Circular of the State Administration of Taxation on Several Issues Concerning the Income Tax on Equity Investment of Enterprises
Circular of the State Administration of Taxation on Several Issues Concerning the Income Tax on Equity Investment of Enterprises
Circular of the State Administration of Taxation on Several Issues Concerning the Income Tax on Equity Investment of Enterprises
Guo Shui Fa [2000] No. 118
June 21, 2000
In order to encourage and promote enterprise reform and healthy development through equity investment out of normal business need, and to enhance the regulation of taxable income through increment or transfer of assets in accordance with the Interim Regulations of the People's Republic of China on Enterprise Income Tax and its rules for implementation, the following rules are formulated to handle the income tax problems concerning equity investment of enterprises:
Article 1 Income tax problems related to income from equity investment of enterprises.
1.Income from equity investment of enterprises refers to the investment benefits gained by an enterprise through equity investment in another enterprise in the form of stock dividend after distribution of the after-tax accumulated undistributed profits and of the accumulated surplus reserve fund of the invested enterprise. In a case where the income tax rate of the investing enterprise is higher than that of the invested enterprise, the income of the investing enterprise from the equity investment shall be reversed to the before-tax profits and added to the total taxable income of the investing enterprise which shall pay income tax at the higher rate applied to it except where there are preferential tax policies such as tax reduction or exemption for a certain period,.
2.All the monetary and non-monetary assets (including any expenses paid by the invested enterprise for the investing enterprise not related to the business operation of the former) paid in the form of dividend by the invested enterprise to the investing enterprise shall be deemed as dividend paid to the investing enterprise by the invested enterprise. Monetary assets refer to cash and assets obtained by the investing enterprise from the invested enterprise in the form of money of a fixed or fixable value, including cash, debt receivable bills, receivable bonds, etc.
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