Detailed Rules for Implementing the Interim Regulations of the People’s Republic of China on Business Tax

Decree No. 52 of the Ministry of Finance and the State Administration of Taxation
Promulgated December 15th, 2008, Effective January 1st, 2009

Article 1 The Detailed Rules are formulated in accordance with the Interim Regulations of the People’s Republic of China on Business Tax (hereinafter referred to as the Regulations).

Article 2 "Services" as mentioned in Article 1 of the Regulations refers to services within the scope of taxable items in the transportation, construction, finance and insurance, posts and telecommunications, culture and sports, entertainment and service industries (hereinafter referred to as taxable services).

Processing, repair and replacement are not services as stipulated in the Regulations (hereinafter referred to as non-taxable services).

Article 3 The “Provision of taxable services, transfer of intangible assets or the sale of immovable properties?as mentioned in Article 1 of the Regulations refers to activities of providing taxable services, transferring intangible assets or ownership of immovable properties with compensation (hereinafter referred to as the taxable activities). However, taxable services provided by the staff employed by units or individual operators to their own units or employers shall not be included therein.

The term "with compensation?in the preceding paragraph includes receipt of currency, goods and other economic benefits.

Article 4 The "provision of taxable services, transfer of intangible assets or sale of immovable properties within the territory of the People’s Republic of China (hereinafter referred to as within the territory) as mentioned in Article 1 of the Regulations means that:

1. The units or individuals of Provision or acceptance of taxable services in the Regulations within the territory;

2. The acceptance units or individuals of intangible assets transferred to (excluding land use right) within the territory ;

3. Land whose use right is transferred or rented within the territory; and

4. Immovable properties being sold or rented within the territory.

Article 5 Taxable acts of the taxpayers shall occur in any of the following situations:

1. Units or individuals donate immovable properties or land use right to other units or individuals without compensation;

2. For units or individuals that sell their newly self- constructed buildings (hereinafter referred to as self-construction), their self-construction activities shall be regarded as taxable services; and

3. Other acts regulated by the Ministry of Finance and the State Administration of Taxation.

Article 6 A sale activity that involves both taxable services and goods is deemed to be a mixed sales activity. Mixed sales activities of enterprises, enterprise units or individual business operators engaged in production, wholesale or retail of goods shall be classified as sales of goods, and Business Tax shall not be levied on the sales; mixed sales activities of other units and individuals shall be classified as provision of taxable services, and Business Tax shall be levied on the sales.

"Goods" as mentioned in Paragraph 1 refers to tangible moveable goods, including power, heating and gas.

"Enterprises, enterprise units or individual business operators engaged in the production, wholesale and retail of goods" as mentioned in Paragraph 1 include enterprises, enterprise units and individual business operators principally engaged in the production, wholesale and retail of goods, and concurrently engaged in taxable services.

Article 7 Turnover of taxable services and sales amount of goods shall be separately computed, and Business Tax shall be levied on turnover of taxable services and Business Tax shall not be levied on sales amount of goods; for the taxpayers that have been not separately computed, the competent tax authorities shall assess the turnover of their taxable services for the following mixed sales activities by the taxpayers:

1. Sale of self manufactured goods while providing taxable services of construction industry; and

2. Other institutions regulated by the Ministry of Finance and the State Administration of Taxation.

Article 8 For taxpayers engaged in both taxable services and the sales of goods or non-taxable services, the sales amount of taxable services and the sales amount of goods or non-taxable services shall be calculated separately, and Business Tax shall not be levied on the sales amount of taxable services and the sales amount of goods or non-taxable services; for taxpayers that have been not calculated separately, the competent tax authorities shall determine the sales amount of their taxable services.

Article 9 The “Units?mentioned in Article 1 of the Regulations refers to the enterprises, administrative units, institutions, military units, social communities and other units.

The "Individuals" mentioned in Article 1 of the Regulations refers to individual industrial or commercial households and other individuals.

Article 10 Except otherwise stipulated in Article 11 and Article 12 of the Detailed Rules, the units that are liable to Business Tax shall be those that have taxable activities and receive money, goods or other economic benefits, exclusive of the internal institutions of those who are not required to handle tax registration by law.

Article 11 For the units that operate by means of contracting, leases and affiliation, the contractors, the lessees or the persons who are affiliated (hereinafter generally referred to as the contractors) conduct taxable activities where the contractors operate with other parties in the name of the employers, the lessors or the persons who affiliate others (collectively referred to as the employers) and the employers shall undertake the relevant legal liabilities, the employers shall be the taxpayers; otherwise, the contractors shall be taxpayers.

Article 12 The taxpayers for the business of central railway transportation shall be the Ministry of Railways. The taxpayers for the business of joint venture railway transportation shall be the joint venture railway companies. The taxpayers for the business of local railway transportation shall be the local organization for railway administration. The taxpayers for the business of provisional administration for infrastructure and route transportation shall be the organization for provisional administration for infrastructure routes.

Article 13 "Other charges" mentioned in Article 5 of the Regulations shall include handling fees, subsidies, funds, fund raising fees, profits returned, awarded fees, penalty for breach of contracts, overdue fine, interests of deferred payment, compensation, collection trusted, advance money for another, default interest and other sorts of charges, exclusive of the government funds or administrative charges collected on commission concurrently meeting the following conditions:

1. Government funds approved and established by the State Council or the Ministry of Finance and administrative charges approved and established by the State Council or the people’s governments and the competent finance and price authorities at provincial level;

2. Printed fiscal invoices by the finance departments at or above provincial level which are issued while collecting charges; and

3. All charges shall be fully handed in to the treasury.

Article 14 If the turnover amount of the taxpayers shall be deducted due to refund of price after the turnover has been computed to pay business tax, the paid Business Tax shall be refunded or deducted from future taxable Business Tax to be paid by the taxpayers.

Article 15 For the taxable activities of the taxpayers, if the cost and rebate are indicated in the same invoice, the turnover shall be the cost after rebate; and if the rebate is indicated in a separate invoice, the turnover shall not be deducted regardless of the accounting.

Article 16 Expect of the provisions of Article 7 of the Detailed Rules, for the taxpayers who provide construction services (excluding decoration services), the sales amount shall include raw materials, equipment for projects, other materials and power cost, exclusive of the cost of equipment provided by the construction party.

Article 17 The turnover amount of the entertainment industry is the overall price and other charges collected for operating the entertainment industry, including admission fees, seat fees, song fees, charges for wines and cigarettes, drinks, tea, flowers and snacks and other charges of operating the entertainment industry.

Article 18 The "trading of foreign exchange, securities, futures and other financial products" in Paragraph 4 of Article 5 of the Regulations refers to the trading of foreign exchange, securities, non-goods futures and other financial products undertaken by taxpayers.

Business Tax shall not be levied on commodities futures.

Article 19 The “vouchers (collectively referred to as lawfully valid vouchers) in compliance with the relevant provisions of the competent tax authorities of the State Council?in Article 6 of the Regulations refer to:

1. For payment to domestic units or individuals and the activities of the units or individuals belong to the scope of Business Tax or VAT, the invoices issued by the units or the individuals shall be the lawfully valid vouchers;

2. For the payment of administrative charges or government funds, the issued finance invoices shall be the lawfully valid vouchers;

3. For the payment to overseas units or individuals, the signed and accepted receipts by the units or individuals shall be the lawfully valid vouchers. In case of doubt on the signed documents, the tax authorities may require the confirmation issued by overseas notarization institutions; and

4. Other lawfully valid vouchers provided by the State Administration of Taxation.

Article 20 For the "obviously low price without proper reasons" of the taxpayers stipulated in Article 7 of the Regulations or the deemed taxable activities without turnover as specified in Article 5 of the Detailed Rules, the turnover amount shall be determined in the following order:

1. Assessed at the average price of the similar taxable activities of the latest period of the taxpayers;

2. Assessed at the average price of the similar taxable activities of the latest period by other taxpayers;

3. Assessed according to the following formula:

The turnover amount = business cost or project cost x (1+profit/cost ratio) / (1-Business Tax rate)

The profit/cost ratio in the formula is determined by the tax bureaus of provinces, autonomous regions and municipalities directly under the Central Government.

Article 21 For the turnover settled in the currencies other than Renminbi by the taxpayers, the Renminbi conversion rate of the turnover may be the medium price of Renminbi exchange rate on the day of the turnover arising or the first day of the month. Taxpayers should in advance determine the conversion rate to choose, and no change shall be made within one year.

Article 22 “Part of tax-exempt items" in Article 8 of the Regulations are limited as follows:

1. The "services "provided by the disabled individuals in Clause 2 of Paragraph 1 refers to the services provided by the disabled themselves for society.

2. The "schools and other education institutions" in Clause 4 of Paragraph 1 refer to ordinary schools and various schools approved and established by the people’s governments or education administrative departments of the same level governments at or above district or city level, the school records of whose students can be admitted by the state.

3. The "agricultural machinery cultivation" in Clause 5 of Paragraph 1 refers to the businesses of cultivation (including farming, planting, harvesting, threshing and planting protection) conducted in the agriculture, forestry and husbandry with agricultural machinery; irrigation refers to the business of irrigation or drainage of stagnant water for farmland; extermination of disease and insect pest refers to the business involved in prediction and report of insect pest and prevention and treatment of agriculture, forestry, husbandry and fishery; agriculture and husbandry insurance refers to the business of insurance provided for plants and animals in the plant industry, the farming industry, the husbandry industry; related technical training refers to the business related to agricultural machinery cultivation, irrigation and drainage, extermination of disease and insect pest and plant protection as well as the technical training business of rendering farmers to acquire knowledge of agriculture and husbandry insurance; and the tax-exemption scope of business involving mating and prevention and treatment of diseases for poultry, live-stocks and aquatic animals includes the business of providing drugs and medical instruments related to the services.

4.The "memorial halls, museums, houses of cultures, administrations of protected historic sites, art galleries, exhibition buildings, art museums and libraries hold culture activities" refers to the cultural activities held by these units in their own places, which belong to tax levy scope of culture and physical education industry. Their admission revenues refer to those gained at the first gate. Admission revenues gained in the culture and religion activities held in places of religious worship refer to the admission revenues in the culture and region activities held in temples, shrines, mosques and churches.

5. The "insurance to exported goods" include exported goods insurance and export credit insurance.

Article 23 "The minimum threshold of Business Tax levy" in Article 10 of the Regulations refers to the minimum threshold of the taxpayers?total turnover.

The applicable scope of the minimum threshold of Business Tax levy is limited to individuals.

The degree of the Business Tax levy minimum threshold is prescribed as follows:

1. For Business Tax paid according by term, the minimum threshold is RMB1000-5000 per month; and

2. For Business Tax paid by times, the minimum threshold is RMB100 of the turnover each time (daily).

The departments (bureaus) of finance and tax bureaus of provinces, autonomous regions and municipalities directly under the Central Government should, in accordance with the actual circumstances, determine the minimum thresholds suitable to local areas within the prescribed scope and make reports to the Ministry of Finance and the State Administration of Taxation for filing.

Article 24 The “business revenue items received" in Article 12 of the Regulations refer to the items collected during or after completion of the taxable activities of the taxpayers.

"The day of claiming receipt of business revenues" in Article 12 of the Regulations refers to the day of payment date in the written contract; and if there is no written contract or the written contract fails to determine the date of payment, it should be the day of completion of taxable activities.

Article 25 For the taxpayers who transfer land use right or sell immovable properties by prepayment, the time of taxable liability shall be the day of receipt of prepayment.

For the taxpayers who provide services of construction industry or leasing industry by prepayment, the time of taxable liability shall be the day of receipt of prepayment.

For the taxpayers who falls in the case that "immovable property or land use right is transferred to other units or individuals without compensation" in Article 5 of the Detailed Rules, the time of taxable liability shall be the day of transfer of ownership of immovable property or land use right.

For the taxpayers who are qualified for the "self-construction activities" in Article 5 of the Detailed Rules, the time of taxable liability shall be the time of tax payment liability for sale of self-constructed buildings.

Article 26 In accordance to provisions in Article 14 of the Regulations, if the taxpayers shall report for tax payment to the competent tax authorities where taxable services arise, land or immovable property is located, but fail to report tax payment within more than 6 months from the month when reporting on tax payment should be made, the competent tax authorities where their institutions are located or domiciled shall make up for the tax.

Article 27 The tax payment period of banks, finance companies, trust and investment companies, credit cooperatives and permanent representative offices of foreign enterprises is one quarter.

Article 28 The Detailed Rules shall take into effect as of January 1, 2009.

The Ministry of Finance

The State Administration of Taxation

December 15, 2008