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1、,Dezan Shira&Associates,CHINA TAX OVERVIEW&CIT UNIFICATION UPDATE,2007 Dezan Shira&Associates Ltd.All rights reserved.,Index,Part One,China CIT Unification,Part Three,Implementation Rule of EIT&FEIT v.s.New Rule,Part One China CIT Unification,Part One:China CIT Unification,5,Expenses Deduction,4,Gra
2、ndfathering Rule,3,1,2,Residence Concept,Tax Rate,Tax Incentives,Residence Concept,Example Help You to Understand the Definition,Conclusion of the Sample,5,Expenses Deduction,4,Grandfathering Rule,3,1,2,Residence Concept,Tax Rate,Tax Incentives,Part One:China CIT Unification,Main ChangesTax Rate,Ill
3、ustration for small and thin profit enterprise,Tax rate20%,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 persons Taxable income RMB
4、300,000,Tax Rate for High-tech Enterprise,Tax rate15%,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.Percen
5、tage 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,Definition High-tech Products High-tech Industry“Key High-tech Industries supported by Nations”which would be issued by State
6、Council.,Tax Incentive for Non-resident enterprises,Tax 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 within China and resident enterpri
7、ses 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 China,5,Expenses Deduction,4,Grandfathe
8、ring Rule,3,1,2,Residence Concept,Tax Rate,Tax Incentives,Part One:China CIT Unification,Tax Incentives,Tax Incentive for High-tech Enterprise,Tax incentive15%,Recognition Criteria Enterprises which satisfies the high-tech recognition criteria are whose who have its own intellectual property and sat
9、isfies following criteria(no specific percentage):Percentage of R&D expenses of total 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,Definition High-tech
10、 Products High-tech Industry“Key High-tech Industries supported by Nations”which would be issued by State Council.,Tax Incentive for Infrastructure Projects,Tax incentive“Three years exemption,three years half”,Recognition Criteria For income generating from investment in public infrastructure proje
11、cts investments,such as harbour,port,airport,railway,highway,electric power and water power;The tax incentive is effective from the day on which the first operation sales is generated.,Tax Incentive for Environmental Protecting and Energy Saving Projects,Tax incentive“Three years exemption,three yea
12、rs half”,Recognition Criteria If the enterprises operate the projects relating to environment protection,energy 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
13、 is effective from the day on which first operation sales is generated.,Tax Incentive for Agriculture,Forestry and Fishery,Tax 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
14、 industry for agriculture,forestry,husbandry and fishery.,Tax incentive“50%”,Agriculture products planting such as followers,tea etc.farm culture and sea culture.,Tax Incentive for Technology Transfer,Tax incentive“Exempted”and“50%”,Recognition Criteria For transfer income is within RMB 5M-Exempted
15、For income part above RMB 5 M,-50%tax incentive,Tax Incentive for Venture Capital,Tax incentive 70%of total investment in Small and Medium High-tech Enterprise is deductible for CIT purpose since the second investment year,Recognition Criteria Equity investment in small and medium high-tech enterpri
16、ses which are not listed;investment more than 2 years Criteria for Small and 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 Deduction,Tax incentive Super 1
17、50%deduction if R,Recognition Criteria R,Speedy Depreciation for Qualified Fixed Asset,Tax incentive Depreciation period could be shorter than current rule,but could not be less than 60%of prescribed rate.,Recognition Criteria Need to updated/upgrade frequently since high/new technology;Always in th
18、e cauterization or vibration situation.,Expansion“Encouraged”hi-tech enterprise will be eligible for a reduced income tax rate of 15%,irrespective of the location of such enterprises in China.Currently,only those hi-tech enterprises located in hi-tech industry development zone are covered by such pr
19、eferential policies;More tax incentives will be granted to start-up companies,and enterprises investing in environmental protection,energy and water savings.Existing preferential tax policies for investments in infrastructure facilities will be retained;RetainingExisting preferential tax policies fo
20、r agricultures,forestry,animal husbandry and fishery industries will be retained;ReplacementExisting tax incentives available to those qualifying enterprises which employ laid-off or handicapped workers,(After changing:additional 100%salary of handicapped workers could be super deducted as expenses.
21、),5,Expenses Deduction,4,Grandfathering Rule,3,1,2,Residence Concept,Tax Rate,Tax Incentives,Part One:China CIT Unification,Tax Rates For the enterprises who enjoyed 15%tax rate,tax rate will be raised per“3%,2%,2%,2%and 1%”in five years.(From 2008 to 2012);For the enterprises who enjoyed 24%tax rat
22、e,tax rate will be reached to 25%directly in FY2008;Enterprises that Already Enjoy Tax Incentives or Not Enjoyed For production FIEs which have not fully utilized 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 contin
23、ue to receive such a tax holiday during the five-year grand-fathering period.For those FIEs which have not yet embarked on their tax holiday,the holiday will be deemed to have commenced from the effective date of the new law.,5,Expenses Deduction,4,Grandfathering Rule,3,1,2,Residence Concept,Tax Rat
24、e,Tax Incentives,Part One:China CIT Unification,Key Expense Deduction,Part TwoImplementation Rule of EIT&FEIT vs.New Rule,Summary of Changes of New Rule,1,2,Expense Deductions,Tax Incentives,Implementation Rule of EIT&FEIT vs.New Rule,EIT Financial institutions and insurance companies:The maximum de
25、duction 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 2001,donations to educational institutions through state institutions and non-profit making social organizations
26、 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 enterprises through China Culture Development Foundation are deductible for up to 3%of the annual taxable profits.,Deductio
27、n-Donations,FEIT 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 Rule 12%of annual taxable profit is deductible;,EIT Maximum monthly deductible RMB 800(Since 2000);Specific limits fo
28、r deduction are determined by the relevant provincial autonomous and directly administered municipal peoples government;,Deduction-Salary,FEIT No limitation.,New Rule No limitation.,EIT Social welfare would be fully deductible if they are medical insurance,pensions,job insurance,job injury insurance
29、,maternity insurance,unemployment insurance,and housing fund.,Deduction-Welfare,FEIT Same with EIT,New Rule Social welfare-same as before.Supplemental pension and medical insurance are deductible.,EIT Not deductible,Deduction Commercial Insurance,FEIT Not deductible,New Rule Same as before.Insurance
30、 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 loans from non-financial organizations deductible for part lower than interest rate indicated by financial organizations.,
31、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”to“financial enterprise”.,EIT Exchange gains and losses deductible in current accounting period,Deduction Exchange gains a
32、nd 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;Employees education fees Maximum 1.5%of total salary deductible.,Deduction Employee welfare,labor union fees and education fees,FEIT
33、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,less than 0.5%of net sales deductible;The part above less than 0.3%of net sales deductible,Deduction Entertaining fees,FEIT Sales
34、 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 service 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 6
35、0%of entertaining expenses actually occurred are deductible.Maximum limitation is 0.5%of annual sales income.,EIT Less than 2%of sales revenue is deductible,excess would be carried forward to next years;Advertisement fees for foodstuff and wines are not deductible;8%for some special industries as me
36、dicine,food,communication,software development etc.,Deduction Advertising fees,FEIT No specific regulations.Refer to regulations for different industries.,New Rule Maximum 15%of annual sales income deductible expenses exceed 15%of annual sales income could be carried forward to next year.,EIT Sponso
37、r fees as advertisement fees-Less than 2%of sales revenue is deductible Sponsor fees other than advertisement-Not deductible.,Deduction Sponsor expenses,FEIT No identification.,New Rule Same as before.,1,2,Deductions,Tax incentives,Implementation Rule of EIT&FEIT vs.New Rule,Tax incentive Environmen
38、t protection and energy,water saving,EIT,FEIT,New Rule,N/A,N/A,“Three Years exemption,three years half”since the first sales year but not profit year.,Tax incentive Income from technology transfer,EIT,FEIT,New Rule,Annual net profit below RMB 300,000 Exempted Excess part above RMB 300,000-liable to
39、EIT,Exempted for income generated from technology importation contract.,For transfer income is within RMB 5M-Exempted For income part above RMB 5 M,-50%tax incentive,Tax incentive Income for non-resident enterprises,EIT,FEIT,New Rule,No regulations,Income generated within China for foreign enterpris
40、es which are outside China-10%Interest income derived from loans to China Government and China National Bank by International financial organization-Exempted Interest income derived within China on loans or bonds with preferential interest rate by foreign banks;Profit generated from foreign invested
41、 enterprises for foreign investors-Exempted(High-tech Enterprises with key support from Nations),Non-resident enterprises generate 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;I
42、nterest income derived within China on loans or bonds with preferential interest rate by foreign financial organizations-exempted;Other income approved by State Council.,Tax incentive Criteria for small and thin enterprises,EIT,FEIT,New Rule,Annual taxable income is=RMB 30,000 18%Annual taxable inco
43、me is between RMB 30,000 and RMB 100,000,-27%,N/A,20%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 persons Taxable income RMB 300,000,Tax incentive High-
44、tech enterprises,EIT,FEIT,New rule,High-tech enterprise set up in high-tech zone approved by State Council 15%Newly set-up high-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
45、 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 N
46、ew Technology Development Zone,tax rate-15%Industry Orientation.Criteria of specific percentages are not defined.R&D expenses%of total revenue Employees with diploma of total employeesIncome generated from high-tech of total sales income.,Tax incentive Research and development fees,EIT,FEIT,New Rule
47、,150%deducted as expenses,If R&D expenses in current year increased 10%than last year,additional 50%of actual R&D expenses could be deducted.,R&D expenses is not capitalized same as EIT.If R&D expenses are capitalized as intangible assets-it should be amortized as 150%of cost of intangible assets.,T
48、ax incentive Disable employees salary,EIT,FEIT,New Rule,N/A,N/A,200%deduction,Tax incentive Venture capital enterprise,EIT,FEIT,New rule,N/A,N/A,70%of total investment in Small and Medium High-tech Enterprise is deductible for CIT purpose since the second investment year.,Tax incentive Fixed Assets
49、Definition,EIT,FEIT,New Rule,Non-production assets satisfies following criteria should be considered as FA as well:Value RMB 2000 Usage period 2 years,Same with EIT.,No limitation on non-production assets.,Tax incentive Resource utilization,EIT,FEIT,New Rule,Income generated from productions using r
50、esources indicated in“Resource utilization list”which beyond the designed products-5 years EIT exemption Income generated from construction products production using large volume of coal gangue,steel slag,pulverized coal ash as main raw materials-5 years EIT exemption Enterprises for processing or u
