Circular on Income Tax Treatment Issues Relevant to the Internal Disposal of Assets by Foreign-invested Enterprises

关于外商投资企业内部处置资产有关所得税处理问题的通知

The Circular specifies the circumstances under which there is a disposal of assets internally and the circumstances under which it is not deemed a disposal of assets internally.

Clp Reference: 3210/05.10.14 Promulgated: 2005-10-14

(Issued by the State Administration of Taxation on October 14 2005. )

Guo Shui Han [2005] No.970

Offices of the State Administration of Taxation of provinces, autonomous regions, municipalities directly under the central government and cities with independent development plans and the Local Taxation Bureau of Shenzhen Municipality:

Pursuant to relevant provisions of the PRC Foreign-invested Enterprise and Foreign Enterprise Income Tax Law and its Implementing Rules, we hereby notify you concerning income tax treatment issues relevant to the internal disposal of assets in organizations and establishments established in China by foreign-invested enterprises and foreign enterprises (hereinafter collectively referred to as 'Enterprises') as follows:

1. When an Enterprise disposes of assets internally (including self-manufactured assets and assets purchased from third parties), no income shall be recognized unless the assets are transferred abroad; the historical costs of the relevant assets shall continue to accrue.

2. For the purposes of Article 1 of this Circular, the phrase "disposal of assets internally" means an act of disposal under which the ownership of an asset does not change in form or substance, and includes but is not limited to the following circumstances:

(1) using the asset to produce, manufacture or process a different product;

(2) changing the shape, structure or capabilities of the asset;

(3) changing the purpose of the asset (e.g. conversion of self-constructed commodity premises to self-use, or operation for own account);

(4) transfer of the asset between the head office and a (sub-)branch; or

(5) a mixture of two or more of the foregoing circumstances.

The transfer of assets to a third party by an Enterprise under the following circumstances shall not be deemed a disposal of assets internally as the ownership of the assets changes:

(1) the asset is used for marketing or promotion purposes;

(2) the asset is used for entertainment purposes;

(3) the asset is used for staff and worker bonuses or benefits;

(4) the asset is distributed as dividends;

(5) the asset is donated to a third party; or

(6) other purposes that result in a change in the ownership of the asset.

3. Tax treatment of the disposal of assets internally by Enterprises for the purpose of turnover tax and other taxes shall continue to be handled in accordance with relevant current provisions.

(国家税务总局于二零零五年十月十四日发布。)

clp reference:3210/05.10.14
prc reference:国税函 [2005] 970 号
promulgated:2005-10-14

国税函 [2005] 970号

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