China Tax Administration Guide (9) - Tax Administration and Collection

1. Application Time Limits and Requirements
   
   (1) Enterprises shall go to the local taxation authorities for tax registration within thirty days after the completion of their registration with the State Administration for Industry and Commerce. When an enterprise with foreign investment establishes or terminates a branch outside China, it shall make supplementary tax registration, change of registration or deregistration with the local taxation authorities within thirty days after the establishment or termination.
   
   In going through the registration mentioned in this Article, the enterprises shall submit the relevant documents, licenses, and information.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (2) Enterprises shall file their Income Tax returns and final accounting statements with the local taxation authorities within the time limits as stipulated in Article 16 of the Tax Law, whether they make a profit or sustain a loss in that tax year. At the same time as they submit their final accounting statements, enterprises shall also submit audit reports signed by a certified public accountant registered in China, unless otherwise provided by the State.
   
   If an enterprise cannot submit the Income Tax returns and final accounting statements within the time limit prescribed by the Tax Law, due to special reasons, they shall make an application for approval of an extension to the local tax authorities within the filing time limit.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (3) Branches of business establishments shall submit a copy of their final accounting statements to the local taxation authorities at the same time as they submit them to their respective head office, or to the business establishment in charge of consolidated tax filing.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (4) Enterprises that undergo change of address, restructuring, merger, spin-off, termination or change in such major registered items as registered capital or scope of business, etc., shall submit the relevant approval documents to the local taxation authorities for change of registration, or deregistration, within thirty days after the completion of change of registration or before the deregistration with the State Administration for Industry and Commerce.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (5) An enterprise which is merged, divided or dissolved during the year shall, within sixty days, settle the Income Tax liability for that period with the local taxation authorities, when the excess tax payment or tax payment deficiency shall also be settled.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (6) When an enterprise with foreign investment goes through liquidation, it shall file its Income Tax return with the local taxation authorities prior to its de-registration with the State Administration for Industry and Commerce.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (7) When the final due dates for tax filing and tax payment fall on a Sunday or on an official public holiday, the day following the public holiday shall be treated as the final due date.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   
2. Consolidated Filing and Payment
   
   (1) Foreign enterprises which have two or more business establishments set up in China may select one of the establishments for consolidated tax filing and payment. However, that establishment must meet the following requirements:
   (a)it shall assume the supervisory and managerial responsibility over the business of the other establishments.
   (b)it shall keep complete accounting records and vouchers that correctly reflect the income, costs, expenses, profits and losses of the other business establishments.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (2) A foreign enterprise which chooses to consolidate its Income Tax filing and payment in accordance with Article 89 of these Rules shall select a business establishment to make such application to the local taxation authorities for examination and then approval according to the following provisions:
   (a)if all the business establishments involved in the consolidation are located in the same province, autonomous region or municipality directly under the Central Government, the application is subject to approval by the tax authorities of that province, autonomous region or municipality;
   (b)if they are located in two or more provinces, autonomous regions or municipalities directly under the Central Government, the application is subject to approval by the State Administration of Taxation.
   Once the consolidated tax filing and payment of a foreign enterprise is approved, any establishment of new business organizations, merger, change of address, termination, close-down, etc., shall be reported, to the local taxation authorities, by the business establishment in charge of consolidated tax filing, in advance of the occurrence of any of the above situations. Any change in the business establishments involved in the consolidated tax filing shall be treated in accordance with the provisions of the preceding paragraph.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (3) When different tax rates are applicable to different business establishments of a foreign enterprise involved in consolidated tax filing, the taxable income of different establishments shall be calculated separately on a reasonable basis, and Income Tax shall be paid according to the different rates.
   When both profit and loss occur in the different business establishments mentioned in the preceding paragraph and there is a net profit after the profits and losses are offset against each other, Income Tax shall be levied at a rate applicable to profit-making enterprises. For those establishments sustaining losses, Income Tax shall be levied at a rate applicable to such establishments when they become profitable after the losses have been made up against the income in subsequent years; Income Tax on the amount of profits which have been used to make up the losses shall be levied at a rate applicable to those establishments which help the losing establishment to make up losses.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (4) When a business establishment in charge of consolidated tax filing cannot accurately calculate the taxable income of different establishments on a separate basis, the local taxation authorities may make a reasonable apportionment of the taxable income among these business establishments, with reference to their respective proportions of income, costs, expenses, assets and the number of staff and workers or the amount of wages.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (5) Income from production and business; in Paragraphs 1 and 2 of Article 1 of the Tax Law, refers to income from production and business operations in the manufacturing, mining, transport and communications, construction and installation, agriculture, forestry, animal husbandry, fishing, water conservation, commerce, finance, service industry, exploration and exploitation trades and in other trades.
   Other income; in Paragraphs 1 and 2 of Article 2 of the Tax Law refers to profits (dividends), interest, rental income, income from the transfer of property, income from the supply or transfer of patents, special technology, income from trademark rights and copyright as well as other non-business income.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (6) Enterprises with foreign investment which establish branches in China shall implement their consolidated tax filing with reference to the provisions of Article 91 and 92 of these Rules.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (7) Income Tax to be paid in advance in quarterly installments, as stipulated in Article 15 of the Tax Law, shall be calculated according to the actual profit for that quarter. Enterprises that have difficulty calculating advance payments based on actual quarterly profit may pay the tax based on one-fourth of the taxable income of the preceding year, or by adopting other formulas approved by the local taxation authorities.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   
3. Regulations on Tax Payment on Foreign Currency Income
   
   (1) Exchange rates quoted by the State Administration of Exchange Control in Article 21 of the Tax Law refers to the buying rate quoted by the State Administration of Exchange Control.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (2) For income earned by enterprises in foreign currency, when payment of Income Tax is made in quarterly installments according to the provisions of Article 15 of the Tax Law, taxable income shall be calculated by converting the foreign currency into Renminbi according to the exchange rate quoted by the State Administration of Exchange Control on the last day of the quarter. At the time of final settlement after the end of the tax year, no recalculation or reconversion of the foreign currency need be made for tax which has already been paid on a quarterly basis; only that portion of the foreign currency income of the entire year for which tax has not been paid shall, for calculation of taxable income, be converted into Renminbi according to the exchange rate quoted by the State Administration for Exchange Control, on the last day of the tax year.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (3) Where an enterprise which converted its foreign currency income into RMB according to the officially quoted exchange rate when paying tax, has excess tax refundable, it shall convert the refundable RMB tax amount into the original foreign currency according to the exchange rate quoted on the day when the tax was first paid, and then convert the sum back into RMB, according to the exchange rate of the day of issue of the tax refund voucher. Where there is a balance of tax payable, the balance of tax payable shall be converted into RMB according to the quoted exchange rate on the day of issue of the tax payment certificate.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (4) The book balance of the capital account, in which the capital received by the enterprise has already been entered, according to the stipulated foreign exchange rate of account, shall not be modified because the unified exchange rate comes into force or because the exchange rate fluctuates.
   Adjustment of the balance at the beginning of the year in the enterprises¡¦ foreign currency account (including foreign currency cash, foreign currency deposit, credit and debt settled in foreign currency) shall be carried out according to the market exchange rate issued on January 1, 1994 by the People¡¦s Bank of China. The balance shall be converted into the balance in the bookkeeping base currency. The difference between the converted balance in the bookkeeping base currency and the original balance shall be listed in a specific item and the calculation of the taxable income of the enterprise shall be carried out in the following ways:
   (a)If it is net loss, the amortization shall be carried out in the following 5 years from 1994; if the remaining part of the operation period is less than 5 years, amortization shall be carried out in the remaining part of the operation period. If the net loss is so small as not to affect the taxable income of the enterprise for the period, thus considered possible to be amortized in 1994, or the net loss is so large as to be necessary to be amortized in more than 5 years, the responsible taxation authorities shall check and decide after application by the enterprises.
   (b)If it is net income, amortization shall be carried out in the 5 years, or it may be used to recover the loss annually, and the balance shall be kept as liquidation income in the merged enterprise.
   (GUO SHUI FA [107] 1994.4.21)
   
   
4. Account Books and Documentary Evidence
   
   (1) Unless otherwise provided by the State, enterprises shall keep inside China their account books and accounting records and other supporting documents that enable proper calculation of taxable income.
   Vouchers, account books and accounting statements of the enterprises shall be completed in the Chinese language, or in both Chinese and foreign languages. Enterprises using electronic computers for book-keeping shall treat the accounting records in computer storage or output as account books. Magnetic tapes and diskettes shall be kept properly before hard copies are printed.
   Vouchers, account books and accounting statements of the enterprises shall be kept for at least 15 years.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (2) Sales invoices and business receipts of the enterprises shall be submitted to the local taxation authorities for approval before they are printed and put into use.
   The controlling mechanism over the printing and use of sales invoices and business receipts shall be formulated by the State Administration of Taxation.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (3) All Enterprise Income Tax returns and tax payment certificates shall be printed by the State Administration of Taxation.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   
5. Legal Responsibilities
   
   (1) If any taxpayer or withholding agent fails to accept the examination of the taxation authorities in accordance with the relevant provisions or fails to pay the surcharge for overdue payment within the time limit prescribed by the taxation authorities, the local taxation authorities may, according to the seriousness of the case, levy a fine of up to RMB 5000.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (2) If any enterprise violates the provisions of Article 87, Paragraph 2 of Article 90, Article 95, Article 96, Article 97, Article 99, Article 100 or Article 101 of these Rules, the taxation authorities may, according to the seriousness of the case, impose a fine of up to RMB 5000.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (3) Tax evasion; in Article 25 of the Tax Law refers to unlawfully and deliberately carrying out activities in violation of the provisions of the Tax Law, such as altering, forging or destroying bills, accounting vouchers or account books; falsifying or overstating costs and expenses; concealing or understating the amount of taxable income or revenue; evading tax payments; or fraudulently obtaining refund of paid taxes.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (4) The taxation authorities shall serve notices of contravention on the relevant parties in cases involving penalties, in accordance with the relevant provisions of the Tax Law and these Rules.
   (GUO WU YUAN LING [85] 1991.6.30)
   
   (5) All units and individuals have the right to provide information and assistance to report offenders or offenses against the Tax Law. The tax authorities shall keep confidential the identity of the informants and reward them according to the relevant regulations.
   (GUO WU YUAN LING [85] 1991.6.30)