1. Taxpayer
   
   The partnership enterprise is not obligated to pay CIT, nor to pay IIT. According to the Notice on Income Tax for Partners in Partnership Enterprises issued by Chinese MoF and STA, each partner in a partnership shall be obligated to pay tax. IIT shall be paid if a partner is an individual. Where a partner is an enterprise or other organizations, CIT shall be paid.
   
   
2. Income from investment
   
   According to Chinese Corporate Inocme Tax Law, dividends and other equity investment gains between eligible resident enterprises are allowed to be exempted from tax(referring to the investment gains obtained by a resident enterprise through direct investment in other resident enterprises). Investment is regarded as indirect investment if an enterprise as a partner to invest in other resident enterprise through partnership. Therefore the dividends and bonues obtained are not pre-tax deductable and they should be included to calculate CIT for the current year.
   
   According to Notice lementation of IIT Levied on Investors of Sole Proprietorship Enterprises and Partnerships Enterprises issued by Chinese SAT, the interest and dividends obtained by those enterprises mentioned from investment is not included into enterprises income. They should be regarded as individual income from interest, dividend and bonus to calculate the IIT.
   
   
3. Tax payment steps
   
   According to Notice on Icome Tax for Partners of Partnership Enterprises, operating and other income of the partnership shall be subject to the priciple of 'Distribuion first, tax later'. It reters to that partnership distribute incomes based on the nature of partners, then confirm the naure of income tax to be IIT or CIT afterwards. Partners of the partnership shall determine the taxable income, which derived from operating and other income, based on the  agreed distribution proportion in the partnership agreement.
   
   Operating and other income include income distributed by the partnership to all partners and income (profit) retained by the partnership in the current year. No matter partnership has a distribution plan or not, the retained profits should be distributed based on the prescribed proportion. They should be included into taxable income when calculate IIT or CIT for the current year.
   
   
4. Capital injection from partner and share transfer are not subject to Stamp Duty
   
   The investment  from partner shall not be recorded as “paid-in-capital” or “capital reserve” so it shall not be subject to Stamp Duty. Partner’s share does not belong to the enterprise equity, partnership share transfer does not belong to taxable item of Stamp Duty, which shall not be subject to Stamp Duty as “transfer of title”.
   
   
5. Taxation method for parter share transfer
   
   

   (1)

   The partner of non-venture capital enterprise shall be subjce to IIT for transfer of partner share, which is based on “operating income” taxation item and the applicable tax rate is 5%-35%.

   (2)

   Venture capital enterprise has 2 taxation methods as following: Accounting as a single investment fund, individual parter shall pay IIT at the rate of 20% based on the equity transfer and dividend income that obtained from the fund. Accounting as a whole on the basis of annual income, individual parter shall pay IIT for income derived from the venture capital enterprise at progressive rate of 5%-35%  as “operating income”.

   
   
6. CIT shall not be exempted for investment income distributed to enterprise partner
   
   According to Chinese tax law, enterprise and other organizations that have income shall be taxpayers of CIT, however, sole proprietorship enterprises and partnership enterprises do not apply to this provision. Investment in a partnership enterprise by enterprise parters shall not be regarded as “resident enterprises directly invest in other resident enterprises”, therefore, the dividend obtained by enterprise partner from partnership enterprises shall not be regarded as dividend or other equity investment income between resident enterprises, which shall not be exempted from CIT as well.
   
   
7. How to avoid infinite liability for general partner of a limited partership
   
   The individual shall incorporate a limited liability company and take control first, then the limited liability company may serve as general partner in the limited partnership. The limited liability company shall bear civil liability independently with all its property, the individual shall bear liability to the limited liablitiy company within the amount of capital contribution and shall not bear infinite liability to the partnership.
   

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