gained by an enterprise in consideration of granting rights to use a patent, non-patent technology, trademark, copyright and other rights subject to licensing; (2) intangible assets stipulated in the CIT Law include patent rights, trademark rights, copyright, non-patent technology and goodwill; (3) exemption and deduction of corporate income tax for qualifying transfers of technology refers to the first RMB5 million payment for a transfer of technology within one year which shall be exempted from corporate income tax and payments exceeding the aforesaid band which shall qualify for a 50% tax deduction; and (4) the key national supported high-tech enterprises stipulated in Article 28 of the CIT Law refers to enterprises which meet the requirements listed in the Regulations and possess core independent intellectual property rights.
2. What are the counting methods on corporate income with foreign exchange?
Pursuant to the Regulations on the Implementation of the Corporate Income Tax Law, an enterprise that pays income tax in advance shall convert the taxable foreign currencies to RMB at the mean RMB exchange rate in the last day of the month or the quarter for the purpose of calculating the taxable income.
If the tax is levied on an annual basis, the unpaid corporate income tax liability shall be calculated in RMB after conversion of the taxable foreign currencies at the RMB exchange rate in the last day of the year. In payment of the tax balance or tax refund, the balance or refund shall be calculated in RMB after conversion of the corresponding foreign currencies at the mean RMB exchange rate in the day such payment or refund is officially confirmed.
3. What is the scope of corporate income tax deduction that an enterprise may claim for insurance premiums and losses?
The Regulations on the Implementation of the Corporate Income Tax Law specify the scope of corporate income tax deduction that an enterprise may claim for insurance premiums and losses.
In compliance with the relevant rules of the State Council, claims for deduction of the remaining value of a loss after deducting damages payable by the liable party and insurance reimbursements shall be permitted.
Insurance premiums within a certain scope and set of criteria shall be deductible if such premiums are payable for: (1) basic social insurance including basic medical insurance, unemployment insurance, industrial injury insurance; (2) pensions; (3) mandatory housing provident funds, additional medical insurance premiums and pensions payable for investors or employees; and (4) property insurance premiums payable by enterprises as required by the law.
Except for the stipulated commercial insurance premiums, all other insurance premiums payable by enterprises on behalf of investors and employees shall not be deductible.
4. Are there any preferential taxation policies for environmental protection under the Regulations?
Yes. The Regulations provide that enterprises engaging in qualifying projects for environmental protection as well as energy and water conservation shall be exempted from corporate income tax for the first three years and shall have a 50% corporate income tax deduction from the fourth to sixth years after the tax year in which the enterprises earn their first income. The Regulations also allow enterprises which purchase and use equipment specially designed for environmental protection as well as energy and water conservation to deduct 10% of the total investment in such equipment from their taxable amount in the tax year in which the equipment in question is purchased; should the taxable amount be lower than the allowable deduction, the remaining allowable deduction value may be carried forward to the next 5 tax years. However, this preference will be terminated if the enterprise transfers or leases the special facilities within 5 years. Enterprises which transfer or lease out such equipment within 5 years of the purchase shall be disqualified from the aforesaid preferential tax treatments and be liable to recovery of the previous allowable deduction.
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