General Regulations of P. R. China ⅩⅩ

CAI FA ZI [40] 1993.12.25

Article 1 These Detailed Rules were formulated on the basis of regulations in Article 26 of ''Provisional Regulations of the People's Republic of China on Business Tax" (hereinafter referred to simply as 'Regulations').

Article 2 'Taxable Services' in Article 1 of the Regulations refers to services within the scope of taxable items in the following industries: communication and transportation; construction; finance and insurance; post and telecommunications; culture and sport; entertainment; and services.

Processing, repair and replacement do not belong to the taxable services mentioned in the Regulations (hereinafter referred to simply as 'non-taxable services').

Article 3 'Foreign currency, negotiable securities and futures trade activity' in Item 5, Article 5 of these Regulations refers to the buying and selling of foreign currency, negotiable securities and futures by financial organizations (including bank and non-bank financial organizations). Non-financial organizations and individuals who buy and sell foreign currency, negotiable securities or futures do not pay the Business Tax levy.

"Futures" in Item 5, Article 5 refers to non-commodity futures; commodity futures are not subject to Business Tax levy.

Article 4 'Provision of taxable services transfer of intangible assets or the sale of immovable property' in Article> 1 of the Regulations refers to the activities of providing taxable services and the transferring, with compensation , of intangible assets or ownership of immovable property (hereinafter referred to simply as 'taxable activity'). However, 'taxable activity' does not include taxable services provided by the staff of units or individual employers to their own units or employers.

'With compensation' in the preceding paragraph includes receipt of money, goods and other economic benefits.

Units and individuals who sell new buildings they have constructed for themselves (hereinafter referred to simply as 'self-construction') will be treated as having provided taxable services.

The transfer to other parties of limited rights or permanent use rights on immovable property or the transfer of immovable property to others without compensation, shall be treated as sales of immovable property.

Article 5 A sales activity that includes both goods and taxable, services is considered a mixed sales activity. Mixed sales activity of enterprises, enterprise units of individual business operators engaged in the production, wholesaling or retailing of goods, shall be deemed to be sales of goods, and are not liable to Business Tax; the mixed sales of other units and individual shall be deemed to be provision of taxable services and will be subject to Business Tax. Whether or not a taxpayers sales activity belongs in the category of mixed sales will be determined by tax organizations authorized by the State Administration of Taxation.

'Goods' in paragraph 1 refers to tangible moveable goods including electricity, heat and gas.

'Enterprises, enterprise units or individual business operators engaged in the production, wholesaling or retailing of goods' in paragraph 1 includes enterprises, units of an enterprise nature and individual business operators engaged principally in the production, wholesaling and retailing of goods, and are also engaged in the provision of taxable services.

Article 6 Taxpayers whose business includes both taxable labour service and commodity trade or non-taxable labour service shall account separately the taxable labour service and the non-labour service or commodity trade. Where separate accounting is not done or cannot be done accurately, then both the taxable labour service and the non-taxable labour service or commodity trade will together be subject to Value-Added Tax, but not to Business Tax.

Whether or not a taxpayer's mixed sales activity which includes taxable labour service shall all be levied Value-Added Tax, shall be determined by Tax Collection Authorities under the jurisdiction of the State Administration of Taxation.

Article 7 If there is one of the following circumstances, then there has been the supply of taxable services, transfer of intangible property or sale of immovable property within the borders of the People's Republic of China (hereinafter referred to simply as 'within the borders') , as mentioned in Article 1 of the Regulations:

A. supply of services took place within the borders;

B. transportation of goods or people from within the borders to outside the borders;

C. organization of tourists within the borders to travel outside the borders;

D. use within the borders of transferred intangible property;

E. all immovable property sold is located within the borders.@@page@@

Article 8 A person in any of the following circumstances is supplying insurance services within the borders of China:

A. is an insurance organization in China which supplies insurance services, but not an insurance organization in China which supplies insurance services for export goods.

B. is an insurance organization outside China which uses domestic goods to value insurance services.

Article 9 The 'organizations' referred to in Article 1 of these Regulations are State- owned enterprises, collective enterprises, private enterprises, joint-stock enterprises, other enterprises and administrative organizations, institutions, military organizations, social groups and other organizations.

The 'individuals' referred to in Article 1 of these Regulations are individual households engaged in industrial or commercial activity and other individuals engaged in business activity.

Article 10 When enterprises lease or contract out their operations to others, the lessees or sub-contractors shall be the taxpayers.

Article 11 Unless stipulated otherwise in Article 12 of these Detailed Rules, organizations liable to Business Tax are those organizations engaged in taxable activities and who receive money, goods or other economic benefits from other parties; such organizations are included, whether they have independent business accounting or not.

Article 12 The taxpayer for central railway transportation business shall be the Ministry of Railways. The taxpayer for joint-venture railway transportation businesses shall be the joint-venture railway companies. The taxpayers for local railway transportation businesses shall be the local railway administrative organizations. The taxpayer for the provisional administration of infrastructure railway transportation shall be the organization for the provisional administration of infrastructure railways.

Organizations engaged in the business of waterway, air, pipeline and other forms of land transportation who are liable to Business Tax, are those organizations engaged in transportation-business and accountable for profit and loss.

Article 13 Charges made by legislative, judicial and administrative authorities which meet the following conditions will not be liable to Business Tax.

A. Charges permitted by documents of State Council, provincial People's Governments or their finance or pricing departments, and when the charges fall within standards prescribed in those documents.

B. Charges which are collected directly by the legislative, judicial and administrative bodies themselves.

Article 14 'Other charges' in Article 5 of the Regulations shall include handling fees, expenses, fund raising fees, payments received and made on behalf of others, and all other charges of any nature received from other parties.

All other charges shall be included in turnover in calculating tax payable, regardless of the methods of calculation stipulated in the accounting policy.

Article 15 Where the prices charged by the taxpayer for the supply of taxable services, transfer of intangible assets or sale of immovable property are obviously low and lack proper justification, the competent taxation authorities have the right to calculate the turnover using the following sequence of methods:

A. determine by using the average prices charged by the tax payer in the same month for similar services or immovable properties;

B. determine by using the average prices charged by the tax payer in the most recent period for similar services or immovable properties;

C. use the following formula to determine the assessable price:

assessable price = operating costs or project costs × (1+the cost plus margin ratio)÷(l - the Business Tax rate).

The cost-plus margin rate in the above formula shall be determined by the tax authorities under the People's Governments of the provinces, autonomous regions and municipalities directly under the Central Government.

Article 16 In accordance with the stipulation of Article 4 of the Regulations, taxpayers who calculate their turnover in foreign currency can choose to convert their turnover into Renminbi using the exchange rate quoted by the State on either the date the turnover occurs, or on the first day of the month (in principle the middle rate). However, the Renminbi conversion rate for the turnover of financial and insurance enterprises shall be the exchange rate determined in the previous year's financial statements.

Taxpayers decide in advance which conversion rate they choose to use, and, once selected, it cannot be changed for one year.

Article 17 The turnover of transport enterprises who engage in through transport activity shall be the actual income received.

'Other situations' in Item 6 of Article 5 of the Regulations includes tourist enterprises who organize tourist groups to travel within the borders of China; their turnover shall be calculated by subtracting, from the tourist fees received, the fees for accommodation, meals, transport, admission tickets and other expenses paid on the tourists' behalf to other units.@@page@@

Article 18 The turnover of taxpayers engaged in construction, repair and decoration project operations' should include the prices of all raw materials, other materials and energy used in the project, regardless of the methods used to settle accounts with other parties.

The turnover of taxpayers engaged in installation project work shall include the price of all equipment installed that has been made part of the total installation project cost.

Article 19 The turnover from 'self-construction activities' in Article 4 of the Detailed Rules shall be determined with reference to the stipulations of Article 15 of the Detailed Rules.

Article 20 ' Re-lending business' in Item 4 of Article> 5 of the Regulations refers to the business of lending borrowed fund to other business. The lending to others businesses of funds taken from deposits of units or individuals or from the lender's own capital shall not be regarded as re-lending activity.

Article 21 The turnover of an insurance business which reinsures with other parties shall be determined by subtracting the premiums paid to the re-insurer from the total insurance premiums received.

Article 22 The turnover of units or individuals providing entertainment performances shall be determined by subtracting the payments to units, entertainment companies or brokers who provide performance venues, from the total box-office or block-booking proceeds.

Article 23 The turnover of the entertainment industry shall be the various charges collected from customers in the entertainment operations, including box-office receipts, on-stage fees, song dedication fees, charges for cigarettes, liquor and drinks and any other items of income from the entertainment operations.

Article 24 The turnover of tourist businesses shall be determined by subtracting from the total charges received, payments made, on behalf of the tourists, to other units for meals, accommodation and transportation.

Where a tourism enterprise organizes a tour within the borders for tourists taken from another tourist group, its Business Income shall be determined according to Article 5, Item 2 of these Detailed Rules.

Article 25 The turnover of units who give immovable properties to others as a gift shall be determined in accordance with stipulations of Article 15 of the Detailed Rules.

Article 26 The scope of tax exempt items as stipulated in Article 6 of the Regulations is defined as follows:

A. 'services provided individually by the handicapped' in Paragraph 1, Item 2 refers to services provided to the public by a disabled individual;

B. 'medical services provided by hospital, clinics and other medical institutions' in Paragraph 1, Item 3 refers to services such as diagnosis and treatment of patients, prevention of epidemics , child delivery and family planning, as well as the medicines, medical apparatus, hospital accommodation and meals provided in relation to these services;

C. 'schools and other educational institutions' in Paragraph 1, Item 4 refers to ordinary schools and other schools of various kinds approved by People's Governments above the prefecture and city level, and educational administration departments under such Governments where academic qualifications of their students are recognized by the State;

D. 'agricultural machine ploughing' in Paragraph 1, Item 5 refers to the use of agricultural machinery in farming , forestry and husbandry (including ploughing, planting, harvesting, threshing and plant protection) ;

'irrigation and drainage' refers to the application of irrigation and drainage to farmland;

'prevention and treatment of diseases and insect pests' refers to the forecasting, prevention and treatment of diseases and insect pests in farming, forestry, husbandry and fishery;

'insurance for farming and husbandry' refers to the provision of insurance on animals and plants which are grown and raised in the planting, breeding and husbandry industries;

'related technical training' refers to technical training services related to agricultural machine ploughing, irrigation and drainage, prevention and treatment of diseases and pests, and plant protection, and also refers to services providing farmers with information on insurance for farming and husbandry;

the scope of the tax exemption for the raising of birds, livestock and aquatic animals and for disease prevention and treatment services includes the medicines supplied and the medical treatment services relevant to the labour services in this Item;

E. 'cultural activities held by memorial halls, museums, cultural centres, art galleries, exhibition halls, academies of painting and calligraphy, libraries and cultural protection units' in Paragraph 1, Item 6 refers to cultural activities held by these organizations in their own area and that fall within the scope of taxable items in sport and culture activity; the admission fees are the box -office receipts received at the point of first entry;

'admission fees charged for cultural and religious activities held at places of religious worship' refers to cultural and religious activities held by temples, Taoist temples, mosques and churches.

Article 27 The scope of application of the Business Tax minimum threshold referred to in Article 8 of the Regulations shall be limited to individuals.

The ranges of the Business Tax minimum thresholds are stipulated as follows:@@page@@

where assessment is made by time period, the minimum threshold shall be a monthly turnover of 200-800 yuan;

where assessment is made by transaction, the minimum threshold shall be a turnover of 50 yuan per transaction (or per day);

where a taxpayers turnover reaches the minimum threshold Business Tax shall be based on the total amount of turnover.

Tax authorities under the People's Government in the provinces, autonomous regions and municipalities shall determine the minimum threshold in accordance with actual local conditions and within prescribed ranges, and should report the amounts to the State Administration of Taxation.

Article 28 Where taxpayers transfer land use rights or sell immovable property and accept payment in advance, tax liability occurs on the date on which the advance payments were received.

Where taxpayers carry out self-construction activity as referred to in Article 4 of the Detailed Rules, tax liability occurs on the date on which the self-constructed buildings are sold and the turnover received or on the day when documented evidence of the right to collect the turnover is received.

Where taxpayers give immovable property to others as a gift, tax liability occurs on the date on which title to the immovable property is transferred.

Article 29 'Other withholding agents' referred to in Article 11 are stipulated as follows:

A. When overseas organizations or individuals have taxable activities within the borders but have not established an administrative organization, their tax-paying agent shall act as their withholding agent. If they do not have an agent, then the transferees or the purchasers shall act as their withholding agent.

B. When units or individuals put on performances for which the tickets are sold by others, then the ticket sellers shall act as their withholding agent.

C. When a performance manager is an individual, then the ticket sellers shall act as withholding agents for his performance management business.

D. When insurance is sub-contracted, the original insurer shall act as withholding agent.

E. For the individuals transferring other intangible assets referred to in Article 12, Item 2 of these Regulations, the transferee shall act as withholding agent.

Article 30 Where taxpayers have provided taxable services in another county or city and should report and pay tax to that county or city taxation authorities, but have not reported or paid the tax, the taxation authorities where the organization is located or where the taxpayer resides, shall collect the overdue tax.

Article 31 Where taxpayers have undertaken projects which straddle provinces, autonomous regions and municipalities directly under the Central Government, shall report and pay tax to taxation authorities in the locality where their organization is located.

Article 32 Where taxpayers who have taxable activity within their own province, autonomous region or municipality directly under the Central Government, and need to change the location where they pay their tax, the taxation authorities in the province, autonomous region or municipality where the taxpayer resides shall determine the new location for paying tax.

Article 33 The assessment period for the finance industry (excluding pawn-broking) shall be three months.

The assessment period for the insurance industry shall be one month.

Article 34 "More than" and "Less than" in these Detailed Rules include both the number or level mentioned.

Article 35 These Detailed Rules shall be interpreted by the Ministry of Finance or by the State Administration of Taxation.

Article 36 These Detailed Rules are effective as of the date of their implementation. The "Detailed Rules for the Implementation of Regulations of the People's Republic of China on Business Tax (Draft)" issued by the Ministry of Finance on September 28, 1984 , at the same time, is annulled.

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