Key Points

  • Bulletin No.57 provides information on how CIT liabilities are allocated among corporate headquarters and branches in different provinces.
  • Details how CIT revenue will be split between central and local treasuries.
  • New rules apply to all 2013 CIT filings but do not affect the final settlement for the tax year of 2012.


Since 1 January 2013, the new Corporate Income Tax rules ("Bulletin No. 57") have been in effect for trans-regional companies paying taxes on a consolidated basis, providing further implementation rules for Cai Yu [2012] No. 40 ("Circular 40").

CIT Consolidated Filing Measure

According to Bulletin No. 57 and Circular 40, companies with headquarters and branches established in different provinces in China shall calculate the CIT on a consolidated basis, allocating the tax liabilities based on certain methods for both provisional filing and final settlement. In particular, they must adhere to the following:

  1. Headquarters must calculate the taxable income and tax payable of the company (including all its branches) on combined basis.
  2. Headquarters and branches will be allocated with CIT liability, and must file and make provisional CIT filings on a monthly or quarterly basis to the relevant tax authorities at the place of registration.
  3. After the end of a tax year, the final settlement will be handled by the corporate headquarters upon unified computation of the annual taxable income and tax payable, while refund of excess CIT prepaid or retrospective payment of underpaid CIT will be made to or paid by the headquarters and its branches in their place of registration.

According to Bulletin No. 57, consolidated filing is applicable for company headquarters and any of its branches considered to perform substantial functions of production and operation in a different province. For financial and internal structure purposes a company may have several tiers of branches. However, for tax purposes, there may be lower level ("third tier") branches which should be regarded as part of its "upper level" branch, and will not be required to make any CIT local filings.

Exceptions to the Rules

As clarification, Bulletin No. 57 and Circular 40 also set out rules where branches should not apply the consolidated filing measure. Branches are not covered by consolidated filing requirements where:

  1. They have no independent production and business functions and only engage in the company’s internal supporting activities such as after-sale service for products, internal R&D and warehousing, for example, therefore not paying turnover tax locally.
  2. They are small-sized low-profit enterprises which qualified in the previous year. In this instance, both the headquarters and its branches will not be covered by the measures.
  3. Branches are "newly set-up". They will be party to the requirements for the first year.
  4. A branch has been closed. Closed branches are released from the consolidated filing measure from the time its tax deregistration is completed.
  5. It is an overseas branch.

However, the consolidated filing measure will apply to branches that have been acquired in M&A or recently set up under internal restructure within the company.

A department of the headquarters may be treated as a branch for CIT purposes if it separately carries out manufacturing or business operations and its operating revenue, employee remuneration and total assets are accounted independently from that of the department with administrative function. Such department shall apportion the CIT tax for payment locally. This highlights the importance of the "substantial business and operation" functions over other factors when deciding whether branches qualify for consolidated filing measures. Therefore, when a branch carries out tax registration, it is advisable to provide the relevant tax authority with information on its operation manner, internal management policies and additional factors, to facilitate the tax officer’s review on its future tax filing status.

For companies with headquarters and branches located in the same province, the provincial tax authorities will decide whether a similar CIT mechanism should be followed or whether the headquarters are responsible for CIT filings.

Calculation Under CIT Consolidated Filing Measure

The taxable income and CIT payable should calculated based on the overall result of the headquarters and its branches. As mentioned above, headquarters and branches must make monthly or quarterly CIT filings locally and pay provisional CIT allocated to them to the local authorities.

For each provisional CIT filing, 50% of the CIT liability remains with the headquarters, with the remaining 50% to be allocated to the branch offices. The 50% of provisional CIT allocated to the branch offices is further allocated among the branches based on three factors: operating revenue, employee remuneration and total assets, and each factor is given certain weight (i.e. 35:35:30). See the example below for details:

CIT liability of the branch = 50% of the CIT liability * Allocation Ratio of the branch

Allocation Ratio = (Operating Revenue of the branch / sum of Operating Revenue of all branches) * 0.35 + (Employee Remuneration of the branch / sum of Employee Remuneration of all branches) * 0.35 + (Total Assets of the branch / sum of Total Assets of all branches) * 0.30

Bulletin No. 57 redefines the factors in determining a branch’s allocating ratio to make them consistent with the accounting standard, meaning they should therefore refer to last year’s accounting records. Once such ratio is decided, normally it will stay valid for the whole year.

For a company with headquarters and branches located in different areas where different CIT rates apply, the company’s overall taxable income will first be allocated among branches with the same allocation ratio; with the respective local CIT rate, the company can have the sum of CIT liabilities of all branches as the overall CIT liability of the company. Using the same allocation ratio again, the overall CIT liability will be allocated among the headquarters and its branches for payment and settlement purposes.