Guide for Taxpayers in ShanghaiⅡ

I. Applicable Tax Items

(I).  Tax Items in China

China has by far collected 24 types of taxes, namely: value added tax, consumption tax, business operation tax, enterprise income tax, income tax for foreign invested and foreign enterprises, personal income tax, resources tax, city and township land tax, city construction maintenance tax, tax on land occupation, tax on fixed assets investment (currently cease to collect, similarly hereinafter), land increment tax, housing tax, city real estate tax, automobile and vessel usage tax, license tax for vehicle and vessel, vehicle purchase tax, stamp tax, deed tax, animal slaughter tax, entertainment tax (not yet collected in Shanghai), agricultural tax, animal husbandry tax and tariff.

(II).  Tax Items Applicable to Chinese Citizen as An Individual

There are mainly 10 types of tax that are applicable to Chinese citizen as an individual, namely, personal income tax, stamp tax, housing tax, business operation tax, vehicle purchase tax, automobile and vessel usage tax, land increment tax & agricultural tax (agricultural specialty duty), tax on land occupation and deed tax. Basically these tax items will be collected and managed by the local taxation authorities, while agricultural tax (agricultural specialty duty), tax on land occupation and deed tax will be collected and managed by financial departments of all levels of municipal governments. Furthermore, passengers who enter China should pay import tax to the Chinese Customs for their luggage, delivered personal possessions and other personal belongings.

(III).  Tax Items Applicable to The Operation of Chinese Enterprises

　A. Industrial and commercial enterprises should pay value added tax;

　B. Enterprises in the fields of communications, construction & installation, finance and insurance and service should pay business operation tax;

　C. Agricultural producers should pay agricultural tax (agricultural specialty duty);

　D. Profit making enterprises should pay enterprise income tax; producers of taxable consumer goods should pay consumption tax;

　E. Enterprises engaged in the mining industry should pay resources tax;

　F. Enterprises investing on fixed assets should pay fixed asset investment orientation adjustment tax (this type of tax is now suspended);

　G. Enterprises should pay stamp tax for business accounting books and all types of contracts;

　H. Enterprises should pay real estate tax, vehicle purchase tax and automobile & vessel usage tax for the housing, automobiles and vessels.

(IV).  Tax Items Applicable to Foreign Invested and Foreign Enterprises in China

There are 14 types of tax applicable to foreign invested and foreign enterprises in China, namely, value added tax, consumption tax, business operation tax, vehicle purchase tax, income tax on foreign invested and foreign enterprises, resources tax, land increment tax, city real estate tax, license tax for vehicle and vessel, stamp tax, animal slaughter tax, agricultural tax (agricultural specialty tax), deed tax and tariff.

Enterprises developed by citizens of Hong Kong, Macao & Taiwan and overseas Chinese belong to the category of foreign invested and foreign enterprises.

II. Confirmation Procedures for General VAT Taxpayers
 
Commercial enterprises with a VAT annual taxable sales volume of or above 1,800,000 RMB or non-commercial enterprises with an annual taxable sales volume above (including) 300,000 RMB and with a sound financial settlement system can be identified in principle as general VAT taxpayers.

Commercial enterprises refer to those enterprises, units and individuals specializing in wholesales or retails of commodities and those enterprises, units and individuals engaged mainly in wholesales and retails and concurrently in production or provision of taxable labor services.

Being engaged mainly in wholesales and retails of commodities means that the sales volume of the business should account for more than 50% of the total sales volume taxable for VAT.

Generally speaking, newly established enterprises should applying for identification after a half-year of formal operation, and the tax authority is to examine and confirm if it is qualified as a general taxpayer in terms of its sales volume and its account settlement. Newly established enterprises with large investment, high predicted sales volume, great financial strength and individual financial and accounting department can be temporarily identified as general taxpayers. After a one-year operation, taxpayers should apply for the identification formalities following the verification procedure of their actual annual taxable sales volume.

(I).  Enterprises should submit their written applications and provide the following documents and information:

　A. business license;

　B. relevant contracts, articles of association and agreement;

　C. certificate of bank account;

　D. other related certificates and materials demanded by the tax authority.

(II).  the tax authority conduct initial examinations of the applications and related certificates and materials submitted by enterprises and return the materials to taxpayers if their applications are denied. If approved, taxpayers shall be given the form of Application for Identification of General VAT Payers.

(III).  Taxpayers should faithfully fill in the form of Application for Identification of General VAT Payers and then submit it with related certificates and materials to the tax authority for examination and approval.

III. Annual Qualification Inspection on General VAT Taxpayers

It is applied to those taxpayers who have been identified as General VAT Taxpayers before each March 1st or the annual inspection prescribed by the taxation administration.

(I).  A general taxpayer should obtain a Verification Form of Application for Annual Inspection from the tax authority and fill in the form item by item and then affix his/her seal or signature.

(II).  Taxpayers shall submit the completed form to taxation authorities and provide the following materials:

　A. state taxation registration (duplicate);

　B. annual financial settlement statement;

　C. use of VAT special invoices (annual consolidated report);

　D. other materials required by competent taxation authorities.

(III).  The tax authority shall examine the form of Verification of Application for Annual Inspection and other mentioned materials submitted by taxpayers as regulated and conclude the annual inspection, which should be reported to taxpayers in written form. The tax authority should return the form of Verification of Application for Annual inspection, the duplicate of state taxation registration, the annual financial settlement statement and other materials to general taxpayers.

(IV).  General taxpayers qualified for annual inspection shall go to the tax authority with the Notice of Qualification for Annual Inspection to General VAT Taxpayers of Shanghai, the duplicate of state taxation registration and the Book for Printing and Purchasing Invoices. The tax authority will affix the mark of "Qualified in Annual Inspection on General VAT Taxpayers of Shanghai (Year ####)" on the above-mentioned registration and book.

IV. Taxation Declaration

Taxpayers are those organizations and individuals with tax-paying obligations prescribed by laws and regulations.

Withholding agents are those organizations or individuals with obligations of withholding or collecting taxes prescribed by law or regulations.

(I).  Taxpayers and withholding agents must attend to tax declaration and report to the tax authority or submit tax withholding, tax collection and payment reports and tax returns before the deadlines set by the tax authority.

(II).  Taxpayers should fill in the tax return form on the basis of the actual facts and present the following certificates and documents as required:

　　1. financial and accounting statements and explanatory materials;

　　2. contracts and agreements related to tax payment;

　　3. tax administration certification for business outside the operation area;

　　4. related certifying documents issued by a notary public office within the territory of China and without;

　　5. other related certificates and materials required by tax institutions.

(III).  When filing tax withholding or tax collection and payment reports, withholding agents should fill in corresponding tax returns, present tax withholding, collection and payment reports truthfully and submit valid vouchers and other related certificates and documents required by the tax authority concerned.

(IV).  The tax authority concerned shall examine all tax returns, tax withholding, tax collection and payment reports and the attached statements, to make sure the accuracy of the data.

For tax declarations made by taxpayers or withholding agents within the specified time limit, the tax authority shall collect the declarations and provide initial examinations, and shall issue tax payment certificates according to the amount of payable tax declared by the taxpayers and retain the right to post-event examinations. In case of a tax declaration not in conformity with relevant regulations, the tax authority should point out the mistake and demand a new declaration.

Taxpayers and withholding agents should present written applications to the tax authority concerned for a postponement if they are not able to submit a tax return or submit tax withholding and tax collection and payment reports in time, and the tax authority should examine these documents to decide whether the application should be approved.

If the tax declared by taxpayers demonstrates an obvious low without justifiable reasons, or in any other situations, the tax authority should ratify the amount payable according to the law.

V. Procedures for Shanghai Taxpayers Operating Business outside the Municipality

Taxpayers, who are going to take up producing and operating activities in districts or counties outside Shanghai, should apply to their local taxation authority for issuance of the taxation administration certificate for their operating activities, with which taxpayers may then register in the tax authority of the location where operations are going to take place, and receive taxation administration.

VI. Management of Fixed Terms and Norms

Fixed terms and norms are tax collecting methods adopted by the tax authority, in accordance with laws and regulations and following certain procedures, to verify taxpayers' taxable turnover and incomes achieved in a specified operating period, on the basis of which tax payables (including VAT, consumption tax, business operation tax and income tax, etc.) may be decided. This method applies to individual industries and commercial operators who, after being verified by the competent tax authority and acquiring approval of tax authorities above the county level, need not set up accounts or may postpone the setup because of the small-scale production & operation and the inability to establish accounts.

Verification of the norms is the responsibility of the tax authority. In accordance with the categories for the management range of tax payment, taxable turnover of the taxpayers who adopted the above-mentioned method and who should pay VAT and consumption tax will be verified by SAT, while taxable turnover and income or additional tax rates of the taxpayers who should pay business operation tax will be verified by local tax authorities.

　A. Verification Procedures

Procedures for norm verification by the tax authority should be gone through as follows:

　　1. taxpayers' declaration

　　2. typical investigation

　　3. norm verification

　　4. norm release

Tax authorities above the county level can, with consideration upon the local conditions, decide the levels of taxpayers with the fixed term and norm and the minimum norm for each level, according to different trades and areas.

Verifications can be transacted every 3 months, 6 months or 1 year, decided by local tax authorities.

Taxpayers with the fixed terms and norms, whose operating conditions have undergone such a big change as it would affect the tax payment of taxpayers according to the former norms, can apply to the tax authority for norm modification. The tax authority should, within 30 days after the collection of the application, investigate and verify it, and make decision according to the actual conditions.

　B. Taxation Administration for Taxpayers with Fixed Terms and Norms

Special rules are set for taxation administration for taxpayers with fixed terms and norms:

　　1. Taxpayers should, according to regulations, establish the Balance Voucher Sticking Book and the Purchases and Sales Registration Book, and preserve the whole set of related tax payment documentation as well.

　　2. Taxpayers, who have opened taxation deposit account in a bank, should deposit, punctually and in advance, savings not less than the current tax payables

　　3. Taxpayers, who are going to change the range, method and address of the operation, should, along with related licenses, report to the tax authority for going through procedures for norm modification, verification, re-adjustment and other related procedures.

　　4. Taxpayers, who plan to terminate the operation or close the business for the moment, should bring forward written applications, within 7 days prior to the termination or close, to the tax authority in charge. The latter need to respond, within 5 days after receiving the application, to the applications, and meanwhile balance and settle tax payment, retract unused invoices and take back related licenses and account books.

In the case of termination or close of business, the tax authority should inspect business locations regularly. If the termination or close is found fake, taxpayers should pay off the tax payable according to regulations, and be punished as tax evasion.

Taxpayers, who want to resume the operation to or ahead of the termination or closing terms, should report to the tax authority with written applications, within 5 days prior to resuming the operation. Taxpayers, who need a prolong of the termination or closing term for special reasons, should, within 5 days prior to the resumption, apply to the tax authority and extend the terms after acquiring approval.

　　5. Taxpayers, whose actual turnover in the verified period is higher than the tax authority' verified norm by 20%-30% (the actual percentage is decided by tax authorities of province level according to local conditions), yet do not report to the tax authority for norm modification, should be dealt with as tax evasion.

VII. Export Tax Rebate/Exemption Declaration

Export tax rebate/exemption declaration refers to a legal obligation and procedure that the export enterprises, after exportation being applied to customs and sent abroad and being dealt with as export sales in finance, are entitled to, in accordance with regulations and requirements for export tax rebate/exemption, apply to the import and export tax collection administrative offices, against related tax rebate/exemption vouchers, for tax rebate/exemption regularly. It is an evidence for the tax authority to verify, approve and handle tax rebate/exemption. Currently Shanghai adopts two methods: one is the computer-based declaration, the other is paper based. Normally each export enterprise will declare once a month.

(I).  Documentary Evidences below Should Be Provided for Export Tax Rebate Application:

Enterprises, who want to apply for export tax rebate/exemption, should report to competent offices of MOFTEC, with related evidences, for verification and approval, and then apply to the tax authority dealing with export tax rebate/exemption for tax rebate.

　A. Applicants should buy special VAT invoices (offset fold) for imports & exports or general invoices, as well as provide the Tax Payment Ticket for Exports Only (referred to as the “specified tax ticket” in the ensuing passages) issued by export factories concerned and with seals and signatures of the tax authority and banks (the Treasury).

　B. The special VAT invoices (offset fold) provided should be stamped with the state unified invoices supervising seal issued by SAT and the supplier's special invoices seal or special finance seal. The taxable items on the special invoices should be filled in without items crossing, figures overlapping the form or any other alterations, or it will be treated as invalid.

Applicants should buy the “specified tax ticket” or the “duty paid split form for exports ” (referred to as the “split form” in the following passages).

　C. The Export Customs Form (export tax rebate fold) should be stamped with the customs “Examined” seal and signed by customs officials in charge. Items on the form should be filled in according to the requirements and without any alterations.

　D. Applicants should provide the Clearance Form of Received Foreign Currencies for Exported Goods (export tax rebate fold).

　E. Applicants should provide invoices for export sales, which should contain detailed information, such as the contract number or order number, name of the goods, size, weight, unit price, measurement, total amount, means of transportation, places of departure and arrival, signature or seal of the consignor, and etc..

　F. Applicants should provide subsidiary accounting books for export sale for verification, if needed.

(II).  The form of Received Foreign Currencies for Exported Goods need not be provided when:

　A. exports in barter trade and compensation trade;

　B. exports for foreign projects contracted with domestic companies;

　C. exports with forward drafts that haven't expired, and that are planned and approved by the MOFTEC offices in each province, autonomous region, administrative city and city directly under the central government;

　D. goods purchased by domestic enterprises and delivered abroad as investments outside China.

If goods are sold in China yet are paid for with foreign currencies, the sum of money cannot be included in the export foreign exchange that is rebatable.

(III).  When export enterprises are applying to the competent tax authority for tax rebate of the goods with special approval for the rebate, they should also provided other related documentation listed below, apart from the evidences already mentioned above:

　　1. For goods sold by companies that supply services to foreign ships and companies that supply long distance shipping services, to foreign ships and Chinese ocean ships, valid invoices issued should be signed by captains of the purchaser, as well as consist names of the goods, amount and sales.

　　2. elated contracts of foreign projects contracted with domestic companies should be provided, if regarding equipment, raw materials and constructing machines utilized in the projects, and are delivered abroad by the construction companies concerned.

　　3. Concerning goods purchased in China and delivered abroad as investments outside China, documentary evidences (photocopy) for overseas investment approved by MOFTEC and its authorized organizations should be provided, along with the duplicate of the enterprise registration certificate and related contracts, issued by foreign countries.

　　4. Export enterprises for supporting foreign countries, that are entitled to utilize the Chinese government's preferential loans for foreign assistance and the cooperative projects funds, should provide the photocopies of the documentary approvals issued by MOFTEC (the Assignment Book for Supporting Foreign Countries) for using the preferential loans or the cooperative funds, and the photocopies of the Agreement Concerning the Preferential Loans for Supporting Foreign Countries authenticated by the Chinese Import & Export Bank or the photocopies of the Borrowing Contract of the Joint Investments and Cooperative Projects Funds for Supporting Foreign Countries authenticated by related offices of MOFTEC.

　　5. Enterprises that are engaged in overseas processing and installation with materials should provide the photocopies of the Certificate for Enterprises Engaged in Overseas Processing and Installation with Materials issued by MOFTEC

　　6. Enterprises whose mechanical and electronic products have won bids inside China by way of international bidding and with loans released by foreign governments or international financial organizations, should provide the Notice for Bid-Winning Certificate filled out by the China National Bidding Company or other bidding organizations inside China, and issued by the competent tax authority of the bid-winning enterprises

When applying for export tax rebate, domestic invested and foreign-invested enterprises should provide not only the evidences mentioned above, but also the below listed statements:

the subsidiary and the consolidated forms of Export Tax Rebate/Exemption Declaration;

the form of Input Tax Declaration for Export Enterprises' Goods Sold Abroad (the form of Input Partition for Export Enterprises' Goods Sold in China and Abroad from July 1995), and

the form of VAT Declaration.

VIII. Invoice Control

(I).  Application for the Invoices Purchase and Printing Book

Taxpayers should register with the tax authority under legal procedures and hold effective taxation registered certificates.

For those who purchase the special VAT invoices, they should be deemed as the general VAT payers by the tax authority in charge

　A. Taxpayers should receive the application form for the Invoices Purchasing and Printing Book against the duplicate of the taxation registration certificate.

　B. Taxpayers should fill in the application form, send it to the taxation office in charge, along with the identification evidence for the representative of the applicants and the print of special invoice seals.

The tax authority in charge will complete the verification procedure in ten working days upon receiving registration forms. Only applications that are in accordance with related regulations will be processed.

(II).  Application for Invoice Purchase

Taxpayers with lawful, valid Invoices Purchase and Printing Book may apply; the representative should produce identification evidences.

　A. Taxpayers should receive the application form for Purchasing the Standard Invoice as well as the form for Purchasing the Special VAT Invoices from the tax authority (hereafter referred as the two forms).

　B. Taxpayers should fill in the two forms, send them to the tax authority in charge, along with the Invoice Purchase and Printing Book.

　C. The tax authority will make verifications upon the above-mentioned documents submitted by the taxpayers.

　D. In case of taxpayers purchasing special VAT invoices, the tax authority in charge should temporarily hold back the Invoices Purchase and Printing Book at the time of selling invoices to the taxpayers. The book will not be returned until all the VAT invoices are stamped with the supplier's seal and verified by the tax authority.

　E. Units or individuals using special VAT invoices should designate an exclusive person to make the invoice purchase. No changes of the designated personnel can be made without the permission of the tax authority in charge. Where changes are necessary as a result of job change of the designated person or in similar special circumstances, necessary procedures should be followed in time.

(III).  Application for Printing Invoices

Taxpayers with lawful, valid Invoices Purchase and Printing Book may apply; the representative should produce identification evidences.

　A. Taxpayers should submit written application for invoice printing to the tax authority in charge.

　B. Taxpayers should receive and then fill in the Application Form for Printing the Unified Invoices of Shanghai against the Invoices Purchase and Printing Book and identification evidence of the representative of applicants, along with two samples of the invoices to be printed. The sample invoices shall including the following items:

　　1. Names of the units, trail number, the sequence and functions of invoice folds, name of the clients, name of the opening bank as well as the account number.

　　2. Names of commodities (or types of business), the measurement of commodities, the amount of commodities, price per unit, the total value of commodities (both in numbers and in Chinese characters), invoice issuer, invoice issuing date, stamps of the unit (individual). 

　C. The above documents shall be examined by the tax authority in charge and only applications in accordance with relevant regulations shall be processed.

(IV).  Other Items

　A. Safekeeping of Invoices

Safekeeping by specially assigned persons: the invoices should be preserved by administrative with special assignment.

Safekeeping in specified cabinets: the unified invoices should be kept in specified cabinets, while VAT invoices should be preserved in a safe.

Safekeeping with fixed terms: invalid invoices should be kept without omission; the documentation folds of issued invoices should be preserved for 5 years, and be destroyed after the verification and the approval of the tax authority in charge.

　B. Utilization of Invoices

Stamping of seals: the invoice fold, the VAT invoice fold and the offset fold should all be stamped with the special invoice seals of taxpayers. 

Exclusive utilization: invoices may not be lent to others, or issued for others.

Separate utilization: invoices should be utilized within their specified fields.

Sequential utilization: invoices should be used following their numeral orders. Starting from the middle of a book of invoices or using in a skipping way is not allowed.

It is to be noted that invoices shall bear clear handwritings, and without any alterations .

　C. Protective Tax Control for Special VAT Invoices

General taxpayers, who are not included in the protective tax control system for special VAT invoices, should, at the request of the tax authority, go through procedures for joining the protective tax control system for special VAT invoices. The procedure runs as follows:

notice to taxpayers by the tax authority → verification of the limits of authority for invoice issuance regarding each taxation bureaus/sub taxation bureau→ verification by the municipal tax authority → unified training organized by the municipal tax authority → issuance of the golden tax card and IC after passing the test at the end of the training → installation and testing of the system → issuance of invoices

　D. Annual Verification of Invoices

　　1. Objects for Annual Verification: taxpayers who purchase and use special VAT invoices and have acquired the state taxation registration certificate and the chartered taxation registration certificate, as well as taxpayers who purchase and use general invoices and have acquired the state/local taxation registration certificate and the chartered taxation registration certificate shall go through the annual verification.

　　2. Items of Annual Verification: the following items should be examined to see if there is any difference from the actual situations: taxpayers' name; taxation registration number; taxation administration code; legal persons or persons bearing responsibility; the number of the Invoices Purchase and Printing Book; types of business; industrial and commercial registration numbers; scopes of business; address and telephone numbers; official seals or personal seals/signatures; special seals for invoices issuance; names and ID numbers of invoices purchasers; types and amount of invoices to be printed with approval.

　　3. Verification seal should be stamped if the taxpayer passes the annual verification.

　E. Other Requirements for Invoice Management

　　1. Basic Items of Invoices

An invoice should include the title of the invoice, trail number, number function of each fold, title of the client, name of the opening bank and account number, names of commodities or types of business, the measurement of commodities, the amount of commodities, unit price, the total value of commodities (both in numbers and in Chinese characters), names of invoice issuers, date of issuance, titles of the organizations or names of the persons who issue the invoice and their seals or signatures.

In case of tax withholding & remittance, tax collection & remittance, and commissioned tax collection, the voice should also contain the rate and the sum of taxes withheld, remitted or collected through commission.

A special VAT invoice should include the commodity purchaser's address, taxation registration number, VAT tax rate and sum, the supplier's name, address and taxation registration number.

　　2. Folds of Invoices

Basically an invoice should consist three folds. The first is the proof fold, taken as the proof for verification; the second is the invoice fold, kept by the receiver as the original evidence for payment; the third is the accounting fold, kept by the issuer as the original evidence for accounting purposes.

A special VAT invoice should also contains an offset fold, kept by the receiver of the invoice as the evidence for setting off the input tax.

　　3. A part of general VAT taxpayers of Shanghai will use special VAT invoices with a face value of 1,000 RMB.

In order to tighten up the management of special VAT invoices, the Shanghai Municipal Government (SMG) decides to introduce special VAT invoices with a face value of 1,000 RMB into use since July 1st 1999. Enterprises that use special VAT invoices with face values of 10,000 RMB and 100,000 RMB, and computer based VAT invoices are obliged make settlement and clearance of these VAT invoices, and a part of general VAT taxpayers will use special VAT invoices with a face value of 1,000 RMB in stead of the old invoices.

Users of special VAT invoices with a face value of 1,000 RMB are as follows:

　　　(1). Non manufacturing enterprises/centers/groups at community level, sub-community level, township and village level, and enterprises affiliated to schools, civil welfare enterprises, private enterprises and household businesses whose domiciles are outside Shanghai;

　　　(2). Small enterprises mainly engaged in commodity production with annual sales below 1,000,000 RMB;

　　　(3). Enterprises purely engaged in the retailing business of general merchandise, clothes and hardware;

　　　(4). Enterprises that deal with commodities with unit price below RMB10,000, and whose 50% of invoices issued every month are below 10,000 RMB per piece;

　　　(5). Newly established enterprises that are confirmed temporarily as general VAT taxpayers by the tax authority should use special VAT invoices with a face value of 1,000 RMB within the first 3 months of their business operations. After 3 months, these enterprises will be verified to see if they have the right to use special VAT invoices with a face value of 10,000 RMB;

　　　(6). Enterprises that had misconducts in using special VAT invoices before May 1999 yet have not been deprived of the title of general VAT taxpayers.

　　4. Invoice Utilization and Safekeeping

If organizations or individuals should receive money for selling merchandises, providing labor services or engagement in other operating activities, the payee should issue invoices to the payer. Under special circumstances, such as when purchasing organization and withholding agents make payments to individuals, the payer should issue invoices to the payee.

When issuing invoices, the issuer should, according to the specified terms and orders, truthfully and orderly fill in all folds of the invoices, and stamp them with the issuer's financial seal or the special invoice seal.

Approval must be obtained from the tax authority if computers are to be employed to issue invoices. Taxpayers must use the standard invoice produced under the monitoring of the tax authority, and the proof fold must be compiled in their natural numeral order after issuance.

If commodities are returned to the supplier after the issuance of invoices, and hence there arises the need to issue invoices in red character, the issuer should take back the original invoice and stamp a “cancelled” seal on it, or obtain valid documentary evidences from the payer. If the sale is made with discount, the issuer should stamp the returned invoice as “cancelled”, and then issue a new invoice.

Taxpayers, organizations and individuals alike, should issue invoices within the range of the province (autonomous region, municipality directly under the Central Government) where their businesses are registered. Trans-regional carrying, mailing and delivering of blank invoices without approval are forbidden. Cross-border carrying, mailing and delivering of blank invoices are strictly forbidden.

No organization and individual has the right to lend or transfer invoices to others or issue invoices on behalf of others. Without the approval of the tax authority, the issuer should not start using a book of invoices against its numeral order, or extend the usage range of special invoices.

Organizations and individuals that issue invoices should set up rules for the safekeeping and the management of invoices, prepare invoice registration books, and report to the tax authority regularly. Invoices should be kept and managed in accordance with rules established by the tax authority, and should not be lost or destroyed without permission. If invoices are missing, organizations and individuals should report to the tax authority on the day when they are lost, and announce the invalidity of the lost invoices on newspapers, TV, or through other means of media. Proof folds and registration books of issued invoices should be kept for 5 years, before being destroyed with the verification of the tax authority. In the course of modifying or canceling taxation registration, taxpayers should also go through the procedures of modifying or canceling the Invoices Purchase and Printing Book.

IX. Categorized Management Based on Credit Rating of Taxpayers

(I).  The tax authority will, based on the evaluation of the taxpayers' compliance with tax laws & regulations and their fundamental financial management, categorize taxpayers into three (A, B, C) types, and provide three types of management accordingly.

(II).  The categorized management of taxpayers is based on the principles of openness, impartiality and fairness. The Shanghai municipality will undertake unified rating standards and management measures for the categorized management.

(III).  The categorized management will be both static and dynamic. The credit rate of taxpayers will be adjusted timely, according to taxpayers' records of violating tax laws and regulations in business operations.

(IV).  In addition to the regular tax collection and management system, the tax authority carries out different management measures to taxpayers according to their credit rates, in such areas as tax investigation, services and facilities, annual verification for the taxation registration certificate, general taxpayers' annual qualification verification, tax declaration, tax payment and remittance, invoices supply and export tax rebate.

Taxpayers, who simultaneously conform to the requirements listed below, will be categorized as type A and implemented with type A management:

　A. Taxpayers who have been operating business consecutively for 2 years, and are rated as "qualified" in the annual taxation registration verification;

　B. Taxpayers, in 2 consecutive years, whose tax declaration rate reach 100%, with a tax declaration accuracy rate over 95%, and who are able to provide tax declaration forms, financial and accounting statements and other related tax payment documentation at the request of the tax authority;

　C. Taxpayers who, in 2 consecutive years, are clear of any delay in tax payment;

　D. Taxpayers who, in 2 consecutive years, are clear of any records of tax evasion, tax fraud or tax defiance;

　E. Taxpayers who, in 2 consecutive years, are clear of any defraud or suspicion of defraud in export tax rebate;

　F. Taxpayers that compile and submit financial & accounting statements in time, whose financial & accounting documentations are authentic and complete and of high quality, whose department of finance and accounting has at least one specialist with the professional title of or above “accountant” and full-time representatives dealing with tax issues, or, when approved by related functional offices, has one specialist with the professional title of or above “accountant” engaged in commissioned accounting;

　G. Taxpayers that allocate ad-hoc staffs for the safekeeping and issuance of special VAT invoices or general invoices, that utilize special VAT invoices and general invoices in accordance with regulations, and that in 2 consecutive years, are without any misconduct in the utilization of invoices.

The “2 consecutive years” mentioned in the above items refers to the two years backward from the day taxpayers' applications are accepted by the tax authority. Taxpayers, who have violated taxation laws and regulations two year before and, till the day of delivering the application, have not close the case, are not entitled to apply for the type A management.

(VI).  Taxpayers, who confirm to any of the situations listed below, will be rated as type C and implemented with type C management:

　A. Taxpayers who, in 3 consecutive months within one year, do not carry out tax declaration according to related regulations without justifiable reasons;

　B. Taxpayers whose tax declaration rate is below 90%, tax declaration accuracy rate is below 70%, and whose timely tax payment rate is below 80% within one year.

　C. Taxpayers who, within one year, have violated laws and regulations, and have been imposed administrative penalty more than twice by the tax authority;

　D. Taxpayers who, within one year, have committed tax evasion, tax fraud or tax defiance, and have been transferred to the criminal court, according to the law, for endangering taxation collection management;

　E. Taxpayers with rather disorderly accounting systems, unfaithful and incomplete accounting data, who have not, according to the requirements of related laws and regulations, compiled and submitted financial statements in time, who have not passed the standardized inspection of basic accounting works, and who have hired financial and accounting specialists against the regulations of the Accounting Law;

　F. Taxpayers who have safe kept and utilized special VAT invoices against related regulations. 

The “within one year” mentioned above refers to the one year backward from the day when the verification of taxpayers' credit rate management is transacted by the tax authority.

(VII).  Taxpayers can be temporarily categorized as type B taxpayers and administrated with type B management if they do not fit in the standards of type A taxpayers nor have experienced the situations listed in the category C items, and who, at the same time, are able to abide by the law with self-discipline on the whole, make tax payment according to relevant regulations, compile and submit financial statements in time with basically faithful and complete materials and an accounting system of fine quality, and who have no records of violating financial laws or regulations.

(VIII).  Taxpayers, when applying to the tax authority for the type A taxpayer management, should hand in written application forms together with the following documents and materials:

　A. Tax registration certificates, business licenses or the duplicates and photocopies of similar valid documents from other functional offices in charge;

　B. Original copies and photocopies of the qualification confirmation certificates for the professional accountant working for the taxpayer;

　C. Self-evaluation reports made by the taxpayers in the light of the conditions listed in the Category A items.

(IX).  The following management is administrated for category A taxpayers:

　A. Taxpayers are exempted from the tax registration certificate annual verification, the annual verification of VAT taxpayer qualification as well as routine or specific tax inspections (except for specific tax check-ups arranged by MOF or SAT) for the present year and the year follows.

　B. Special windows are opened in the service hall of the tax authority, providing preferential services of tax-related issues to category A taxpayers such as tax declaration, invoice purchase and the authentication of special VAT invoices.

　C. Category A taxpayers, when making tax declaration within the regulated term, can deliver tax declaration forms and related materials directly to the prescribed tax offices. The tax offices will finish all the procedures on the spot and make examination works afterwards.

　D. After receiving tax declaration forms and related materials, the tax authority will issue tax payment notice with the sum of tax payable declared by taxpayers, who will then pay the tax by themselves. Those who have difficulty in paying the tax in conformity to relevant terms can apply to the tax authority and delay the payment no later than three months after being approved by the tax authority.

　E. Taxpayers can apply for the supply of special VAT invoices and the tax authority will examine and decide the supplying quantity of each time within the limits of their authority on the basis of actual needs. Common invoices can be provided in accordance with actual demands.

　F. Taxpayers who have not only acquired import & export operating qualifications but also transacted export rebate registrations can be also granted the export rebate type B taxpayer qualifications in accordance with relevant regulations for the priority enjoyment of various preferential policies concerning export rebate.

(X).  The following management will be administrated for category C taxpayers:

　A. Routine inspections must be strengthened and two times of specific examines must be carried out each year.

　B. Taxation authority should make verifications on the authenticity and legitimacy of all the annual inspection materials handed in by taxpayers in accordance with tax law regulations and carry out comprehensive and strict on-the-spot verifications in the working places of taxpayers. If no fault is found in the verifications, the tax authority will write inspection reports and add marks of conformity onto the taxpayers' tax registration certificates. Those who satisfy the qualifications of common VAT taxpayers will be delivered the Annual Verification Quality Notice and be granted the common VAT taxpayer qualifications.

　C. Taxpayers, when making tax declarations within regulated terms, should hand in relevant documents in tally with relevant regulations of the tax authority apart from the tax declaration forms and attached forms. The tax authority will practice strict checks on the documents submitted by the taxpayers.

　D. After receiving taxpayers' tax declaration forms, attached forms and relevant documents, the tax authority will make a preliminary verification. If no error is found in the verification, the tax payment notice will be issued for the moment based on the sum of tax payable declared by the taxpayers. If any error is to be found later, relevant documents will be returned to taxpayers for a renewed declaration. Taxpayers who have difficulties in paying the tax in conformity to relevant terms can apply to the tax authority for delay in payment; the later will then carry out strict examinations of the application.

　E. Taxpayers can apply for the supply of special VAT invoices and the tax authority will examine and decide the supplying quantity of each time. Normally one book of special VAT invoices is supplied per time. The supplied invoices are normally of the handmade 1,000 RMB version. In supplying new invoices, old invoices will be collected and examined. Strict controls are imposed on common invoices, which are supplied with fixed quantity.

　F. If taxpayers have not only acquired import & export operating qualifications but also transacted export rebate registrations, strict verifications should be executed at the time of tax rebate practices.

(XI).  For type B taxpayers, the tax authority will practice a normal taxation administration system in aspects including tax registration, accounts and voucher management, tax declaration, tax collection, tax inspection and legal liability in accordance with relevant provisions of The Law of the People's Republic of China on the Administration of Tax Collection.