7. FOREIGN TAX CREDIT
A domestic enterprise is subject to the worldwide tax and may deduct the income taxes paid on such income in a foreign country with the limitation by the following formula:
The limitation = total tax payable for both domestic and foreign income * foreign income / world income
The limitation of foreign tax credit is calculated separately for each country. Any unused credit can be carried forwarded for maximum 5 years for deduction of the remaining tax payable after set off against the current credit from that country.
An enterprise earns profit RMB 200,000 in the China and subject to 33% tax rate. It
has oversea income from country A RMB 50,000 at 30% tax rate with tax payment
RMB 15,000 and country B RMB 30,000 at 35% tax rate with tax payment RMB
10,500.
Assuming the tax laws in China is similar to those tax laws in countries A and B, the tax payable before tax credit:
Tax payable = (200,000 + 50,000 + 30,000) x 33% = RMB 92,400
The limitation of tax credit from countryA= 50,000 x 33% = RMB 16,500
The limitation of tax credit from country B = 30,000 x 33% = RMB 9,900
For country A, tax payment 15,000 For country B, tax payment 10,500 > the limit 9,900, only 9,900 can be deducted.
Therefore the tax payable after the tax credit = 92,400 - 15,000 - 9,900 = RMB 67,500 and the unused tax credit 10,500 - 9,900 = 600 can be used to set off future tax liability from country B.

8. CALCULATION OF TAX PAYABLE
8.1 Actual basis
Tax payable = Taxable income x tax rate
The tax rate shall be 33%.
8.2 Deemed Basis
The tax bureau may adopt the deemed basis in any one of situations:
The income can be accurately determined but not the expense;
The expenses can be accurately determined but not the income;
Both income and expense can not be accurately determined;
The accounting record or the supporting is not properly maintained;
The taxpayer does not fulfill the reporting duty.
The tax bureau may use one of the following formulas:
Tax payable taxable income x tax rate
For income can be accurately determined,
Taxable income = Income x deemed profit rate
For expense can be acutely determined,
Taxable income expenses 1(1- deemed profit rate) x deemed profit rate
@Tax bureau impose income tax on an enterprise based on the deemed profit ratio and the rate of which is 15%. There is no detailed information about the income of the enterprise for the current year, but its total expense is RMB 190,000. Calculate the income tax payable for the year.
Taxable income = 190,000 ¡Â (1 - 15%) x 15% = RMB33,529
Income tax payable 33,529 x 33% = RMB 11,064.71

9. TAX EXEMPTION AND REDUCTION
The approved high technology enterprises established in HNTIDZs (High and New Technology Industrial Development Zones) can be exempted for first two year since the start of production. It can be taxed at 15% after that.

Business Deemed profit rate
7-20
10 - 20
10 - 25
1. Industry, transportation, commercial______________
2. Construction, property development______________
3. Food and beverage
4. Entertainment
10 - 25
10-30
5.Others
For the newly set up of consultancy in legal, accounting, tax, technology, etc. can be exempted for first 2 years since the start of operation.
A business with annual taxable income less than RMB 30,000 is taxed at 18% and for income less than RMB 100,000 but more than RMB 30,000, it is taxed at 27%.
For enterprise suffered natural disaster can be exempted or enjoy the tax reduction after the approval form the tax bureau.
For the newly set up of post and communication enterprise can be exempted from the first year and half reduction for second year since its operation.
For income of technology transfer, technology training, technology consultancy, technology services earned by the research and high level institute are exempted.
There are some miscellaneous exemptions apply to other cases.