(a) GH Ltd is a construction company set up in Shanghai and pays enterprise income tax (EIT) at 25%. XY Ltd is its holding company and is based in the Cayman Islands. The average amount of net equity of GH Ltd was RMB4,000,000 in 2017. The manager of GH Ltd proposes that XY Ltd provides a loan of RMB10,000,000 to GH Ltd, on which GH Ltd pays interest to XY Ltd at a rate of 20% per annum (inclusive of all China taxes). Hence, the interest will reduce the taxable profit of GH Ltd.

Required:

(i) Calculate the value added tax (VAT) and enterprise income tax (EIT) (withholding tax) on the annual interest income payable to XY Ltd. Note: You should ignore surtaxes on VAT.

 (ii) Calculate the interest deductible by GH Ltd in 2017 according to the thin capitalisation rules if the market interest rate is 7% per annum.

(b) Lont Pte Ltd is a Singapore company which carried out the following transactions in 2017:

(1) Sold goods to its Chinese customers for RMB5,500,000 and earned a profit of RMB520,000.

(2) Received a royalty from a Chinese company, Tstar Ltd, of RMB700,000.

(3) Sold shares held in a Beijing company for RMB8,000,000 and made a gain of RMB4,800,000.

(4) Received a fee of RMB260,000 (tax inclusive) on the provision of services in China. Lont Pte Ltd has created a permanent establishment in China for the provision of these services. The China tax authorities assessed a deemed profit rate of 30% on the service fee.

(5) Leased an aircraft, without a crew, to an airlines company in China at a rent of RMB3,300,000. The depreciation of the aircraft amounts to RMB2,700,000.

Note: Each of the above items is an isolated transaction.

Required:

Calculate the enterprise income tax (EIT) for each of the above items of income (1) to (5) received by Lont Pte Ltd in 2017. Indicate by the use of a zero (0) any item which is not subject to EIT.

Note: You should ignore value added tax (VAT) and ignore tax treaty reduction.