State Administration of Taxation, Issues Relevant to Taxation of Foreign-invested Enterprises and Foreign Enterprises Engaged in Disposal of Financial Assets Circular

Issued: January 7 2003
Interpreting authority: State Administration of Taxation
Applicability: Disposal of financial assets refers to enterprises that obtain, through purchase, absorption of equity shares or other means, the equity, debt, real capital and "bundled-assets" of domestic companies and then transfer, retire, exchange or sell these assets for profit (Article 2).

Main contents: When a company acquires re-disposed assets, the amount paid upon acquisition constitutes the original price; the company may subsequently reconstitute the assets and set an original price for the entire group of assets or its constituent assets, but that price may not exceed the original price the company paid for the entire group assets (Article 3). Business tax will not be levied on income from the debt and equity portions of re-disposed assets (Article 4). Business tax will be levied on income from the real capital portion of re-disposed assets if the assets in question are fixed; value-added tax will be levied on commodities (Article 4). Enterprise income tax will be levied on income received from re-disposed assets after original price, cost and loss have been deducted (Article 5). Foreign enterprises that have not established an organization or location in China shall pay the due taxes through their agent (Article 6).
Related legislation: PRC Foreign Investment Enterprise and Foreign Enterprise Income Tax Law, April 9 1991, CLP 1991 No.3 p25; PRC Foreign Investment Enterprise and Foreign Enterprise Income Tax Law Implementing Rules, Jun 30 1991, CLP 1991 No.7 p16; PRC Business Tax Tentative Regulations (Revised), NOv 10 2008, CLP 2008 No.10 p62 andPRC Business Tax Tentative Regulations Implementing Rules, Dec 25 1993, CLP 1994 No.3 p32