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REPLY OF THE STATE COUNCIL TO THE REPORT SUBMITTED BY THE MINISTRY OF FINANCE REQUESTING THE INSTRUCTION ON THE REDUCTION OF THE APPRAISED AND SPECIFIED RATE OF PROFIT FOR TAXATION ON THE RESIDENT REPRESENTATIVE

    The State Council hereby approves the following amendment to the Interim
Provisions of the Ministry of Finance of the People's Republic of China
concerning the Imposition of Consolidated Industrial and Commercial Tax and
Enterprise Income Tax on the Resident Representative Offices of Foreign
Enterprises: The provisions in Article 4 which read, "tax shall ...... be
calculated and determined on the basis of an appraised and specified rate of
profit, provisionally determined to be 15% of the amount of business revenue",
shall be amended as follows: "tax shall ...... be calculated and determined on
the basis of an appraised and specified rate of profit, provisionally
determined to be 10% of the amount of business revenue". The aforesaid
amendment shall be announced by your Ministry, and the amendment shall become
effective as of October 1, 1986.
Appendix: CIRCULAR OF THE MINISTRY OF FINANCE CONCERNING THE REDUCTION OF
THE APPRAISED AND SPECIFIED RATE OF PROFIT FOR TAXATION ON THE RESIDENT
REPRESENTATIVE OFFICES OF FOREIGN ENTERPRISES (October 6, 1986)

    With the approval of the State Council, this Ministry promulgated, on May
15, 1985, Interim Provisions Concerning the Imposition of Consolidated
Industrial and Commercial Tax and Enterprise Income Tax on the Resident
Representative Offices of Foreign Enterprises, and Article 4 of these
Provisions stipulates "in respect of the assessment of enterprise income tax,
except for those cases in which accurate cost and expense vouchers can be
provided and where the correct amount of tax can be calculated, tax shall, in
accordance with the provisions of Article 24 of the Rules for the
Implementation of the Income Tax Law of the People's Republic of China for
Foreign Enterprises, be calculated and determined on the basis of an appraised
and specified rate of profit, provisionally determined to be 15% of the amount
of business revenue." in order to further encourage the aforesaid
representative offices to expand business operations, and in consideration of
the actual condition of the differences in profit rates between the
representative offices, it is decided, with the approval of the State Council,
to reduce, for the benefit of the resident representative offices, the
appraised and specified rate of profit from 15% to 10%.

    This Provision shall become effective as of October 1, 1986.