Tax Credit Policy on Corporate Income Tax from Overseas Operation Clarified
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Tax Credit Policy on Corporate Income Tax from Overseas Operation Clarified
Author:Xinchengda   Article source: state administration of taxation  Hits:1484  Add time:2010-2-25  

           The Circular on Relevant Issues Concerning Tax Credit on Overseas Incomes of Enterprises was promulgated recently by the Ministry of Finance and the State Administration of Taxation of PRC. The Circular has made clear the items related to deduction of overseas income taxes for the current period calculated by enterprises. The Circular set forth the specific method for determining the amount of actually allowable overseas income tax as well as upper limit for tax credit by country (region) for the current period. According to the Circular, in case that enterprises are unable to calculate the exact amount of actually allowable overseas income tax by country (region), the taxes paid by the enterprise in corresponding countries (regions) shall not be deducted or exempted from the payable tax of enterprises for the current period, nor can it be carried forward to subsequent years for deduction and exemption. The Circular has come into force as of January 1, 2008.
  It is stipulated by the Circular that enterprises shall determine pre-tax income from overseas operation in accordance with Article 7 of Implementing Regulations of Corporate Income Tax Law, and shall calculate taxable incomes from overseas operation as stipulated in Article 78 of Implementing Regulations of Corporate Income Tax Law according to five provisions in the Circular and in light of actual circumstances. It is also stipulated in the Circular that the allowable overseas income tax amount refer to the tax amount of corporate income sourced from outside the territory of China which is payable and has been paid to relevant authorities according to laws and relevant regulations concerning overseas taxation. Six circumstances were specified by the Circular under which enterprises are not allowed to enjoy tax credit for overseas incomes. The Circular also included the formula for enterprises' calculation of limit of tax credit for overseas incomes. Additionally, the circumstances of two types of enterprises for which the tax credit applicable to the paid tax amount of overseas incomes by use of simple methods upon approval of competent tax authorities are set down in the Circular.
  It is specified by the Circular that enterprises' taxable incomes from Hong Kong, Macau and Taiwan region shall be subject to relevant provision of the Circular. In case that there are conflicts between Sino-foreign taxation agreements and this Circular, the agreements shall prevail. The Circular also includes an appendix containing 15 countries (regions) such as the U.S, France and Japan, which Chinese enterprises earn incomes from. Such countries (regions) have significantly higher statutory tax rates than that of China.
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