The draft law no longer uses the "independent economic accounting" criterion to define a taxpayer, replacing it with the legal person definition, which is in line with international practices.

Individual proprietorship and partnership enterprises will not be covered by this law "to avoid repetitive taxation".

It adopts the criteria "resident enterprise" and "non-resident enterprise". Whether a firm is resident or non-resident depends on the combined standards of "place of registration" and "place of effective management", which is in line with international practice.

Resident enterprises will be required to pay tax on both their domestic income and income from abroad. Non-resident enterprises will have to pay tax only on income earned within China.

The existing limit on the amount of salary domestic firms can deduct as business expenses will no longer apply.

Companies will be allowed to deduct charitable donations to support charitable giving.

Articles on preventing tax evasion through transfer pricing among associated enterprises, through tax havens and or other methods will be clarified.

NPC deputies will discuss the draft law and vote on March 16 to decide whether it will be approved. That is the last day of the annual NPC session.

See full text of the explanation of China's draft enterprise income tax law on chinadailly.com.cn

(China Daily 03/09/2007 page6)