Finance departments (bureaus) and state and local tax bureaus of provinces, autonomous regions, municipalities directly under the Central Government and separately planning cities, and the Bureau of Finance of Xinjiang Production & Construction Corps.,

In accordance with Article 53 and Article 55 of the Enterprise Income Tax Law of the People’s Republic of China and Article 11 of the Implementing Regulations of the Enterprise Income Tax Law of the People’s Republic of China (No. 512 Decree of the State Council), the following issues concerning the enterprise income tax for enterprise liquidation are hereby notified:

Ⅰ. Income tax treatment for enterprise liquidation refers to the treatment of the matters including liquidation income, liquidation income tax and distribution of dividend when an enterprise is no longer going concern and with occurrence of economic activities such as ending its own business, disposing the assets, repaying debts and distributing residual property to the owners.

Ⅱ. The following enterprises shall implement the treatment of liquidation income tax:

(I) The enterprise that needs liquidation in accordance with the Company Law and the Enterprise Bankruptcy Law;

(II) The enterprise that needs liquidation in enterprise restructuring.

Ⅲ. The treatment of income tax on enterprise liquidation shall include the following contents:

(I) determine the income or loss of asset transfer for all the assets on the basis of realizable value or transaction value;

(II) determine the income or loss of liquidation of creditor’s rights and discharge of debts;

(III) change the accounting principles of going concern, and handle the withholding or deferred expenses;

(IV) make up for the losses and determine the income of liquidation by force of law;

(V) calculate and pay the liquidation income tax;

(VI) Determine the residual property and dividend that could be distributed to the shareholders.

Ⅳ. The income of liquidation is the balance of the realizable value or transaction price of all the assets of enterprises minus the tax base of assets, liquidation expenses and relevant taxes and fees, and plus the profit or loss from discharge of debts.

The enterprises shall consider the whole liquidation period as an independent tax year to calculate the income of liquidation.

Ⅴ. The residual assets which are obtained from the realizable value or transaction price of all the assets of enterprises minus the liquidation expense, the wages of employees, social insurance expenses and statutory compensation, settling the liquidation income tax and tax arrears of previous tax years, and paying off corporate debts could be distributed to the owners as per calculation according to the relevant provisions.

In the residual assets distributed to shareholders of the liquidated enterprise, what equal to the accumulated undistributed profit of the liquidated enterprise and the part calculated at the proportion of a shareholder in accumulated surplus reserves shall be recognized as dividend income; in the balance of residual assets minus dividend income, what is above or below the investment cost of the shareholder shall be recognized as income or loss of investment transfer of the shareholder.

The tax base for assets of a shareholder distributed from the liquidated enterprise shall be determined according to the realizable value or actual transaction price.

Ⅵ. This Circular shall enter into force as of January 1, 2008.

Ministry of Finance

State Administration of Taxation

April 30, 2009