Corporate Matters

Notice of the Ministry of Finance and the State Administration of Taxation on Overall Implementation of the Pilot Program of Replacing Business Tax with Value-added Tax

 

To the finance departments (bureaus), offices of the State Administration of Taxation and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and cities separately designated in the State plan, and the Finance Bureau of the Xinjiang Production and Construction Corps,

 

Upon approval by the State Council, the pilot program of replacing business tax with value-added tax (hereinafter referred to as the "replacing business tax with value-added tax") shall be implemented nationwide effective from May 1, 2016 and all business tax payers in construction industry, real estate industry, finance industry and consumer service industry, etc. shall be included in the scope of the pilot program and pay value-added tax instead of business tax. The Measures for Implementation of the Pilot Program of Replacing Business Tax with Value-added Tax, the Provisions on Matters Relating to the Pilot Program of Replacing Business Tax with Value-added Tax, the Provisions on Transitional Policy for the Pilot Program of Replacing Business Tax with Value-added Tax and the Provisions on Application of Zero-rated Value-added Tax and Tax Exemption Policy to Cross-border Taxable Activities are hereby printed and distributed to you for implementation accordingly.

 

The provisions in the appendices to this Notice shall come into effect on May 1, 2016 unless the time for effectiveness thereof is otherwise specified. The Notice of the Ministry of Finance and the State Administration of Taxation on Including Railway Transport and Postal Services under the Pilot Program of Replacing Business Tax with Value-added Tax (Cai Shui [2013] No. 106), the Supplementary Notice on Relevant Policies for Including Railway Transport and Postal Services under the Pilot Program of Replacing Business Tax with Value-added Tax (Cai Shui [2013] No. 121), the Notice of the Ministry of Finance and the State Administration of Taxation on Including Telecommunications Industry under the Pilot Program of Replacing Business Tax with Value-added Tax (Cai Shui [2014] No. 43), the Supplementary Notice of the Ministry of Finance and the State Administration of Taxation on the Policies of Zero-rated Value-added Tax Applicable to International Water Transport (Cai Shui [2014] No. 50) and the Notice of the Ministry of Finance and the State Administration of Taxation on Applying Zero-rated Value-added Tax to Film and Television Services as Well as Other Export Services (Cai Shui [2015] No. 118) shall be repealed accordingly except for otherwise prescribed clauses.

 

All places shall attach importance to the pilot work of replacing business tax with value-added tax, practically strengthen the organization and leadership of the pilot work, make thorough arrangement, specify responsibilities, adopt various effective measures, make proper preparation prior to and proper monitoring, analysis, publicity and explanation during the implementation of the pilot program and handle other relevant work appropriately so as to ensure the stable, orderly and smooth progress of the reform. The problems, if any, shall be reported to the Ministry of Finance and the State Administration of Taxation in a timely manner.

 

Appendices: 1. Measures for Implementation of the Pilot Program of Replacing Business Tax with Value-added Tax

 

2. Provisions on Matters Relating to the Pilot Program of Replacing Business Tax with Value-added Tax

 

3. Provisions on Transitional Policy for the Pilot Program of Replacing Business Tax with Value-added Tax

 

4. Provisions on Application of Zero-rated Value-added Tax and Tax Exemption Policy to Cross-border Taxable Activities

 

Ministry of Finance

 

State Administration of Taxation

 

March 23, 2016

 

Appendix 1:

 

Measures for Implementation of the Pilot Program of Replacing Business Tax with Value-added Tax

 

Chapter 1: Taxpayers and Withholding Agents

 

Article 1      Entities and individuals engaging in the sale of services, intangible assets or real property (hereinafter referred to as the "taxable activities") within the territory of the People's Republic of China (hereinafter referred to as "within China") shall be the taxpayers of value-added tax ("VAT") and shall, instead of business tax, pay VAT in accordance with these Measures.

 

Entities refer to enterprises, administrative units, public institutions, military units, social groups and other organizations.

 

Individuals refer to individual businesses and other individuals.

 

Article 2      Where an entity conducts business operation by way of contracting, leasing or affiliation and the contractor, lessee or affiliate (hereinafter collectively referred to as the "contractor") engages in business operation externally in the name of the employer, lessor or affiliated person (hereinafter collectively referred to as the "employer") with the employer undertaking relevant legal liability, such employer shall be the taxpayer. Otherwise, the contractor shall be the taxpayer.

 

Article 3      Taxpayers are divided into general taxpayers and small-scale taxpayers.

 

Where the annual sales volume subject to VAT (hereinafter referred to as the "taxable sales volume") generated from the taxable activities of a taxpayer exceeds the standard prescribed by the Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT"), the taxpayer shall be a general taxpayer; if such taxable sales volume does not exceed such prescribed standard, the taxpayer shall be a small-scale taxpayer.

 

Any other individual of which the annual taxable sales volume exceeds the prescribed standard does not fall under the general taxpayers. An entity or individual business of which the annual taxable sales volume exceeds the prescribed standard but which is not frequently involved in taxable activities may choose to pay tax as a small-scale taxpayer.

 

Article 4      Where a taxpayer, despite its annual sales volume not exceeding the prescribed standard, has sound financial accounting and can provide accurate tax data, such taxpayer may go through general taxpayer qualification registration with the competent taxation authority and become a general taxpayer.

 

Sound financial accounting means that account books are maintained according to the provisions of the unified accounting system of the State and accounting is conducted according to lawful and valid vouchers.

 

Article 5      A taxpayer satisfying the conditions for a general taxpayer shall go through general taxpayer qualification registration with the competent tax authority. Specific registration methods shall be formulated by the SAT.

 

A taxpayer, once being registered as a general taxpayer, shall not be converted into a small-scale taxpayer unless otherwise provided for by the SAT.

 

Article 6      Where an entity or individual outside the territory of the People's Republic of China (hereinafter referred to as "outside China") is involved in taxable activities within China and has no business establishment within China, the purchaser shall be the VAT withholding agent unless otherwise provided for by the MOF and SAT

 

Article 7      Two or more taxpayers may, upon approval by the MOF and the SAT, be regarded as one taxpayer and pay taxes on consolidated basis. Specific measures shall be formulated by the MOF and the SAT separately.

 

Article 8      Taxpayers shall conduct accounting of VAT according to the unified accounting system of the State.

 

Chapter 2: Taxation Scope

 

Article 9      Specific scope of the taxable activities shall be subject to the Explanatory Notes to Sale of Services, Intangible Assets and Real Property attached hereto.

 

Article 10      Sale of services, intangible assets or real property refers to supply of services with compensation or transfer of intangible assets or real property with compensation, excluding the following circumstances of non-business activities:

 

(1) The government fund or administrative and institutional charges collected by administrative units and satisfying all the following conditions:

 

(i) Government fund established upon approval by the State Council or the MOF and the administrative and institutional charges established upon approval by the State Council or the provincial people's government as well as its department in charge of finance and price;

 

(ii) Financial instruments printed and produced by the finance department at or above provincial level are issued when relevant fees are collected;

 

(iii) All the payments collected are handed over to the finance department.

 

(2) The employees employed by an entity or individual business provide the entity or employer with the services for which wages are paid.

 

(3) An entity or individual business provides services to its employees.

 

(4) Other circumstances prescribed by the MOF and the SAT.

 

Article 11      The term "with compensation" means the obtaining of money, goods or other economic benefits.

 

Article 12      Sale of services, intangible assets or real property within China means that:

 

(1) The seller or buyer of the services (excluding the lease of real property) or intangible assets (excluding natural resource use right) is within China;

 

(2) The sold or leased real property is within China;

 

(3) The natural resource to which the use right is sold is within China; and

 

(4) Other circumstances prescribed by the MOF and the SAT.

 

Article 13      None of the following circumstances shall be deemed as the sale of services or intangible assets within China:

 

(1) An entity or individual outside China sells to an entity or individual within China the services wholly occurring outside China;

 

(2) An entity or individual outside China sells to an entity or individual within China the intangible assets wholly used outside China;

 

(3) An entity or individual outside China leases to an entity or individual within China the tangible personal property wholly used outside China; and

 

(4) Other circumstances prescribed by the MOF and the SAT.

 

Article 14      Following circumstances shall be deemed as the sale of services, intangible assets or real property:

 

(1) An entity or individual business provides services to any other entity or individual without compensation, unless such services are provided for the purpose of public welfare or to the social public;

 

(2) An entity or individual transfers intangible assets or real property to any other entity or individual without compensation, unless such intangible assets or real property are provided for the purpose of public welfare or to the social public; and

 

(3) Other circumstances prescribed by the MOF and the SAT.

 

Chapter 3: Tax Rates and Leviable Rate

 

Article 15      VAT rates:

 

(1) For the taxable activities of taxpayers, excluding those stated in Items (2), (3) and (4) of this Article, the tax rate shall be 6%;

 

(2) For the provision of services in transportation, postal services, basic telecommunications, construction or real property lease, the sale of real property or the transfer or land use right, the tax rate shall be 11%;

 

(3) For the provision of tangible personal property lease services, the tax rate shall be 17%; and

 

(4) For the cross-border taxable activities of entities and individuals within China, the tax rate shall be zero. The specific scope shall be prescribed by the MOF and the SAT separately.

 

Article 16      The leviable rate of VAT shall be 3% unless otherwise prescribed by the MOF and the SAT.

 

Chapter 4: Calculation of the Tax Payable

 

Section 1: General Provisions

 

Article 17      The VAT taxation methods include general taxation method and simplified taxation method.

 

Article 18      General taxation method shall apply to the taxable activities of general taxpayers.

 

Upon occurrence of specific taxable activities prescribed by the MOF and the SAT, the general taxpayer may choose to apply simplified taxation method to tax assessment and the choice, once made, shall not be changed within 36 months.

 

Article 19      A small-scale taxpayer shall apply simplified taxation method to tax assessment upon occurrence of taxable activities

 

Article 20      Where any entity or individual outside China has taxable activities within China but establishes no business agency within China, the withholding agent shall calculate the withholding tax according to the following formula:

 

Withholding tax = price paid by the purchaser ÷ (1 + tax rate) × tax rate

 

Section: General Taxation Method

 

Article 21      The tax payable subject to the general taxation method refers to the balance of the current output tax from which the current input tax has been deducted. The formula for calculation of the tax payable is as follows:

 

Tax payable = current output tax – current input tax

 

When the current output tax is less than the current input tax and is insufficient to make the deduction, the difference may be carried forward to the following term for deduction.

 

Article 22      Output tax refers to the VAT amount calculated based on the sales volume of and the VAT tax rate for the taxable activities of a taxpayer. The formula for calculation of the output tax is as follows:

 

Output tax = sales volume × tax rate

 

Article 23      The sales volume subject to the general taxation method does not include output tax. Where a taxpayer adopts the pricing method of consolidating the sales volume and the output tax, the sales volume shall be calculated based on the following formula:

 

Sales volume = tax-inclusive sales volume ÷ (1 + tax rate)

 

Article 24      Input tax refers to the amount of VAT paid or assumed by a taxpayer for purchase of goods, labor services of processing, repair and replacement, services, intangible assets or real property.

 

Article 25      The following input tax is allowed to be deducted from the output tax:

 

(1) the VAT amount indicated in the VAT special invoices (including uniform tax-control invoices for sale of motor vehicles, similarly hereinafter) obtained from the seller;

 

(2) the VAT amount indicated in the customs special bill of payment of import VAT obtained from the customs;

 

(3) in the case of purchase of any agricultural product, except where the VAT special invoice or the special bill of payment of import VAT is obtained, the input tax calculated based on the buying price of the agricultural product indicated on the agricultural product purchasing invoices or sales invoices and the deduction rate of 13%. The calculation formula thereof is as follows:

 

Input tax = buying price × deduction rate

 

Buying price refers to the price indicated on the agricultural product purchasing invoices or sales invoices when the taxpayer purchases any agricultural product and the leaf tobacco tax paid as required;

 

The purchase of agricultural products that is subject to deduction of input VAT in accordance with the Measures for Implementing the Pilot Program for Assessment and Deduction of Input Value-added Tax on Agricultural Products shall be excluded.

 

(4) In the case of purchase of services, intangible assets or real property from an entity or individual outside China, the VAT amount indicated on the tax payment voucher for the tax payment obtained from the tax authorities or withholding agents.

 

Article 26      Where any VAT tax deduction voucher obtained by a taxpayer fails to comply with the laws, administrative regulations or relevant provisions of the SAT, the input tax shall not be deducted from the output tax.

 

VAT tax deduction voucher refers to VAT special invoices, customs special bill of payment of import VAT, agricultural product purchasing invoices, agricultural product sales invoices, tax payment voucher.

 

Where a taxpayer deducts the input tax by presenting the tax payment voucher, the taxpayer shall present the written contract, the payment certificate, and the statement of account or invoices issued by the entity outside China. Where the materials provided by the taxpayer are incomplete, the input tax shall not be deducted from the output tax.

 

Article 27      The input tax of the following items shall not be deducted from the output tax:

 

(1) the taxable items subject to the simplified taxation method, VAT-exempt items, purchase of goods for collective welfare or individual consumption, labor services of processing, repair and replacement, services, intangible assets or real property; specifically, any fixed assets, intangible assets or real property as involved only refer to the fixed assets, intangible assets (excluding other equity intangible assets) or real property that are used in the foregoing items;

 

A taxpayer's consumption in communications and social engagement belongs to individual consumption;

 

(2) the purchasing of goods as a result of any abnormal loss and the relevant labor services of processing, repair and replacement and services relating to the transportation;

 

(3) the purchasing of goods (excluding fixed assets) consumed for products in process or finished products as a result of any abnormal loss, the labor services of processing, repair and replacement and services relating to the transportation;

 

(4) the real property as a result of any abnormal loss as well as the purchasing of goods, design services and construction services consumed by such real property;

 

(5) the purchasing of goods, design services and construction services consumed for the real property construction in progress as a result of any abnormal loss;

 

The new construction, reconstruction, expansion, renovation and decoration of real property by a taxpayer belong to the real property construction in progress;

 

(6) the purchasing of passenger transport services, loan processing services, food and beverage services, daily services for residents and entertainment services ; and

 

(7) Other circumstances prescribed by the MOF and the SAT.

 

For the purpose of Items (4) and (5) of this Article, goods refer to the materials and equipment comprising the substance of real property, including construction and decoration materials as well as water supply and drainage, heating, sanitation, ventilation, illumination, communication, gas, fire control, central air-conditioning, elevator, electrical engineering, intelligent building equipment and supporting facilities.

 

Article 28      Specific scope of real property and intangible assets shall be subject to the Explanatory Notes to Sale of Services, Intangible Assets and Real Property as attached hereto.

 

Fixed assets refer to machines, machineries and means of transport the service life of which exceeds 12 months, as well as other tangible personal property relating to production and operation such as equipment, tools and appliances.

 

Abnormal loss refers to the loss of being stolen, lost, rotten or deteriorated in quality caused due to poor management, as well as the goods or real property legally confiscated, destroyed or removed due to violation of laws and regulations.

 

Article 29      Where a taxpayer subject to the general taxation method concurrently engages in the taxable items subject to the simplified taxation method or VAT-exempt items, and cannot divide the nondeductible input tax, the nondeductible input tax shall be calculated based on the following formula:

 

Nondeductible input tax = all the current undivided input tax × (sales volume of the current taxable items subject to the simplified taxation method + sales volume of the VAT-exempt items) ÷ current sales volume in total

 

The competent tax authorities may liquidate the nondeductible input tax based upon the annual data with the foresaid formula.

 

Article 30      With regard to purchase of goods (excluding fixed assets), labor services or services from which the input tax has been deducted, if the circumstances specified in Article 27 of these Measures (except for taxable items subject to the simplified taxation method or VAT-exempt items) occur, the input tax shall be deducted from the current input tax; in case that the input tax is unable to be determined, the input tax deductible shall be calculated as per the current actual cost.

 

Article 31      With regard to the fixed assets, intangible assets or real property from which the input tax has been deducted, if the circumstances specified in Article 27 of these Measures occur, the nondeductible input tax shall be calculated according to the following formula:

 

Nondeductible input tax = net value of the fixed assets, intangible assets or real property × applicable tax rate

 

Net value of fixed assets, intangible assets or real property refers to the balance after withdrawing of depreciation or amortization by a taxpayer according to financial accounting system.

 

Article 32      Where a taxpayer applies general taxation method, the VAT amount refunded to the buyer due to discount, suspension or return of the sales shall be deducted from the current output tax. The VAT amount reclaimed due to discount, suspension or return of sales shall be deducted from the current input tax.

 

Article 33      Under any of the following circumstances, the tax payable shall be calculated according to the sales volume and the VAT tax rate, and the input tax shall not be deducted, nor the VAT special invoices be used:

 

(1) Where the general taxpayer does not have a sound accounting system, or is unable to provide accurate tax materials; or

 

(2) Where the taxpayer who shall apply for registration of the qualification as a general taxpayer fails to do so.

 

Section 3: Simplified Taxation Method

 

Article 34      The tax payable subject to the simplified taxation method refers to the VAT amount calculated based on the sales volume and the rate leviable for VAT, and no input tax shall be deducted. The formula for calculation of the tax payable:

 

Tax payable = sales volume × rate leviable

 

Article 35      The sales volume subject to the simplified taxation method excludes the tax payable. Where a taxpayer adopts the pricing method of consolidating the sales volume and tax payable, the sales volume shall be calculated based on the following formula:

 

Sales volume = tax-inclusive sales volume ÷ (1 + tax leviable)

 

Article 36      Where a taxpayer applies simplified taxation method to tax assessment, the sales volume refunded to the buyer due to discount, suspension or return of the sales shall be deducted from the current sales volume. If, after deduction of the current sales volume, there is still any balance resulting in excessively paid tax, such tax may be deducted from the subsequent tax payable.

 

Section 4: Determination of Sales Volume

 

Article 37      Sales volume refers to the total price and ex-price charges obtained by a taxpayer for occurrence of taxable activities.

 

Ex-price charges refer to the charges of various natures beyond the price, excluding the following items:

 

(1) any governmental fund or administrative and institutional charges collected as an agent and in conformity with the provisions of Article 10 hereof; and

 

(2) amounts collected on behalf of the commissioning party for which invoices are issued in the name of the commissioning party.

 

Article 38      The sales volume shall be calculated in RMB.

 

Where a taxpayer settles its sales volume in a currency other than RMB, the amount shall be converted into RMB, and the conversion rate may be the middle price of the RMB exchange rate on the day when the sales volume occurs or on the first day of the month. The taxpayer shall determine the conversion rate in advance, and once determined, the conversation rate shall remain unchanged for 12 months.

 

Article 39      Where a taxpayer concurrently engages in the sale of goods, labor service, services, intangible assets or real property that are subject to different tax rates or rates leviable, the sales volumes shall be calculated as per the different rates or rates leviable separately; in the event of failure to do so, the higher tax rate shall apply.

 

Article 40      Where a sales activity involves both services and goods, it shall be a mixed sale. The activity of mixed sale of an entity or individual business engaging in production, wholesale or retail of goods shall pay VAT as per the sale of goods; the activity of mixed sale of any other entity or individual business shall pay VAT as per the sale of services.

 

For the purpose of this Article, the entities and individual businesses engaging in the production, wholesale or retail of goods include the entities and individual businesses engaging mainly in the production, wholesale or retail of goods and concurrently in the sale of services.

 

Article 41      Where a taxpayer concurrently operates items that enjoy tax exemption or reduction, the sales volumes of such items shall be calculated separately; in the event of failure to do so, such tax exemption or deduction shall not be granted.

 

Article 42      Where a taxpayer has taxable activities, and any circumstance such as invoicing errors or discount, suspension or return of sale occurs after issue of the VAT special invoices, the red-letter VAT special invoices shall be issued in accordance with the provisions of the SAT. In the event of failure to issue the red-letter VAT special invoices as required, no output tax or sales volume may be deducted in accordance with the provisions of Articles 32 and 36 of these Measures.

 

Article 43      Where a taxpayer has taxable activities and indicates the price and the discounted amount on the same invoice respectively, the discounted amount shall be the sales volume; where the taxpayer fails to indicate them on the same invoices respectively, the price shall be the sales volume, and the discount shall not be deducted.

 

Article 44      Where the price of a taxable activity of a taxpayer is obviously low or high without reasonable commercial purpose, or the taxpayer has any of the activities set forth in Article 14 of these Measures, but has no sales volume, the competent tax authority shall have the power to determine the sales volume in the following sequences:

 

(1) the average price for the sale of the similar service, intangible assets or real property by the taxpayer recently;

 

(2) the average price for the sale of the similar service, intangible assets or real property by other taxpayers recently; or

 

(3) the composite assessable price. The formula for the composite assessable price is as follows:

 

Composite assessable price = cost × (1 + cost-profit ratio)

 

The cost-profit ratio shall be determined by the SAT.

 

The phrase "without reasonable commercial purpose" means the reduction, exemption or delay of VAT payment or increase of the amount of the refund of VAT through intentional arrangement mainly for the purpose of seeking tax benefits.

 

Chapter 5: Occurrence Time of Tax Payment Obligation and Tax Withholding Obligation, and Places for Tax Payment

 

Article 45      The occurrence time of VAT tax payment or withholding obligation is as follows:

 

(1) It shall be the day when the taxpayer has taxable activities and receives the sales proceeds or obtains the evidence for claiming sales proceeds; in case that invoices are issued in advance, it shall be the day when the invoices are issued.

 

Receipt of sales proceeds refers to the receipt by the taxpayer of the proceeds during or after the completion of the sale of services, intangible assets or real property.

 

The day when the evidence for claiming sales proceeds is obtained refers to the date of payment specified in the written contract; in case that there is no written contract or no date of payment specified in the written contract, the day when the transfer of services or intangible assets is completed or the ownership of real property is changed.

 

(2) Where the taxpayer provides construction services or leasing services and charges advance payment, the occurrence time of the taxpayer's tax payment obligation shall be the date on which the taxpayer receives the advance payment.

 

(3) Where the taxpayer engages in the transfer of financial instruments, the occurrence time of the taxpayer's tax payment obligation shall be date on which the ownership of the financial instrument is transferred;

 

(4) Where the taxpayer falls under any of the circumstances prescribed in Article 14 hereof, the occurrence time of the taxpayer's tax payment obligation shall be date on which the transfer of the services or intangible assets is completed or the ownership of the real property is changed; and

 

(5) The occurrence time of VAT withholding obligation is the day when the VAT tax payment obligation of the taxpayer occurs.

 

Article 46      The places for VAT tax payment are as follows:

 

(1) A business with a fixed establishment shall file tax returns with the competent tax authority at the place where the establishment is located or the place of domicile.

Where the head office and the branch are not in the same county (city), the tax returns shall be filed with the competent tax authorities in their respective place; with the approval of the MOF and the SAT or their authorized finance and taxation departments, the tax returns may be filed with the competent tax authorities in the place of the head office after being consolidated by the head office.

 

(2) A business without any fixed establishment shall file tax returns with the competent tax authority at the place where the taxable activity occurs; in the event that the business fails to file tax returns, the competent tax authority at the place where the establishment is located or the place of domicile shall collect the overdue tax.

 

(3) Other individuals providing construction services, selling or leasing real property or transferring natural resource use right shall file tax returns with the competent tax authority at the place where the construction services occur, real property is located or natural resources are located; and

 

(4) The withholding agent shall declare and pay the withholding tax before the competent tax authority at the place where the agent is located or domiciles.

 

Article 47      The time limits for paying VAT shall be 1 day, 3 days, 5 days, 10 days, 15 days, one month or one quarter respectively. The specific tax payment time limit for a taxpayer shall be determined by the competent tax authorities based on the size of the taxable amount of the taxpayer separately. The tax payment period of one quarter is applicable to small-scale taxpayers, banks, finance companies, trust investment companies, credit cooperatives and other taxpayers specified by the MOF and the SAT. Tax that cannot be paid in a fixed period may be paid on a transaction-by-transaction basis.

 

Where a taxpayer is subject to the tax payment period of one month or one quarter, the taxpayer shall file tax returns within 15 days from the date on which the period expires; in the event of the tax payment period of 1 day, 3 days, 5 days, 10 days or 15 days, the taxpayer shall pay the tax in advance within five days from the date on which the period expires, and shall file tax returns within 15 days since the first day of the following month and settle up the tax payable of the previous month.

 

The time limits for turning over tax payments by withholding agents shall be subject to the two preceding paragraphs.

 

Chapter 6: Tax Exemption and Reduction

 

Article 48      Where a taxpayer has taxable activities to which the provisions on tax exemption or reduction apply, the taxpayer may waive such tax exemption or reduction, and pay VAT in accordance with these Measures. The taxpayer shall not file a new application for tax exemption or reduction within 36 months after waiving tax exemption or reduction.

 

Where the taxable activities of a taxpayer are subject to the provisions on tax exemption and zero-rated tax simultaneously, the taxpayer may choose to apply tax exemption or zero-rated tax.

 

Article 49      Where the sales volume of a taxable activity of any individual fails to reach the threshold for VAT, VAT shall be exempted; if the sales volume reaches such threshold, the VAT shall be calculated and paid on a full basis.

 

The threshold for VAT is not applicable to individual businesses that are registered as general taxpayers.

 

Article 50      The range of the threshold for VAT is as follows:

 

(1) RMB 5,000 - RMB 20,000 (inclusive) of the monthly taxable sales volume, if the tax is paid in a period; and

 

(2) RMB 300 - RMB 500 (inclusive) of the sales volume per transaction (day), if the tax is paid on a transaction-by-transaction basis.

 

The adjustment to the threshold shall be subject to the provisions of the MOF and the SAT. The finance departments (or bureaus) and the offices of the SAT of the provinces, autonomous regions and municipalities directly under the Central Government shall, according to the actual situations, determine the threshold applicable in their respective regions within the prescribed range, and report the same to the MOF and the SAT for record-filing.

 

Where monthly sales volume of an enterprise or non-enterprise entity which is a small-scale taxpayer of VAT does not reach RMB 20,000, it shall be exempted for the payment of VAT. Prior to December 31, 2017, any small-scale taxpayer of VAT shall be exempted from payment of VAT if its monthly sales volume is between RMB 20,000 (inclusive) and RMB 30,000.

 

Chapter 7: Administration of Tax Collection

 

Article 51      The offices of the SAT are responsible for collection of VAT with which the business tax is replaced. The VAT on the sale of real property by a taxpayer or other lease of real property by individuals shall be collected temporarily by local taxation bureaus as authorized by the offices of the SAT.

 

Article 52      With regard to taxable activities of a taxpayer subject to the zero tax rate, the taxpayer shall file an application for the tax refund (or exemption) with the competent tax authority as scheduled. Specific measures shall be formulated by the MOF and the SAT.

 

Article 53      Taxpayers having taxable activities shall issue special VAT invoices to buyers demanding such invoices, and indicate the sales volume and the output tax on the special VAT invoices respectively.

 

Under any of the following circumstances, the special VAT invoices shall not be issued:

 

(1) Sale of services, intangible assets or real property to individual consumers; or

 

(2) Taxable activities to which the provisions on VAT exemption are applicable.

 

Article 54      Where a small-scale taxpayers have taxable activities and the buyers demand special VAT invoices, the taxpayers may apply to the competent tax authorities for issue of special VAT invoices on their behalf.

 

Article 55      The administration of VAT collection of taxpayers shall be subject to the Law of the People's Republic of China on Administration of Tax Collection and the prevailing provisions on the administration of VAT collection.

 

Appendix

 

Explanatory Notes to Sale of Services, Intangible Assets and Real Property

 

I. Sale of services

 

Sale of services refers to the provisions of transportation services, postal services, telecommunication services, construction services, financial services, modern services and consumer services.

 

(I) Transportation services

 

Transportation services refer to the business activities of transporting cargos or passengers from one place to the destination via transportation vehicles so as to realize their spatial change, including land transportation services, water transportation services, air transportation services and pipeline transportation services.

 

1. Land transportation services

 

Land transportation services refer to the business activities of transporting cargos or passengers from one place to another place through land (above ground or underground), including railway transportation services and other land transportation services.

 

(1) Railway transportation services refer to the business activities of transporting cargos or passengers through railways.

 

(2) Other land transportation services refer to the business activities of land transportation other than railway transportation, including, among other things, the transportation through highways, cable cars, cableways, subways and urban light rails, etc.

 

For the administrative expenses collected by a taxi company from the taxi drivers using the taxies owned by the company, VAT shall be paid as per land transportation services.

 

2. Water transportation services

 

Water transportation services refer to the business activities of transporting cargos or passengers through rivers, lakes, streams and other natural and artificial waterways or maritime canals.

 

The business of voyage charter and time charter in water transportation falls under water transportation services.

 

The business of voyage charter is the business in which a transportation enterprise finishes a specific voyage of transportation task for a charterer and collect lease fees.

 

The business of time charter is the business in which a transportation enterprise leases out a vessel with crew to others for a certain period during which the vessel and crew attend to the maneuvering of the leaseholder; no matter whether the leaseholder puts the chartered vessel into operation, the leaseholder shall pay lease fees on daily basis to the vessel-owner who shall bear all the fixed expenses incurred.

 

3. Air transportation services

 

Air transportation services refer to the business activities of transporting cargos or passengers through airways.

 

The business of wet lease in air transportation falls under air transportation services.

 

The business of wet lease business is the business in which an air transportation enterprise leases out an airplane with crew to others for a certain period during which the airplane and crew attend to the maneuvering of the leaseholder; no matter whether the leaseholder puts the airplane into operation, the leaseholder shall pay lease fees at a certain rate and bear all the fixed expenses incurred.

 

Space transportation services shall be subject to payment of VAT as per air transportation services.

 

Space transportation services refer to the business activities of using carriers such as rockets to launch spacecrafts such as satellites and space probes into space orbits.

 

4. Pipeline transportation services

 

Pipeline transportation services refer to business activities of transporting gas, liquid and solid materials through pipelines.

 

Operation of business as a carrier without means of transport shall be subject to payment of VAT as per transportation services.

 

Operation of business as a carrier without means of transport refers to the operation activities whereby the operator enters into a transportation service contract in the capacity of a carrier with the consignor, collects freight and undertakes the carrier's responsibilities and then entrusts the actual carrier to complete the transportation services.

 

(II) Postal services

 

Postal services refer to the business activities of China Post Group Corporation and its subordinate post enterprises in providing basic postal services such as posting and delivery of mails, postal remittance and classified mail correspondence, including universal postal services, special postal services and other postal services.

 

1. Universal postal services

 

Universal postal services refer to the business activities of posting and delivery of correspondences, parcels and other mails as well as circulation of stamps, distribution of newspapers and periodicals and postal remittance, etc.

 

Correspondences refer to letter, prints, postage prepaid cards, unaddressed mails and parcel post, among other things.

 

Parcels refer to any of the items packaged independently and delivered to specific individual or entity according to the name and address on the package with the weight not exceeding 50 kg, the size of each side not exceeding 150 cm and the aggregation of length, width and height not exceeding 300 cm.

 

2. Special postal services

 

Special postal services refer to the business activities such as posting and delivering the ordinary letters sent by compulsory service-men, classified correspondence, Braille books and revolutionary martyrs' remains.

 

3. Other postal services

 

Other postal services refer to the sale, postal agency and other business activities relating to albums and other philatelic items.

 

(III) Telecommunications services

 

Telecommunications services refer to the business activities of providing voice services or transmitting, sending, receiving or applying images, text messages or other electronic data and information by using cable or wireless electromagnetic system, optoelectronic system or other various communication network resources, including basic telecommunications services and value-added telecommunications services.

 

1. Basic telecommunications services

 

Basic telecommunications services refer to the business activities of providing voice services by using fixed networks, mobile networks, satellite or the Internet and the business activities of leasing or selling wideband, wave length and other network elements.

 

2. Value-added telecommunications services

 

Value-added telecommunications services refer to the activities of providing the services of text message and multimedia messages, the services of transmitting and applying electronic data and information, and the services of Internet access, etc.

 

The satellite TV signal landing and relay services shall be subject to the payment of VAT as per value-added telecommunications services.

 

(IV) Construction services

 

Construction services refer to the business activities involving the construction, renovation and decoration of various buildings, structures and ancillary facilities thereof, the installation of lines, pipelines, equipment and facilities, etc. and other engineering work, including engineering services, installation services, renovation services, decoration services and other construction services.

 

1. Engineering services

 

Engineering services refer to the engineering work for construction and reconstruction of various buildings and structures, including the engineering work for fixing or installation of various equipment or pillars connected to buildings and operational platform as well as the engineering work for various furnaces and metal structure.

 

2. Installation services

 

Installation services refer to the engineering work for assembling and placement of production equipment, power equipment, hoisting equipment, transportation equipment, driving equipment, medical experimental equipment as well as other various equipment and facilities, including the engineering work for installation of the working stand, ladders and handrails as well as the engineering work for insulation, corrosion prevention, heat preservation and painting, etc. of the installed equipment.

 

The installation fees, initial installation charges, activation fees, capacity fees and similar charges collected by the operators of fixed telephones, cable television, broadband, water, electricity, gas and heating installation, etc. from users shall be subject to the payment of VAT as per installation services.

 

3. Renovation services

 

Renovation services refer to the engineering work for repairing, reinforcing, maintaining and improving buildings and structures so as to restore the original use value thereof or extending the service life thereof.

 

4. Decoration services

 

Decoration services refer to the engineering work of decorating and renovating buildings and structures to make the buildings and structures attractive or serve for specific purposes.

 

5. Other construction services

 

Other construction services refer to the services of engineering works other than the above engineering works, including, among other things, the engineering work for well drilling (well digging), removal of buildings or structures, land leveling, landscaping, dredging (excluding channel dredging), translation of buildings, scaffolding, explosion, mine perforation as well as stripping and cleaning of surface adhesive materials (including rock stratum, soil layer and sand bed, etc.).

 

(V) Financial services

 

Financial services refer to the business activities of financial and insurance operation, including loan processing services, financial services of direct charges, insurance services and the transfer of financial instruments.

 

1. Loan processing services

 

Loan processing refers to the business activities of lending money to another party for use and obtaining interest income thereon.

 

Income obtained from various kinds of possession or borrowing of funds, including the interest (guaranteed return, remuneration, fund possession cost and compensatory payment, etc.) income during the period (including maturity) of possession of financial instruments, interest income from overdraft of credit cards, interest income from purchase of resalable financial instruments, interest income collected for margin trading and short selling as well as the interest and income in the nature of interest obtained from the business such as bill purchase, default interest, discount on notes and on-lending shall be subject to the payment of VAT as per loan processing services.

 

Financing sale and leaseback refers to the business activities in which the lessor, for the purpose of financing, sells assets to an enterprise engaging in financing sale and leaseback and such enterprise then leases the assets to the lessee.

 

The fixed profits or guaranteed profits collected from investment with monetary capital shall be subject to payment of VAT as per loan processing services.

 

2. Financial services of direct charge

 

Financial services of direct charge refer to the business activities of providing relevant services for monetary financing and other financial services and collecting fees, including providing the services such as currency exchange, account management, E-banking, credit card, letter of credit, financial guarantee, asset management, trust management, fund management, financial trade venue (platform) management, capital management, capital settlement and financial payment.

 

3. Insurance services

 

Insurance services refer to commercial insurance acts whereby an policy holder, in accordance with the contract, pays insurance premiums to the insurer, and the insurer bears an obligation to pay the policy holder indemnities against property loss caused by the occurrence of a contingent event as agreed upon in the contract, or pays the insurance benefits when the insured dies, is injured or disabled, suffers illness or reaches the age limit, time limit or any other condition agreed upon in the contract, including personal insurance services and property insurance services.

 

Personal insurance services refer to the insurance business activities which take the life and body of human beings as the subject of the insurance.

 

Property insurance services refer to the insurance business activities which take property and interests related thereto as the subject of the insurance.

 

4. Transfer of financial instruments

 

Transfer of financial instruments refers to the business activities of transferring the ownership of foreign exchange, negotiable securities, non-commodity futures and other financial instruments.

 

Transfer of other financial instruments includes the transfer of various types of asset management products such as fund, trust and wealth management products as well as various types of financial derivatives.

 

(VI) Modern services

 

Modern services refer to business activities of providing technical and intellectual services focusing on the industries such as manufacturing, culture and modern logistics, including R&D and technical services, information technology services, cultural creative services, logistics support services, lease services, authentication and consulting services, radio, film and television services, business assistance services and other modern services.

 

1. R&D and technical services

 

The R&D and technical services include R&D services, energy management contract services, project survey and exploration services as well as professional technical services.

 

(1) R&D services, also known as technology development services, refer to the business activities of conducting research and experimental development on new technologies, new products, new techniques or new materials and the systems thereof.

 

(2) Energy management contract services refer to the business activities in which an energy service company provides necessary services to an energy consuming entity to achieve the energy saving target stipulated in the contract concluded by both parties and the energy consuming entity offers payment for the input of the energy service company and reasonable remuneration based on the result of energy saving.

 

(3) Project survey and exploration services refer to the business activities of carrying out field-survey upon the terrain, geological structure and underground resources prior to the commencement of a mining and construction project.

 

(4) Professional technical services refer to meteorological services, seismological services, marine services, surveying and mapping services, urban planning, environmental and ecological monitoring services and other special technical services.

 

2. Information technology services

 

Information technology services refer to the business activities of generating, collecting, treating, processing, storing, transmitting, retrieving and utilizing information through the technologies such as computers and communication networks and providing information services, including software services, circuit design and testing services, information system services, business process management services and information system value-added services.

 

(1) Software services refer to the business activities of providing software development services, software maintenance services and software testing services.

 

(2) Circuit design and testing services refer to the business activities of providing design, testing and relevant technical support services for integrated circuits and electronic circuits.

 

(3) Information system services refer to the business activities of providing services such as information system integration, network management, web page maintenance, desktop management and maintenance, information system application, basic information technology management platform integration, information technology infrastructure management, data center, collocation center, information security services, online virus killing and virtual host, including the network operation services provided by websites to the online games not owned thereby.

 

(4) Business process management services refer to the business activities of providing services such as human resource management, financial economic management, audit management taxation management, logistics information management, business information management and calling center based on computer and information technology.

 

(5) Information system value-added services refer to the information technology services additionally provided for users by using information system resources, including data processing, analysis and integration, database management, data backup, data storage, disaster recovery services and E-business platform, among other things.

 

3. Culture creative services

 

Culture creative services include design services, intellectual property services, advertisement services as well as meeting and exhibition services.

 

(1) Design services refer to the business activities of conveying plans, schemes or ideas by words, language, drawings, voices, visual or other forms, including industrial design, internal management design, business operation design, supply chain design, style design, clothes design, environmental design, graphic design, package design, cartoon design, exhibition design, website design, machine design, engineering design, advertisement design, originality design, and printing, etc.

 

(2) Intellectual property services refer to the business activities of handling matters relating to intellectual property rights, including registration, appraisal, assessment, certification and retrieval services on patents, trademarks, copyrights, software and integrated circuit layout design.

 

(3) Advertisement services refer to the business activities of promoting products, operating and service items, cultural and sports programs, announcements, statements or other matters of clients through various channels such as books, newspapers, magazines, broadcasts, TV programs, films, slide shows, guideboards, posters, windows, neon lamps, light boxes and the Internet, etc., including the agency in advertisements as well as the distributing, broadcasting, publicizing and displaying of advertisements, etc.

 

(4) Meeting and exhibition services refer to the business activities of providing all kinds of exhibitions and meetings held or organized and arranged for goods circulation, promotion, exhibition, economic and trade talks, non-government exchange, corporate communication and international exchanges.

 

4. Logistics support services

 

Logistics support services include air services, port and dock services, freight and passenger terminal services, salvage services, loading/unloading and handling services, warehousing services and collection and delivery services.

 

(1) Air services include aviation ground services and general aviation services.

 

Aviation ground services refer to the business activities in which airlines, airports, civil aviation bureaus and air stations etc. provide ground labor services such as navigation to Chinese and foreign airplanes or other aircrafts which navigate in China or land at the airports in China, including passenger security check services, apron management services, airport waiting hall management services, aircraft cleaning and disinfecting services, flight management services, aircraft taking-off and landing services, in-flight communication services, ground signal services, aircraft security services, airport runway management services and air traffic control services, etc.

 

General air services refer to the business activities of providing aviation services for specialized work, such as aerial photography, aerial training, aerial survey, aerial exploration, aerial forest fire protection, aerial sowing and artificial precipitation, aerial meteorological observation, aerial marine monitoring and aerial scientific experiments, etc.

 

(2) Port and dock services refer to the business activities of providing services to ships, such as ship dispatching services, ship communication services, waterway management services, waterway dredging services, beacon management services, navigation mark management services, ship piloting services, tallying services, mooring and unmooring services, berthing and shifting berth services, ship oil-spill cleanup services, water transportation services, ship professional cleaning, disinfecting and testing services and ship oil leakage prevention services.

 

The port facility security fees collected by port facility operators shall be subject to the payment of VAT as per port and dock services.

 

(3) Freight and passenger terminal services refer to the business activities in which the freight and passenger terminals provide cargo stowage services, transportation organization services, transit shipment services, vehicle dispatching services, ticket services, cargo packaging and arrangement, services for use of railway lines, services for railway-attached passenger cars, services for delivery of railway luggage and parcels by special trains, railway arrival and transit services, railway vehicle resorting services, vehicle picking and transport services, railway contact system services and railway locomotive traction, etc.

 

(4) Salvage and rescue services refer to the business activities of providing human rescue on ships, property rescue on ships, water rescue and sunken ship and property salvage services.

 

(5) Loading and unloading and transportation services refer to the business activities of loading/unloading and transporting goods between vehicles, loading/unloading fields or between vehicles and loading/unloading fields by employing handling instruments, human resources or animals.

 

(6) Warehousing services refer to the business activities of storing and safekeeping goods of clients via storehouses, goods yards or other places.

 

(7) Collection and delivery services refer to the business activities of completing the receipt, sorting and delivery of correspondences and parcels within the promised time period as entrusted by senders.

 

Collection services refer to the business activities of collecting correspondences and parcels from senders and transport the same to the distribution center in the city where the service provider is located.

 

Sorting services refer to the business activities of sorting and distribution of correspondences and parcels by the service provider at its distribution center.

 

Deliver services refer to the business activities of delivering the correspondences and parcels by the service provider from its distribution center to the recipients in the same city.

 

5. Lease services

 

Lease services include financing lease services and operating lease services.

 

(1) Financing lease services refer to the leasing activities with the nature of financing and featured by transfer of ownership. That is, the lessor provides the lessee with tangible personal property or real property which is purchased based on the requirements of the lessee in terms of size, type and performance and during the term of the contract the ownership of the property belongs to the lessor and the lessee only has the right of use. Upon the expiration of the term of the contract, provided the lessee has made the full payment, the lessee shall be entitled to purchase the leasehold according to its residual value to become the owner of the property.

This kind of practice belongs to financing lease no matter whether the lessor sells the leasehold to the lessee based on its residual value.

 

Financing lease services are divided into tangible personal property financing lease services and real property financing lease services based on different subject matters.

 

Financing leaseback shall not be subject to payment of VAT as per said taxable items.

 

(2) Operating lease services refer to the business activities of leasing tangible personal property or real property to another party for a period of time as agreed without changing the ownership of the leasehold.

 

Operating lease services are divided into tangible personal property operating lease services and real property operating lease services based on different subject matters.

 

The lease of the advertising areas for buildings, structures and other real property or airplanes, vehicles and other tangible personal property to any other entities or individuals for releasing advertisements shall be subject to payment of VAT as per operating lease services.

 

Vehicle parking services and road passing services (including road toll, bridge toll and lockage toll, etc.), etc. shall be subject to the payment of VAT as per real property operating lease services.

 

Bareboat charter in water transportation and dry lease in air transportation belong to operating lease.

 

The business of bareboat charter refer to the business activities in which a transportation enterprise leases out a vessel without crew to others for use in an agreed period of time, does not bear any expenses and costs incurred in the course of transportation, and only collects the fixed lease fees.

 

The business of dry lease refer to the business activities in which an air transportation enterprise leases out an airplane without crew to others for use in an agreed period of time, does not bear any expenses or costs incurred in the course of transportation, and only collect the fixed lease fees.

 

6. Authentication and consulting services

 

Authentication and consulting services include certification services, authentication services and consulting services.

 

(1) Certification services refer to the business activities in which an accredited entity certifies that a product, service or management system is in conformity with relevant technical norms and compulsive requirements or standards of these norms through detecting, testing, measuring or other technical means.

 

2. Authentication services refer to the business activities in which an accredited entity makes authentication of relevant matters as entrusted and issues opinions of probative force, including authentication on accounting, taxes, legal issues, vocational skills, construction cost, construction supervision, assets valuation, environmental assessment, land assessment in real estate, architectural drawing review and medical malpractices, etc..

 

(3) Consulting services refer to the activities of providing information, suggestions, planning, consulting and other services on finance, software, technologies, finance, taxation, law, internal management, business operation, process management and health, etc.

 

Translation services and market survey services shall be subject to payment of VAT as per consulting services.

 

7. Radio, film and television services

 

Radio, film and television services include the services for production, distribution and broadcast of radio, film and television programs (works).

 

(1) Services for production of radio, film and television programs (works) refer to the services for the production of radio, film and television programs (works) such as feature (special programs), special column, variety, sports, cartoon, radio drama, television drama and films, including specifically the business activities of planning, collecting, editing, shooting, recording, preparation of audio and video texts, pictures and materials, staging, post-editing, translation (compilation), making of subtitles, making of titles, tail leader and movie clips, special effects, film restoration, making catalogue and ownership confirmation relating to radio, film and television programs and works.

 

(2) Services for distribution of radio, film and television programs (works) refer to the business activities of distributing radio, film and television programs (works) and transferring the rights to report and broadcast sports events and other activities to the entities such as theaters, radio stations, television stations and websites as well as individuals by way of sub-accounts, buyout and delegation, etc.

 

(3) Services for broadcast of radio, film and television programs (works) refer to the business activities of broadcasting radio, film and television programs (works) in cinemas, theaters, video halls and other venues as well as via radio stations, television stations, satellite communications, the Internet, cable television and other wireless and wired devices.

 

8. Business assistance services

 

Business assistance services include enterprise management services, brokerage and agency services, human resource services and security protection services.

 

(1) Enterprise management services refer to the business activities of providing services such as headquarters management, investment and asset management, market management, property management and daily comprehensive management.

 

(2) Brokerage and agency services refer to various types of brokerage, intermediary and agency services, including financial agency, intellectual property agency, goods transportation agency, agency in customs declaration, agency in legal matters, real estate intermediary, occupational agency, marriage intermediary, bookkeeping agency and auction.

 

Cargo transport agency services refer to the business activities of accepting the commission by the consignee or consignor of cargo, the vessel owner, lessee of vessel or the vessel operator and handling, in the name of the commissioning party, the formalities for transport, loading, unloading and warehousing of cargo as well as the entering or leaving ports, pilotage and berth of vessels for the commissioning party.

 

Customs clearance agency services refer to the business activities of accepting the commission by the consignee or consignor of imported or exported goods and handling the formalities for customs clearance on behalf thereof.

 

(3) Human resource services refer to the business activities of providing the services for public employment, labor service dispatch, entrusted recruitment of talents and outsourcing of labor services, etc.

 

(4) Security protection services refer to the business activities of providing protection of personal security and property security and safeguarding social security, etc., including venue and residence security protection, special security protection, security system monitoring and other security protection services.

 

9. Other modern services

 

Other modern services refer to the modern services other than R&D and technical services, information technology services, cultural creative services, logistics support services, lease services, authentication and consulting services, radio, film and television services and business assistance services.

 

(VII) Consumer services

 

Consumer services refer to the activities of providing various services to meet the demand of urban and rural residents for daily life, including cultural and sports services, education and medical services, tourism and entertainment services, catering and accommodation services, daily services for residents and other consumer services.

 

1. Cultural and sports services

 

Cultural and sports services include cultural services and sports services.

 

(1) Cultural services refer to various services provided for meeting the demand of the public for cultural life, including literary and artistic creation, artistic performance, cultural competition, borrowing of books and materials in libraries, file management in archives, protection of cultural relics and intangible heritage, organizing and hosting religious activities, scientific and technological activities and cultural activities and providing sightseeing places.

 

(2) Sports services refer to the business activities of organizing and hosting sports competitions, sports performance and sports activities as well as providing athletic training, physical education and physical management.

 

2. Education and medical services

 

Education and medical services include education services and medical services

 

(1) Education services refer to the business activities of providing the services of education for academic qualifications, services of education for non-academic qualifications and education assistance services.

 

Services of education for academic qualifications refer to the business activities of organizing education according to the enrollment and teaching programs determined or recognized by the education administrative departments and issuing appropriate academic certificates, including primary education, junior secondary education, senior secondary education and higher education, etc.

 

Services of education for non-academic qualifications include preschool education and various types of training, speeches, lectures and seminars, etc.

 

Education assistance services include the services for educational assessment, examination and enrollment, etc.

 

(2) Medical services refer to the services of providing medical examination, diagnosis, treatment, rehabilitation, prevention, health care, delivery, family planning and epidemic prevention services as well as the business of providing medicines, medical materials and instruments, ambulances and ward lodging and meals relating to these services.

 

3. Tourism and entertainment services

 

Tourism and entertainment services include tourism services and entertainment services.

 

(1) Tourism services refer to the business activities of organizing and arranging the services in transport, sightseeing, accommodation, catering, shopping, entertainment and business affairs, etc.

 

(2) Entertainment services refer to the business of providing both venues and services for entertainment activities.

 

They include specifically singing halls, ballrooms, nightclubs, bars, billiards, golf, bowling and recreation (including shooting, hunting, horse race, game machine, bungee jumping, kart, fire balloon, powered parachutes, archery and dart).

 

4. Catering and accommodation services

 

Catering and accommodation services include catering services and accommodation services.

 

(1) Catering services refer to the business activities of providing consumers with food consumption services through providing both food and drink and eating places.

 

(2) Accommodation services refer to the activities of providing accommodation places and supporting services, including the accommodation services provided at hotels, inns, hostels, vocational villages and other for-profit accommodations.

 

5. Daily services for residents

 

Daily services for residents refer to the services provided mainly for meeting the demand of resident individuals and their families, including the services such as city appearance and city planning administration, housekeeping, wedding services, provision for the aged, funeral and interment, caring and nursing, assistance and relief, cosmetology and hair dressing, massage, sauna, oxygen bar, foot massage, bathing, washing and dying, photographing and photographic processing, etc.

 

6. Other consumer services

 

Other consumer services refer to the consumer services other than cultural and sports services, education and medical services, tourism and entertainment services, catering and accommodation services and daily services for residents.

 

II. Sale of intangible assets

 

Sale of intangible assets refer to the business activities of transferring the ownership or use right of intangible assets. Intangible assets refer to the assets that have no physical forms but can bring economic benefits, including technologies, trademark, copyright, goodwill, natural resource use rights and other equity intangible assets.

 

Technologies include patented technologies and unpatented technologies.

 

Natural resource use rights include land use right, sea area use rights, prospecting right, mining right, water intake right and other natural resource use rights.

 

Other equity intangible assets include infrastructure assets operation right, public utilities franchise, quota, operating rights (including operating concessions, chain operating right and other operating rights), dealership, distribution right, agency, member right, seats right, online game virtual items, domain names, right to names, right to portraits, naming right and transfer fees.

 

III. Sale of real property

 

Sale of real property refers to the business activities of transferring the ownership of real property. Real property refers to the property which is irremovable or of which nature or shape may be changed after movement, including buildings and structures, among other things.

 

Buildings include residences, business buildings, office buildings and other constructions that can be used for dwelling, work or other activities.

 

Structures include roads, bridges, tunnels, dams and other constructions.

 

The transfer of limited property rights or permanent use rights to buildings, the transfer of the ownership of the buildings or structures in progress and the simultaneous transfer of buildings or structures and the use right to the land occupied thereby shall be subject to payment of VAT as per sale of real property.

 

Appendix 2:

 

Provisions on Issues Related to the Pilot Program of Replacing Business Tax with Value-added Tax

 

1. During the Pilot Program of Replacing Business Tax with Value-added Tax, the relevant policies regarding the taxpayers involved in the Pilot Program [refers to the taxpayers that shall pay the value-added tax in accordance with the Measures for the Implementation of the Pilot Program of Replacing Business Tax with Value-added Tax (hereinafter referred to as the "Measures for the Implementation of the Pilot Program")].

 

(1) Concurrent business engagement

 

If the taxpayers involved in the Pilot Program are engaged in the sales of goods, processing, repairing and replacement activities, services, intangible assets or real properties, which are subject to different tax rates or levy rates, the sales amounts subject to different tax rates or levy rates shall be separately accounted for; if the sales amounts fail to be accounted for separately, the tax rates or levy rates shall be applied in the following ways:

 

1. If a taxpayer involved in the Pilot Program is concurrently engaged in the sales of goods, processing, repairing and replacement activities, services, intangible assets or real properties, which are subject to different tax rates, a higher tax rate shall apply.

 

2. If a taxpayer involved in the Pilot Program is concurrently engaged in the sales of goods, processing, repairing and replacement activities, services, intangible assets or real properties, which are subject to different levy rates, a higher levy rate shall apply.

 

3. If a taxpayer involved in the Pilot Program is concurrently engaged in the sales of goods, processing, repairing and replacement activities, services, intangible assets or real properties, which are subject to different tax rates and levy rates, a higher tax rate shall apply.

 

(2) Items not subject to the value-added tax

 

1. Railway transport services and air transport services supplied without compensation in accordance with the instructions of the State, which fall into the scope of public welfare services specified in Article 14 of the Measures for the Implementation of the Pilot Program.

 

2. Interest on deposit.

 

3. Insurance payment received by the insured.

 

4. Residential maintenance funds collected by the competent department of real estate or its designated agency, the accumulation fund management center, the development enterprise or the department of property management as a collecting agency.

 

5. The transfer of real properties and land use right involved in the transfer of all or part of physical assets and of the creditor's rights, liabilities and labor forces associated with such assets to other entities and individuals during the assets reorganization process through merger, division, sale, replacement and other ways.

 

(3)Sales amount

 

1. Loan services: the sales amount shall be all the interest and income of interest nature that have been obtained by providing loan services.

 

2. Direct charged financial services: the sales amount shall be the handling charge, commission, remuneration, management fee, service fee, brokerage fee, setup fee, transfer fee, clearing fee, custodian fee and other kinds of fees collected while the taxpayers are providing the directly charged financial services.

 

3. Transfer of financial products: the sales amount shall be the balance of the selling price less the buying price.

 

As for the positive and negative difference after the transfer of financial products, the sales amount shall be the break-even balance. If the break-even balance is a negative difference, the difference may be carried forward to the next taxable period to offset the sales amount of transfer of financial products, but the negative difference at the end of a year shall not be carried forward to the next fiscal year.

 

The buying price of financial products may be accounted for by using the weighted average method or the moving weighted average method, which shall not be changed within 36 months after being selected.

 

No VAT special invoices may be issued for the transfer of financial products.

 

4. Brokerage services: the sales amount shall be the balance of the total price and other charges less the governmental funds or administrative fees collected from and paid for the entrusting party. No VAT special invoices may be issued for the governmental funds or administrative fees collected from the entrusting party.

 

5. Finance lease and financing after-sales leaseback businesses

 

(1) If the taxpayers involved in the Pilot Program that are engaged in the finance lease business upon approval of the People's Bank of China, the China Banking Regulatory Commission or the Ministry of Commerce provide the finance lease services, the sales amount shall be the balance of the total price and other charges obtained by such taxpayers less the payment of interest on borrowings (including interest on borrowings in foreign currency and RMB), interest on issued bonds and vehicle purchase tax.

 

(2) If the taxpayers involved in the Pilot Program that are engaged in the finance lease business upon approval of the People's Bank of China, the China Banking Regulatory Commission or the Ministry of Commerce provide the financing after-sales leaseback services, the sales amount shall be the balance of the total price and other charges (excluding the principal) obtained by such taxpayers less the external payment of interest on borrowings (including interest on borrowings in foreign currency and RMB) and interest on issued bonds.

 

(3) As for the financing after-sales leaseback of tangible personal properties provided by the taxpayers involved in the Pilot Program in accordance with the Contract for the Financing After-sales Leaseback of Tangible Personal Properties signed before April 30, 2016 prior to the expiration of the Contract, such taxpayers may continue to pay the value-added tax on finance lease of tangible personal properties.

 

If the taxpayers involved in the Pilot Program that continue to pay the value-added tax on finance lease of tangible personal properties can be engaged in the finance lease business upon approval of the People's Bank of China, the China Banking Regulatory Commission or the Ministry of Commerce, and such taxpayers provide the financing after-sales leaseback services for tangible personal properties in accordance with the Contract for the Financing After-sales Leaseback of Tangible Personal Properties signed before April 30, 2016 prior to the expiration of the Contract, the sales amount may be accounted for by using one of the following ways.

 

①The sales amount shall be the balance of the total price and other charges collected from the lessee, less the principal price collected from the lessee and the external payment of interest on borrowings (including interest on borrowings in foreign currency and RMB) and interest on issued bonds.

 

As for the financing after-sales leaseback services for tangible personal properties provided by the taxpayers, the principal price that may be deducted while the taxpayers are accounting for the sales amount, shall be the principal that should be collected during the current period as stipulated in a written contract. In the absence of such a contract in writing or such provisions in a written contract, the principal price shall be the principal that has been actually collected during the current period.

 

As for the financing after-sales leaseback services for tangible personal properties provided by the taxpayers, no VAT special invoices may be issued for the principal price of tangible personal properties collected from the lessee, but the regular invoices shall be issued.

 

② The sales amount shall be the balance of the total price and other charges collected from the lessee, less the payment of interest on borrowings (including interest on borrowings in foreign currency and RMB) and interest on issued bonds.

 

(4) If the paid-up capital of any taxpayer involved in the Pilot Program that is engaged in the finance lease business upon approval of the competent department of commerce at the provincial level authorized by the Ministry of Commerce and the National Economic and Technological Development Zone, reaches RMB 170 million after May 1, 2016, the provisions in the above Items (1), (2), (3) shall be applied from the month when it is up to standard; if the paid-up capital fails to reach RMB 170 million, but the registered capital reaches RMB 170 million after May 1, 2016, the provisions in the above Items (1), (2), (3) may apply before July 31, 2016, but the finance lease and financing after-sales leaseback businesses conducted after August 1, 2016 shall not be governed by the provisions in the above Items (1), (2), (3).

 

6. The sales amount of air transport enterprises shall not include the airport construction fee and price of passenger tickets of other air transport enterprises collected and remitted by such enterprises as an agency.

 

7. As for the transport station services provided by the general taxpayers among the taxpayers involved in the Pilot Program, the sales amount shall be the balance of the total price and other charges less the freight paid to the carrier.

 

8. As for the tourism services provide by the taxpayers involved in the Pilot Program, the sales amount may be the balance of the total price and other charges less the expenses for lodging, transportation and meals, visa fees, entrance fees and tourism costs for other reception travel agencies that have been collected from tourism service buyers and paid to other entities or individuals.

 

No VAT special invoices may be issued for the above fees collected from tourism service buyers and paid to other entities or individuals by the taxpayers involved in the Pilot Program that have chosen the above way to account for the sales amount, but the regular invoices shall be issued.

 

9. If the simple taxation method is used for the constructions services provided by the taxpayers involved in the Pilot Program, the sales amount shall be the balance of the total price and other charges less the amount paid to subcontractor.

 

10. If the general taxpayers among the real estate development enterprises sell their developed real estate projects (except for the old real estate projects subject to the simple taxation method), the sales amount shall be the balance of the total price and other charges less the land price that has been paid to the competent government department during the transfer of the right to use the land.

 

The old real estate projects refer to the real estate projects, the contract commencement date of which indicated in the Building Engineering Construction Permit is before April 30, 2016.

 

11. The valid certificates of the prices deducted by the taxpayers involved in the Pilot Program from the total price and other charges in according with the provisions of the above Items 4 to 10 shall be obtained in line with the relevant laws, administrative regulations and provisions of the State Administration of Taxation. Otherwise, such prices shall not be deducted.

 

The above certificates refer to:

 

(1) As for the payments made to the domestic entities or individuals, the invoices shall be regarded as legal and valid certificates.

 

(2) As for the payments made to the overseas entities or individuals, the vouchers signed by such entities or individuals shall be regarded as legal and valid certificates; if any tax authority has any objection against such vouchers, it may request such entities or individuals to provide the certificates confirmed by overseas notary organs.

 

(3) As for tax payments, the tax payment receipts shall be regarded as legal and valid certificates.

 

(4) As for the deducted government funds, administrative service fees or land prices paid to the Government, the vouchers as uniformly supervised (and printed) by the department of finance at or above the provincial level shall be regarded as legal and valid certificates.

 

(5) Other certificates as specified by the State Administration of Taxation.

 

If the above certificates obtained by the taxpayers are the VAT deduction vouchers, the input VAT thereof shall not be credited against the output VAT.

 

(4) Input VAT

 

1. If the taxpayers involved in the Pilot Program that are subject to the general taxation method, obtains any real properties that should be accounted for as fixed assets according to the accounting system after May 1, 2016, or obtains any real estate project under construction after May 1, 2016, the input VAT shall be credited against the output VAT within two years as of the date of obtaining such assets, and the deduction percentage of the first year is 60% and that of the second year is 40%.

 

The obtained real properties include all kinds of real properties that are directly purchased, accepted as a donation, accepted as an investment, self-established, or paid as a debt, excluding the real estate projects that are self-developed by real estate development enterprises.

 

As for the real properties obtained through finance lease and the temporary buildings and structures on the construction site, the input VAT shall not be governed by the above provisions on deduction within two years.

 

2. If the use of any fixed assets, intangible assets or real properties, the input VAT of which shall not be deducted in accordance with Item (1) of Article 27 of the Measures for the Implementation of the Pilot Program and has not been deducted, has changed, for the taxable items the input VAT of which can be deducted, the deductible input VAT may be calculated in accordance with the following formula in the next month after such use change.

 

Deductible input VAT = net value of fixed assets, intangible assets, real properties / (1 + applicable tax rate) × applicable tax rate

 

The valid VAT deduction vouchers shall be obtained for the above deductible input VAT.

 

3. As for the investment and financing advisory fees, handling fees, consulting fees and other relevant fees directly related to the loan, which are paid by the taxpayers that have accepted the loan services to a lender, the input VAT shall not be credited against the output VAT.

 

(5) General taxpayer registration

 

The annual taxable sales standard specified in Article 3 of the Measures for the Implementation of the Pilot Program is RMB 5 million (including the given number). The Ministry of Finance and the State Administration of Taxation may adjust the annual taxable sales standard.

 

(6)Taxation method

 

The general taxpayers may choose the simple taxation method for the following taxable activities:

 

1. Public transport services.

 

Public transport services, including passenger ferry, public transportation, subway, urban light rail, taxis, long-distance passenger transportation and scheduled bus.

 

Scheduled bus (services) refers to the land transport services for transporting passengers according to a fixed route, at a fixed time and on a fixed site.

 

2. The animation script writing, image design, background design, animation design, storyboard, animation production, filming, scanning lines, coloring, image synthesis, dubbing, dubbing in background music, sound synthesis, editing, subtitling, compressed transcoding (for network animation, mobile phone animation format adapter) services provided by the certified animation enterprises for the development of animation products, and the transfer of animation copyright in China (including animation brand, image or content licensing and re-licensing).

 

The certification standards and certification procedures for animation enterprises and the self-development and production of animation products shall be implemented in accordance with the Notice of the Ministry of Culture, the Ministry of Finance and the State Administration of Taxation on Printing and Distributing the Administrative Measures for the Certification of Animation Enterprises (Trial Implementation)" (Wen Shi Fa [2008] No. 51).

 

3. The film screening services, warehousing services, transportation and handling services, collection and delivery services and cultural and sports services.

 

4. The operating lease services for tangible personal properties obtained before the date when they are included in the Pilot Program of Replacing Business Tax with Value-added Tax.

 

5. The lease contracts for tangible personal properties that have been signed before the date when they are included in the Pilot Program of Replacing Business Tax with Value-added Tax, but have not been implemented.

 

(7) Construction services

 

1. The general taxpayers may choose the simple taxation method for construction services that are provided by contracting work load with materials supplied by the contracting party.

 

The construction services that are provided by contracting work load with materials supplied by the contracting party, refer to the construction services under which the construction party is not required to purchase construction materials as needed, or the construction party only needs to purchase some auxiliary materials, and can charge labor costs, management fees or other fees.

 

2. The general taxpayers may choose the simple taxation method for construction services that are provided under the construction projects with Party A-supplied materials.

 

The construction projects with Party A-supplied materials refer to the construction projects, under which all or part of the equipment, materials and power are provided by the owner of the projects.

 

3. The general taxpayers may choose the simple taxation method for the construction services for old construction projects.

 

Old construction projects refer to

 

(1) Construction projects, the contract commencement date of which indicated in the Building Engineering Construction Permit is before April 30, 2016.

 

(2) If without the Building Engineering Construction Permit, construction engineering projects, the commencement date of which indicated in the construction engineering contract is before April 30, 2016

 

4. If the general taxpayers choose to use the general taxation method for constructions services provided across counties (cities), the tax amount payable shall be calculated based on the total price and other charges as the sales amount. The taxpayers shall prepay the tax at 2% (pre-tax rate) of the balance of the total price and other charges that have been obtained less the amount paid to subcontractor in the place where such construction services are provided, and then make tax declaration with the tax authority of the place where they are located.

 

5. If the general taxpayers choose to use the simple taxation method for constructions services provided across counties (cities), the balance of the total price and other charges that have been obtained less the amount paid to subcontractor shall be the sales amount, and the tax amount payable shall be calculated at the levy rate of 3%. The taxpayers shall prepay the tax according to the above taxation method in the place where the construction services are provided, and then make tax declaration with the tax authority of the place where they are located.

 

6. If the small-scale taxpayers among the taxpayers involved in the Pilot Program (hereinafter referred to as the "small-scale taxpayers") provide construction services across counties (cities), the balance of the total price and other charges that have been obtained less the amount paid to subcontractor shall be the sales amount, and the tax amount payable shall be calculated at the levy rate of 3%. The taxpayers shall prepay the tax according to the above taxation method in the place where the construction services are provided, and then make tax declaration with the tax authority of the place where they are located.

 

(8) Sales of real properties

 

1. If the general taxpayers sell the real properties that have been obtained (excluding self-constructed) prior to April 30, 2016, they may choose to use the simple taxation method, the balance of the total price and other charges that have been obtained less the purchase price of such real properties or the fixed price of such real properties shall be the sales amount, and the tax amount payable shall be calculated at the levy rate of 5%. The taxpayers shall prepay the tax according to the above taxation method in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

2. If the general taxpayers sell the real properties that have been self-constructed prior to April 30, 2016, they may choose to use the simple taxation method, the total price and other charges that have been obtained shall be the sales amount, and the tax amount payable shall be calculated at the levy rate of 5%. The taxpayers shall prepay the tax according to the above taxation method in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

3. If the general taxpayers sell the real properties that are obtained (excluding self-constructed) after May 1, 2016, they shall choose to use the general taxation method, and the tax amount payable shall be calculated based on the total price and other charges obtained as the sales amount. The taxpayers shall prepay the tax at 5% pre-tax rate of the balance of the total price and other charges that have been obtained less the purchase price of such real properties or the fixed price of such real properties in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

4. If the general taxpayers sell the real properties that are self-constructed after May 1, 2016, they shall choose to use the general taxation method and the tax amount payable shall be calculated based on the total price and other charges obtained as the sales amount. The taxpayers shall prepay the tax at 5% pre-tax rate of the total price and other charges that have been obtained in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

5. If the small-scale taxpayers sell the real properties that are obtained (excluding self-constructed) (excluding the houses that are purchased and sold by individual businesses or other real properties sold by individuals), the balance of the total price and other charges that have been obtained less the purchase price of such real properties or the fixed price of such real properties shall be the sales amount, and the tax amount payable shall be calculated at the levy rate of 5%. The taxpayers shall prepay the tax according to the above taxation method in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

6. If the small-scale taxpayers sell the real properties that are self-constructed, the total price and other charges that have been obtained shall be the sales amount, and the tax amount payable shall be calculated at the levy rate of 5%. The taxpayers shall prepay the tax according to the above taxation method in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

7. If the general taxpayers among the real estate development enterprises sell their self-developed old real estate projects, they may choose the simple taxation method to pay the tax at the levy rate of 5%.

 

8. If the small-scale taxpayers among the real estate development enterprises sell their self-developed real estate projects, the tax shall be paid at the levy rate of 5%.

 

9. If the real estate development enterprises sell their self-developed real estate projects on a prepayment basis, the enterprises shall prepay the value-added tax at the pre-tax rate of 3% after receipt of the advance payment.

 

10. If the individual businesses sell their purchased houses, the businesses shall, in accordance with the provisions of Article 5 of the Provisions on Transition Policies in the Pilot Program of Replacing Business Tax with Value-added Tax (Annex 3), be exempted from the value-added tax. The taxpayers shall prepay the tax according to the above taxation method in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

11. Other individuals sell their obtained (excluding self-constructed) real properties (excluding their purchased houses), the balance of the total price and other charges that have been obtained less the purchase price of such real properties or the fixed price of such real properties shall be the sales amount, and the tax amount payable shall be calculated at the levy rate of 5%.

 

(9) Operating lease services for real properties

 

1. If the general taxpayers lease the real properties that have been obtained prior to April 30, 2016, the taxpayers may choose to use the simple taxation method to calculate the tax amount payable at the levy rate of 5%. If the taxpayers lease the real properties that have been obtained prior to April 30, 2016 and are not located in the same county (city) as the taxpayers, the taxpayers shall prepay the tax according to the above taxation method in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

2. If the general taxpayers among the highway enterprises collects the tolls of expressways that have been put into operation before the Pilot Program, the taxpayers may choose to use the simple taxation method to calculate the tax amount payable at the reduced levy rate of 3%.

 

Expressways that have been put into operation before the Pilot Program refer to the expressways, the contract commencement date of which indicated in the Construction Permit is before April 30, 2016

 

3. If the general taxpayers lease the real properties that are obtained after May 1, 2016 and are not located in the same county (city) as the taxpayers, the taxpayers shall prepay the tax at the pre-tax rate of 3％ in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

4. If the small-scale taxpayers lease their obtained real properties (excluding personal rental housing), the tax amount payable shall be calculated at the levy rate of 5%. If the taxpayers lease the real properties that are not located in the same county (city) as the taxpayers, the taxpayers shall prepay the tax according to the above taxation method in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

5. If other individuals lease their obtained real properties (excluding housing), the tax amount payable shall be calculated at the levy rate of 5%.

 

6. If individuals lease their housing, the tax amount payable shall be calculated at the levy rate of 1.5% that has been reduced from 5%.

 

(10) If the general taxpayers choose to use the general taxation method while selling their real properties that have been obtained (excluding self-constructed) prior to April 30, 2016, the tax amount payable shall be calculated based on the total price and other charges that have been obtained as the sales amount. The above taxpayers shall prepay the tax at 5% (pre-tax rate) of the total price and other charges that have been obtained less the purchase price of such real properties or the fixed price of such real properties in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

If the general taxpayers among the real estate development enterprises choose to use the general taxation method while selling the old real estate projects, or leasing the real properties that have been obtained prior to April 30, 2016, the taxpayers shall prepay the tax at 3% (pre-tax rate) of the total price and other charges that have been obtained in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

If the general taxpayers choose to use the general taxation method while selling their real properties that have been self-constructed prior to April 30, 2016, the tax amount payable shall be calculated based on the total price and other charges that have been obtained as the sales amount. The taxpayers shall prepay the tax at 5% (pre-tax rate) of the total price and other charges that have been obtained in the place where the real properties are located, and then make tax declaration with the tax authority of the place where they are located.

 

(11) If the general taxpayers provide construction services across provinces (autonomous regions, municipalities directly under the central government or cities specifically designated in the state plan), or sell or lease the obtained real properties that are not in the same province (autonomous region, municipality directly under the central government or city specifically designated in the state plan) as the taxpayers, and the calculated tax amount payable is less than the tax paid in advance and the difference is bigger when the taxpayers make tax declaration with the tax authority of the place where they are located, the State Administration of Taxation shall notify the provincial tax authority of the place where the construction services are provided or the real properties are located to suspend the prepayment of value-added tax in a given period.

 

(12) Place of tax payment

 

If the the head office and branches of the taxpayers with a fixed establishment involved in the Pilot Program are not in the same county (city), but in the same province (autonomous region, municipality directly under the central government or city specifically designated in the state plan), upon approval of the department (bureau) of finance of the province (autonomous region, municipality directly under the central government or city specifically designated in the state plan) and the state administration of taxation, the head offices thereof may summarize the relevant tax payment data and declare and pay the value-added tax with the tax authority of the place where they are located.

 

(13) Business occurred prior to the Pilot Program

 

1. If the taxpayers involved in the Pilot Program have any taxable behaviors, and the business tax shall be levied on the difference thereof according to the State business tax-related policies and regulations, the part that has not yet been deducted as of the date when they are included in the Pilot Program of Replacing Business Tax with Value-added Tax because the total price and other charges that have been obtained are not sufficient to offset the deductable amount, shall not be deducted while the VAT taxable sales amount of the taxpayers are calculated, and the taxpayers shall apply for business tax rebates with the original competent tax authority.

 

2. If the taxpayers involved in the Pilot Program have any taxable behaviors, and the business tax thereof has been paid before they are included in the Pilot Program of Replacing Business Tax with Value-added Tax and the turnover has been reduced due to a refund after the Pilot Program of Replacing Business Tax with Value-added Tax, the taxpayers shall apply for business tax rebates with the original competent tax authority.

 

3. If an overdue tax bill shall be paid for the taxable behaviors of the taxpayers involved in the Pilot Program that occurred before they are included in the Pilot Program of Replacing Business Tax with Value-added Tax due to tax inspection, the taxpayers shall make a supplementary payment of the business tax in accordance with the business tax policies.

 

(14) Sales of used fixed assets

 

If the general taxpayers sell their used fixed assets that have been obtained before they are included in the Pilot Program of Replacing Business Tax with Value-added Tax, the existing VAT policies related to used assets shall apply.

 

Used fixed assets refer to the fixed assets of the taxpayers that conform with the provisions of Article 28 of the Measures for the Implementation of the Pilot Program, and have been depreciated according to the financial and accounting system.

 

(15) Applicable tax rate for withholding the value-added tax

 

If the domestic buyers withhold the value-added tax for overseas entities and individuals, the value-added tax shall be withheld at the applicable tax rate.

 

(16) Other provisions

 

a. If the taxpayers involved in the Pilot Program give the user identification card, telecommunication terminal and other goods or telecommunication services as a present while selling telecommunication services, the total price and other charges thereof that have been obtained shall be separately accounted for, and the value-added tax thereof shall be separately calculated at the application tax rate.

 

b. The taxable behaviors of the oil-gas field enterprises shall be governed by the provisions of the Measures for the Implementation of the Pilot Program on VAT rate, and the VAT rate specified in the Notice of the Ministry of Finance and the State Administration of Taxation on Printing and Distributing the Administrative Measures for the Value-added Tax of Oil-gas Field Enterprises(Cai Shui [2009] No.8) is no longer applicable.

 

2. Relevant policies regarding the original VAT taxpayers (refer to the taxpayers that pay the value-added tax in accordance with the Interim Regulations of the People's Republic of China on Value Added Tax (Order 538 of the State Council) (hereinafter referred to as the "Interim Regulations on Value Added Tax ").

 

(1) Input VAT

 

1. If the original VAT general taxpayers purchase services, intangible assets or real properties and the VAT amount indicated on the obtained VAT invoices is the input VAT, the input VAT may be credited against the output VAT.

 

As for the real properties that are obtained after May 1, 2016 and are accounted for as fixed assets according to the accounting system, or the real estate projects under construction that are obtained after May 1, 2016, the input VAT thereof shall be credited against the output VAT within two years as of the date of obtaining them, with the deduction rate of 60% in the first year and 40% in the second year.

 

As for the real properties that have been obtained through finance lease and the temporary buildings and structures in the construction site, the above provisions on deduction within two years shall not be applied to the input VAT.

 

2. As for the motorcycles, cars and yachts that are used by the original VAT general taxpayers and shall be levied the consumption tax, the input VAT can be credited against the output VAT.

 

3. If the original VAT general taxpayers purchase services, intangible assets or real properties from overseas entities or individuals and the value-added tax shall be withheld as required, the input VAT that can be credited against the output VAT shall be the VAT amount indicated on the tax payment receipt from the competent tax authority, or obtained by the withholding agent.

 

If the taxpayers deduct the input VAT on the strength of tax payment receipts, such taxpayers shall provide written contracts, payment proofs and bills or invoices of overseas entities. If the relevant data is not complete, the input VAT shall not be credited against the output VAT.

 

4. If the original VAT general taxpayers purchase goods, or receive the processing, repair and replacement services for the items listed in the Notes for the Sales of Services, Intangible Assets and Real Properties, which do not belong to the circumstances that " used for non-VAT taxable Items" specified in the Provisional Regulations on Value-added Tax, the input VAT can be credited against the output VAT.

 

5. If the original VAT general taxpayers purchase services, intangible assets or real properties, the input VAT of the following items shall not be credited against the output VAT.

 

(1) Taxable items subject to the simple taxation method, items exempt from VAT, collective welfare or personal consumption. The intangible assets or real properties that have been involved refer to the intangible assets or real properties (excluding other equity intangible assets) exclusively used for the above items.

 

The social consumptions of the taxpayers shall be regarded as personal consumptions.

 

(2) The purchased goods that suffer abnormal losses, and the relevant processing, repair and replacement services and transportation services.

 

(3) The purchased goods (excluding fixed assets), processing, repair and replacement services and transportation services consumed by the unfinished products or finished products that suffer abnormal losses.

 

(4) The real properties that suffer abnormal losses, and the purchased goods, design services and construction services consumed by such real properties.

 

(5) The purchased goods, design services and construction services consumed by the real estate projects under construction that suffer abnormal losses.

 

Real properties newly constructed, reconstructed, expanded, repaired or decorated by the taxpayers shall be regarded as real estate projects under construction.

 

(6) The purchased passenger transportation services, loan services, catering services, residents' daily services and entertainment services.

 

(7) Other circumstances specified by the Ministry of Finance and the State Administration of Taxation.

 

The goods mentioned in the above Items (4) and (5) refer to the materials and equipment that constitute the real properties, including the building decoration materials and plumbing, heating, sanitation, ventilation, lighting, communication, gas, fire-fighting, central air-conditioning , elevator, electrical, intelligent building equipment and ancillary facilities.

 

The input VAT of the investment and financing advisory fees, handling fees, consulting fees and other relevant fees directly related to the loan, which are paid by the taxpayers accepting the loan services to a lender, shall not be credited against the output VAT.

 

6. As for the purchased services the input VAT of which has been deducted fall into the circumstances specified in the above Item 5 (excluding the taxable items subject to the simple taxation method and the taxable items exempted from the value-added tax), the input VAT shall be credited against the current input VAT; if the input VAT cannot be determined, the deductible input VAT shall be calculated based on the current actual costs.

 

7. As for the intangible assets or real properties the input VAT of which has been deducted fall into the circumstances specified in the above Item 5, the input VAT that should not be deducted shall be calculated based on the following formula.

 

The input VAT that should not be deducted = net value of intangible assets or real properties × applicable tax rate

 

8. If the use of the fixed assets, intangible assets or real properties, the input VAT of which shall not be deducted in accordance with Article 10 of the Provisional Regulations on Value-added Tax and the above Item 5 and has not been deducted, has changed for the taxable items the input VAT of which can be deducted, the deductible input VAT shall be calculated on the strength of legal and valid VAT deduction vouchers according to the following formula in the next month after the use change:

 

The input VAT that can be deducted = net value of fixed assets, intangible assets or real properties / (1 + applicable tax rate) ×applicable tax rate

 

The above deductible input VAT shall be based on the legal and valid VAT deduction vouchers.

 

(2) Final tax credits of the VAT

 

The original VAT general taxpayers concurrently sell services, intangible assets or real properties, the final tax credits of the VAT as of the date of the Pilot Program of Replacing Business Tax with Value-added Tax shall not be credited against the output VAT of such sold services, intangible assets or real properties.

 

(3) Mixed sales

 

A sales activity involving not only goods but also services shall be regarded as mixed sales. As for the mixed sales activities of the entities and individual businesses engaged in the production, wholesale or retail of goods, the value-added tax shall be paid based on the sales of goods; the value-added tax of mixed sales activities of other entities and individual businesses shall be paid based on the sales of services.

 

The above entities and individual businesses engaged in the production, wholesale or retail of goods include the entities and individual businesses that are mainly engaged in the production, wholesale or retail of goods, but are concurrently engaged in the sales of services.

 

Appendix 3:

 

Provisions on Transitional Policies for the Pilot Program of Replacing Business Tax with Value-added Tax

 

1. The following items are exempt from value-added tax (VAT)

 

(1) Nursing and education services provided by nurseries and kindergartens.

 

Nurseries and kindergartens shall refer to the organizations established upon approval after examination by education departments at or above the county level that have the operation permit to engage in pre-school education for 0-6 year-old children, including public and private nursery schools, kindergartens, pre-school classes and nursery.

 

Incomes of public nurseries and kindergartens that are exempted from VAT shall refer to tuition fees and nursing fees charged at or below the stipulated fee-charging standards reviewed and verified by the provincial financial departments and the competent price departments and approved by the people's governments at the provincial level.

 

Incomes of private nurseries and kindergartens that are exempted from VAT shall refer to tuition fees and nursing fees charged at or below stipulated fee-charging standards record-filed with and publicly announced by relevant competent local departments.

 

Fees charged in excess of the stipulated amounts and fees not included in the prescribed scope, such as fees for experimental classes, featured classes and interest-oriented classes, as well as sponsorship fees and education-support fees charged in connection with entrance to kindergartens, do not belong to incomes from nursing services that are exempted from VAT.

 

(2) Elderly care services provided by elderly care institutions.

 

Elderly care institutions shall refer to various types of elderly care institutions providing the elderly with centralized residence and care services that are established in accordance with the Measures for Permit of the Establishment of Elderly Care Institutions (Order No. 48 of the Ministry of Civil Affairs) and registered in accordance with the law; elderly care services shall refer to the services such as daily care, rehabilitation nursing, spiritual consolation and cultural entertainment provided by the above elderly care institutions to the elderly they admit in accordance with the Measures for Administration of Elderly Care Institutions (Order No. 49 of the Ministry of Civil Affairs).

 

(3) Nursing services provided by welfare institutions for the disabled.

 

(4) Matchmaking service.

 

(5) Funeral services.

 

Funeral services shall refer to services such as body transportation (including body carrying and disinfection), body arrangement, body preservation, storage (including cold storage), cremation, ashes storage, condolence facility leasing, grave leasing and management, of which the charging standards are decided by the local competent price departments jointly with relevant departments or are subject to government-guided prices.

 

(6) Services provided to the society by disabled individuals.

 

(7) Medical services provided by medical institutions.

 

Medical institutions shall refer to institutions that have obtained the Practice Permit for a Medical Institution upon registration in accordance with the Regulations on the Administration of Medical Institutions (Order No. 149 of the State Council) promulgated by the State Council and the Detailed Implementing Rules for the Regulations on the Administration of Medical Institutions (Order No. 35 of the Ministry of Health) promulgated by the Ministry of Health, as well as all types of hospitals at all levels of military forces and armed police forces, including all types of hospitals at all levels, out-patient departments, community health service centers, emergency centers, urban and rural health centers, nursing homes, sanatoriums and clinical laboratory centers, the epidemic prevention stations (disease control centers) and various special disease prevention and treatment centers (stations) organized by the governments at various levels and their departments, Health care centers (stations) for women and children, health care organizations for mothers and children, children's health care organizations, and medical institutions such as blood stations (blood centers) organized by the governments at various levels.

 

Medical services mentioned in this paragraph shall refer to the services provided by medical institutions to patients at prices not higher than the guiding prices of medical services (including government-guided prices and prices determined upon negotiation between the supply and demand parties as required) set by the competent price departments at or above the prefecture (city) level jointly with the competent health departments and other relevant departments at the same level, as well as the epidemic prevention and health quarantine services provided to the society by medical institutions.

 

(8) Educational services provided by schools engaging in education with formal record of schooling.

 

A. Education with formal record of schooling shall refer to the education mode where a receiver of education is admitted into a school or other education institution approved by competent State departments after passing State education examinations or by other means prescribed by the State, and is awarded with education certificates acknowledged by the State upon graduation, including:

 

a. Elementary education: ordinary primary school and adult primary school;

 

b. Junior middle school education: ordinary middle school, vocational junior middle school, and adult junior middle school education;

 

c. Senior middle school education: ordinary high school education, adult high school education and secondary vocational school education (including ordinary technical secondary school education, adult secondary vocational school education, vocational high school education and vestibule school education); and

 

d. Higher education: ordinary university and college education, adult university and college education, internet-based university and college education, postgraduate education (doctoral, master), self-taught examination for higher education, and examination for higher education certificates.

 

B. Schools engaging in education with formal record of schooling shall refer to:

 

a. Ordinary schools;

 

b. Various types of schools whose establishment is approved by people's governments at or above the prefectural (city) level or education administrative departments of governments at the same level and whose education certificates granted to students are acknowledged by the State;

 

c. Schools for technicians and schools for senior technicians that are established upon approval by administrative departments of human resources and social security at and above the provincial level; and

 

d. Institutes of technicians that are established upon approval by provincial people's governments.

 

The above schools shall include private schools qualified to engage in education with formal record of schooling, but shall exclude education institutions whose education certificates are not recognized by the State, such as vocational training institutions.

 

C. Incomes from educational services exempted from VAT shall refer to the incomes from services of education with formal record of schooling provided to students on the register under the student enrollment plan, including: tuition fees, accommodation fees, textbook fees, exercise book fees, examination registration fees that are charged according to stipulated standards and are examined and approved by relevant departments as well as the board fees received from food and beverage services provided by school canteens. Other incomes, including sponsorship and school-choosing fees charged by schools on various grounds, shall not be exempted from VAT.

 

School canteens shall refer to the school canteens managed in accordance with the Administrative Provisions on the Hygiene of School Canteens and Student Group Meals (Order No. 14 of the Ministry of Education).

 

(9) Services provided by students participating in work-study programs.

 

(10) Agricultural mechanical plough, irrigation and drainage, prevention and treatment of plant diseases and insect pests, plant protection, insurance for farming and husbandry and related technical training services, as well as breeding of and the prevention and treatment of diseases for poultry, livestock and aquatic animals.

 

Agricultural mechanical cultivation shall refer to cultivation with agricultural machinery (including ploughing and weeding, planting, reaping, threshing, plant protection, etc.) in agriculture, forestry and animal husbandry; irrigation and drainage shall refer to the irrigation of farmland or drainage of waterlogged farmland; prevention and treatment of plant diseases and insect pests shall refer to the survey, report, prevention and treatment of plant diseases and insect pests in agriculture, forestry, animal husbandry, fishery; insurance for farming and animal husbandry shall refer to the provision of insurance for the plants and animals for planting, breeding, husbandry; related technical training services shall refer to the technical training services relating to the agricultural mechanical plowing, irrigation and drainage, prevention and treatment of plant diseases and insect pests, plant protection and for the purpose of enabling the peasants learn the insurance knowledge concerning agriculture and animal husbandry; the tax-free scope for services of breeding and prevention and treatment of diseases of poultry, livestock and aquatic animals shall include the services, relating to abovementioned services, of providing drugs and medical instruments.

 

(11) Incomes from selling the admission tickets at the first entrance for culture and sport services provided by memorial halls, museums, cultural centers, administrative institutions for sites protected for historical and cultural value, art galleries, exhibition halls, academies of painting and calligraphy and libraries in their own business premises.

 

(12) Incomes from selling the admission tickets for cultural and religious activities conducted at temples, Taoist temples, mosques and churches.

 

(13) Governmental funds and administrative and institutional charges charged by entities other than administrative organizations that comply with the conditions prescribed in Article 10 of the Implementing Measures for the Pilot Program.

 

(14) Transfer of copyright by individuals.

 

(15) Sales of residential properties built by individuals for self-use.

 

(16) Public rental housing rented out by public rental housing operation and management entities before December 31, 2018.

 

Public rental housing shall refer to the public rental housing that is included in the public rental housing development planning and annual plans approved by the people's governments of all provinces, autonomous regions, municipalities directly under the Central Government, cities specifically designated in the State plan and Xinjiang Production and Construction Corps, and is managed in accordance with the Guiding Opinions on Accelerating the Development of Public Rental Housing (Jian Bao [2010] No. 87) and the specific administrative measures formulated by the people's governments of cities and counties.

 

(17) Transportation revenue obtained in the mainland by Taiwan shipping companies and airline companies from being engaged in the cross-straits direct sea and air transport business.

 

Taiwan shipping companies shall refer to shipping companies which have obtained the “License for Waterway Transportation between Taiwan and China Mainland”, and their registered addresses indicated on the license are in Taiwan.

 

Taiwan airline companies shall refer to airline companies which are registered in Taiwan and approved to operate non-regular (chartered airplane) transportation of passengers, cargos and mail across the straits based on a “Business Permit” issued by the Civil Aviation Administration of China or according to the provisions of the Cross-Straits Air Transport Agreement and the Cross-Straits Air Transport Supplementary Agreement.

 

(18) Direct or indirect international freight forwarding services provided by taxpayers.

 

A. When a pilot taxpayer provides direct or indirect international freight forwarding services, all the incomes of forwarding services received from clients, and all the expenses of forwarding services paid to international carriers, shall be settled through financial institutions.

 

B. The freight forwarding services provided by taxpayers for the transport of cargos between the Mainland and Hong Kong, Macao and Taiwan regions shall be subject to relevant regulations on international freight forwarding services.

 

C. Where clients ask for invoices, taxpayers shall issue ordinary VAT invoices in full amount to clients regarding the incomes from international freight forwarding services.

 

(19) The following interest incomes.

 

A. Interest income of financial institutions from small loans granted to farmer households before December 31, 2016.

 

Small loan shall refer to a single loan granted to such household with the total remaining amount of the loan below RMB 100,000 (inclusive).

 

Farmer household shall refer to a household which is permanently residing (above one year) in the administrative management region of a town or village (excluding Chengguan town). It also includes a household which permanently resides within the boundary of the administrative village under the jurisdiction of Chengguan town, a household which is not registered locally but has been residing locally for more than one year, an employee working at state-owned farm, as well as privately and individually owned business in rural area. A collective household from an organ, group, school, enterprise or public institution within state-owned economy and located at administrative management region of a town or village (excluding Chengguan town) and within the boundary of the administrative village under the jurisdiction of Chengguan town, or a household that is locally registered but has been earning a living in another area for more than one year, regardless of whether the contract farmland is retained or not, shall not belong to farmer household. The statistical unit for farmer household shall be based on household. It can either engage in agricultural production and operation or engage in non-agricultural production and operation. The decision on a loan granted to a farm household shall be determined based on whether the main borrowing body at the time when the loan is granted belongs to a farmer household.

 

B. National student loan.

 

C. National debts and local government debts.

 

D. Loans to financial institutions from the People’s Bank of China.

 

E. Housing loans to individuals issued by the housing provident fund management center with the housing provident funds via designated entrusted banks.

 

F. Foreign exchange loans granted by financial institutions, as consigned by foreign exchange administrative departments in the course of engaging in the management of State foreign exchange reserves.

 

G. The interest charged by an enterprise group or the core enterprise of the enterprise group and the finance company of the group in business of unified borrowing and repayment of loans from the enterprise group or the internal entities thereunder according to rates not higher than the lending interest rate paid to financial institutions to the bond coupon interest rate paid.

 

The interest charged by a borrower of the aforesaid unified loans from the entity using the loans is higher than the lending interest rate paid to financial institutions to the bond coupon interest rate paid shall be subject to VAT in full amount.

 

The business of unified borrowing and repayment of loans shall refer to:

 

a. Business under which, after the enterprise group or the core enterprise of the enterprise group raises funds by borrowing loans from a financial institution or issuing bonds, it shall allocate the funds raised to its subordinate enterprises (including entities with independent accounting and entities with non-independent accounting, same below) and collect from its subordinate enterprises the principal and interest that shall be paid to the financial institution or the bond purchasers.

 

b. Business under which, after the enterprise group raises funds by borrowing loans from a financial institution or issuing bonds, the enterprise group's subordinate financial company shall sign a contract on unified borrowing and repayment of loans with the enterprise group or its subordinate enterprises, allocate loans thereto, collect the principal and interest from the said enterprise group or its subordinate enterprises and pay such interest collected to the enterprise group, and the enterprise group shall pay the principal and interest back to the financial institution or the bond purchasers in a unified manner.

 

(20) Properties such as goods, real property, intangible assets, negotiable securities and negotiable instruments used by the cancelled financial institutions to pay off their debts.

 

Cancelled financial institutions shall refer to financial institutions cancelled by the decision of the People's Bank of China and the China Banking Regulatory Commission made in accordance with the law as well as their subsidiary institutions established throughout the country, including the commercial banks, trust and investment companies, financial companies, financial lease companies, and urban and rural credit cooperatives, which have been cancelled in accordance with the law. Unless otherwise specified, the enterprises subordinated or affiliated to the cancelled financial institutions shall not be subject to the VAT exemption policy for cancelled financial institutions.

 

(21) Premium income derived from the personal insurance products with a term of one year or above launched by insurance companies.

 

Personal insurance with a term of more than one year shall refer to the life insurance and pension annuity insurance with the principal and interest refundable that has a term of one year or above and the health insurance that has a term of one year or above.

 

Life insurance shall refer to the personal insurance with human lifespan as the insured object.

 

Pension annuity insurance shall refer to the personal insurance that aims at pension security, takes the existence of the insured as the condition for payment of insurance benefit and makes payment of survival insurance benefits in installments according to the agreed time intervals. Pension annuity insurance shall satisfy the following conditions at the same time:

 

A. The age for paying to the insured the survival insurance benefit as specified in the insurance contract shall not be younger than the retirement age prescribed by the State; and

 

B. The interval between two adjacent payments shall not be longer than one year.

 

Health insurance shall refer to the personal insurance that takes the loss caused by health reason as condition for payment of insurance benefit.

 

Record-filing administration shall apply in respect of the above-mentioned tax exemption policy. The specific measures for the record-filing administration shall be subject to the Announcement of the State Administration of Taxation on Issues concerning the Administration After the Cancellation of the Examination and Approval of Exempting Refundable Personal Insurance Products of One Year or Longer from Business Tax (Announcement [2015] No. 65 of the State Administration of Taxation).

 

(22) Incomes from the transfer of the following financial products.

 

A. Where qualified foreign institutional investor (QFII) entrusts domestic companies to carry out securities transactions in China;

 

B. Where Hong Kong market investors (including entity and individual investors) invest in the A shares listed on the Shanghai Stock Exchange) via the Shanghai-Hong Kong Stock Connect Program;

 

C. Where Hong Kong market investors (including entity and individual investors) buy and sell the shares of Mainland funds via mutual recognition of funds;

 

D. Where the managers of securities investment fund (including closed-end securities investment funds and open-end investment securities funds) buy and sell stocks and bonds with such funds; and

 

E. Where individuals engage in the transfer of financial products.

 

(23) Interests income from inter-financial institution transactions.

 

A. Capital flow between financial institutions and the People’s Bank of China, including the loans issued by the People’s Bank of China to general financial institutions and the rediscount made by the People’s Bank of China to commercial banks.

 

B. Banks’ inter-branch transactions, referring to the funds and accounts exchanged among different branches and offices in the same banking system.

 

C. Capital flow among financial institutions, referring to the short-term (less than one year, including one year) unsecured financing between financial institutions that have accessed the National Interbank Borrowing Market as approved by the People's Bank of China through the national unified interbank lending networks.

 

D. Rediscount business among financial institutions.

 

Financial institutions shall refer to:

 

a. Banks, including the People's Bank of China, commercial banks and policy banks;

 

b. Credit cooperatives;

 

c. Security companies;

 

d. Financial leasing companies, security and funds management companies, finance companies, trust investment companies and security investment companies;

 

e. Insurance companies; and

 

f. Other institutions established upon approval of the People’s Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission and engaged in financial insurance business.

 

(24) Guarantee organizations qualified for engaging in credit guarantee or re-guarantee (excluding credit rating, consulting, training and other earnings) for small and medium-sized enterprises shall be exempted from VAT within three years if the following conditions are met at the same time:

 

A. The guarantee organization shall have obtained the business certificate for financing guarantee institutions issued by the regulatory authority, and been registered to be an enterprise (public institution) as a legal person with the paid-up capital of more than RMB 20 million;

 

B. The guarantee organization shall have the average annual guarantee rate of not more than 50% of the bank benchmark lending rate over the same period. The average annual guarantee rate = the guarantee fee income for the current period / (the balance of guarantee at the beginning of the period + the increased guarantee amount for the current period) × 100%;

 

C. The guarantee organization shall have continuously conducted the compliant business operations for two years or more and mainly used the funds for guarantee business, with the sound internal management system and the ability to provide guarantees for small and medium-sized enterprises, the outstanding business performance, and the perfect mechanism of pre-assessment, monitoring in the course and post-recovery and disposal for protected items;

 

D. The cumulative amount of guaranteed loans provided for small and medium-sized enterprises by the guarantee organization shall account for 80% or more of the accumulative total amount of guarantee business for the period of two years, and the accumulative amount of guaranteed loans, of which each loan is RMB 8 million or less, shall account for 50% or more of the accumulative total amount of guarantee business;

 

E. The guarantee balance provided for a single guaranteed enterprise shall not exceed 10% of the paid-up capital of the guarantee organization, and the maximum amount of a single liability to guarantee shall not exceed RMB 30 million on average; and

 

F. The balance of guarantee liability of the guarantee organization shall be not less than 3 times its net assets, and the compensation rate shall not exceed 2%.

 

The policies for exempting the guarantee organizations from VAT shall adopt the record-filing management. The qualified guarantee organizations shall go through the record-filing formalities with the competent local taxation authorities at the county (city) level in the place where they are located and the administrative departments for small and medium-sized enterprises at the same level, and shall be exempted from VAT for three years after completing the record-filing formalities. After the expiration of the three-year tax exemption period, the qualified guarantee organizations may continue to enjoy such policies after going through the record-filing formalities according to the prescribed procedures.

 

The specific administrative measures for record-filing shall be subject to the Announcement of the State Administration of Taxation on Issues concerning Management Subsequent to the Cancellation of the Examination and Approval of Exempting Credit Guarantee Institutions for Small and Medium-sized Enterprises from Business Tax (Announcement [2015] No. 69 of the State Administration of Taxation), and the record-filing administrative department under taxation bureaus shall be uniformly adjusted to the State taxation bureaus at the county (city) level.

 

(25) Incomes obtained by State commodity reserves management entities and the enterprises directly thereunder in the form of interest subsidies and price difference subsidies granted by the central finance or local finance departments for undertaking commodity reserves tasks.

 

State commodity reserves management entities and the enterprises directly thereunder shall refer to the commodity reserves enterprises that undertake the reserves tasks for six commodities including grain (soybeans included), edible oil, cotton, sugar, meat and salt (limited to Central reserve) upon entrustment by relevant departments of the Central Government, provincial governments, city-level governments and county-level governments (or management entities designated by the governments), that reserve and sell the aforesaid six reserved commodities pursuant to relevant policies, and that obtain fiscal funds or subsidies for such purposes. Incomes of interest subsidies shall refer to the subsidies obtained from the central finance or local finance departments by State commodity reserves management entities and the enterprises directly thereunder for paying the interest accrued on the loans borrowed from financial institutions for undertaking the aforesaid commodity reserves tasks. Incomes of price difference subsidies shall include incomes of subsidies for difference in selling prices and incomes of subsidies for difference in rotation prices. Incomes of subsidies for difference in selling prices shall refer to the subsidies obtained by State commodity reserves management entities and the enterprises directly thereunder from the central finance or local finance departments for the full amount of the difference whereby the prices of selling the aforesaid reserved commodities in accordance with central or local government instructions are lower than the cost of storage and warehousing. Incomes of subsidies for difference in rotation prices shall refer to the subsidies obtained by State commodity reserves management entities and the enterprises directly thereunder from the central finance or local finance departments for the price difference between the quality of new and stale commodities when they organize regular policy-oriented rotation of reserved commodities as required.

 

(26) Taxpayers’ provision of technology transfer and technology development as well as relevant technical consultation and technical services.

 

A. Technology transfer and technology development shall refer to business activities within the scope of “transferred technologies” and “research and development services” prescribed in the Annotation on Sales of Services, Intangible Assets and Real Estate. Technical consultation shall refer to the provision of such business activities as feasibility study, technical forecasting, specialized technical investigation and analysis and evaluation report for specific technical projects.

 

Technical consultation and technical services related to technology transfer and technology development shall refer to the technical consultation and technical services provided by the transferor (or consignee) to help the transferee (or consignor) grasp the technologies transferred (or developed under entrustment) according to the technology transfer or development contract, and the price of the said technical consultation and technical services and the price of technology transfer or technology development shall be in the same invoice.

 

B. Record-filing procedure. When applying for VAT exemption, taxpayers of the pilot project shall go through the procedures for recognition with the competent province-level science and technology department at the place where they are located by presenting the technology transfer or development contract, and shall report the same to the competent State taxation bureau for record-filing by presenting relevant written contracts and the documents showing the examination and approval opinions issued the science and technology department concerned.

 

(27) Energy performance contracting services that meet the following conditions concurrently:

 

A. The related technology in the energy performance contracting project implemented by the energy service company shall comply with the technical requirements stipulated in the General Technical Rules for Energy Performance Contracting (GB/T24915-2010) promulgated by the General Administration of Quality Supervision, Inspection and Quarantine and Standardization Administration of China; and

 

B. In respect of shared energy saving contract signed between the energy service company and the energy consuming enterprise, the contract format and the contents shall comply with the provisions of the Contract Law of the People’s Republic of China and the General Technical Rules for Energy Performance Contracting (GB/T24915-2010).

 

(28) Ticket proceeds of popular science entities and ticket proceeds from popular science activities carried out by the Party and government departments and science and technology associations at or above the county level, before December 31, 2017.

 

Popular science entities shall refer to science and technology museums, natural museums, and planetariums (observatories), meteorological offices (stations) and seismic stations open to the public, as well as the popular science bases of institutions of higher learning and research institutions open to the public.

 

Popular science activities shall refer to activities through which various media, in an easy-to-understand, easily accepted and participated way, introduces the knowledge of natural science and social science to the general public, facilitates the application of science and technology, advocates the scientific method, propagates scientific ideas and promotes the scientific spirit.

 

(29) Incomes obtained from classes for further studies and training run by senior, junior and primary schools (excluding subsidiaries) established by the government and engaging in education with formal record of schooling, all of which is attributed to the schools.

 

“All of which is attributed to the schools” shall mean that incomes from classes for further studies and training shall be credited into the uniform accounts of the schools and be included in the budget and submitted in full to the special fiscal accounts for management, and that the schools shall uniformly issue and manage relevant vouchers.

 

Incomes from classes for further studies and training credited into the accounts opened by subsidiaries of the schools shall not be exempted from VAT.

 

(30) Incomes obtained by enterprises established by government-funded vocational schools to provide practical training positions to their students and also are funded, operated and managed by those vocational schools from business activities in the scope of “modern services” (excluding financial leasing, advertising and other modern services) and “life services” (excluding culture and sports services, other life services as well as sauna and oxygen bar) specified in the Annotation on Sales of Services, Intangible Assets and Real Estate.

 

(31) Incomes obtained by domestic service enterprises from the domestic services provided by domestic workers who are their formal employees.

 

Domestic service enterprises shall refer to enterprises that have domestic services included in the scope of business as prescribed in their enterprise business licenses.

 

Domestic workers who are formal employees of domestic service enterprises shall refer to domestic workers who satisfy the following three conditions:

 

A. They have, in accordance with the law, signed labor contracts or service agreements with the domestic service enterprises for a term of six (6) months or longer, and they are actually working with the said enterprises.

 

B. The domestic service enterprises have contributed for them in full the monthly basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and other social insurance as prescribed by the local people's governments in accordance with national policies. In the case of a domestic worker who has already been enjoying the new rural pension insurance, the new rural cooperative medical care or other social insurance, or a domestic worker previously laid off whose social insurance continues to be contributed by his/her former employer, if he/she has, in writing, requested the relevant domestic service enterprise not to contribute the appropriate social insurance required by the local people's government in accordance with national policies, and has produced the supporting documents issued by the relevant county/town or his/her former employer that relevant social insurance has been paid, the domestic service enterprise may be deemed to have contributed for the domestic worker the monthly social insurance payments in full.

 

C. The domestic service enterprises are actually paying the domestic workers via financial institutions wages not lower than the applicable minimum wages approved by the provincial people's governments of the places where such enterprises are respectively located.

 

(32) Incomes from issuing welfare lotteries and sports lotteries.

 

(33) Incomes obtained from leasing vacant military real estate.

 

(34) Incomes obtained by enterprises and administrative public institutions from selling residential properties at the cost or the standard prices determined under housing reform with a view of accommodating the State housing system reform.

 

(35) Transfer of land use rights to agricultural producers for agricultural production.

 

(36) Individuals’ transfer of real estate and land use rights free of charge involving the division of family properties.

 

Division of family properties includes the following circumstances: division of property in divorce; gratuitous bestowal to spouse, parents, children, grandparents, grandchildren, brothers or sisters; gratuitous bestowal to person who bear obligation to directly foster or support such individuals; legal acquisition of house property rights by legitimate heirs, testamentary successors or legatees after the demise of the house owners.

 

(37) Transfer of the land use right by land owners and return of the land use right to land owners.

 

(38) Transfer, assignment or withdrawal of the natural resources use rights (excluding land use right) by local people’s governments above the county level or the competent natural resources administrative departments.

 

(39) Employment of camp family.

 

A. As for an enterprise that is newly established for the placement of camp family, from the date of obtaining the tax registration certificate, taxable services provided by it shall be exempt from VAT within 3 years.

 

As for an enterprise that is eligible for preferential policies, the number of camp family members must account for more than 60% (inclusive) in the total employees of the enterprise, and such camp family members must have certificates issued by political and logistical authorities at or above the level of corps.

 

B. As for the camp family member who is engaged in individual operation, from the date when the tax registration is gone through, taxable services provided by him/her shall be exempted from VAT within 3 years.

 

Camp family shall have certificates, which can prove their identities, as issued by political authorities above the level of divisions.

 

In accordance with the above provisions, each member of the camp family may enjoy the tax exemption policy for one time.

 

(40) Employment of demobilized army officers.

 

A. As for a demobilized army officer who is engaged in individual operation, from the date of obtaining the tax registration certificate, his/her provision of taxable services shall be exempted from VAT within three years.

 

B. As for an enterprise that is newly established for the placement of demobilized army officers, if the number of demobilized army officers who choose occupations by themselves, accounts for more than 60% (inclusive) in the total employees of the enterprise, from the date of obtaining the tax registration certificate, taxable services provided by it shall be exempted from VAT within three years.

 

Demobilized army officers who choose occupations by themselves and who are eligible for the aforesaid preferential policies must have certificates of demobilized soldiers issued by the forces above the level of divisions.

 

2. Immediate refund of VAT after collection

 

(1) As for pipeline transportation services provided by general taxpayers, the portion exceeding 3% of the actual VAT burden is eligible for the immediate refund of VAT after collection policy.

 

(2) As for general taxpayers in taxpayers of the pilot project who are engaged in financial leasing businesses upon approval by the People's Bank of China, the China Banking Regulatory Commission, and the Ministry of Commerce, if they provide financial leasing services of tangible personal property and financing sale-and-leaseback services in tangible personal property, the portion exceeding 3% of the actual VAT burden is eligible for the immediate refund of VAT after collection policy. The aforesaid provision shall apply to general taxpayers in taxpayers of the pilot project who are engaged in financial leasing businesses and financing sale-and-leaseback services upon approval of the competent commerce authorities at provincial level empowered by the Ministry of Commerce and the national-level economic and technological development zones, if their paid-up capital after May 1, 2016 reach RMB 170 million, from the month such standard is reached; if their paid-up capital after May 1, 2016 fails to reach RMB 170 million but their registered capital reach RMB 170 million, the aforesaid provision may be applicable before July 31, 2016 but shall not apply to financial leasing services of tangible personal property and financing sale-and-leaseback services in tangible personal property carried out after August 1, 2016.

 

(3) The actual VAT burden mentioned in the said provision shall refer to the ratio of the amount of VAT actually paid by a taxpayer for a given period to the total consideration and additional fees and charges received by the taxpayer in the period from the provision of taxable services.

 

3. Provisions on VAT deduction

 

(1) Pioneering business and employment of retired soldiers.

 

A. Annual deductions of up to RMB 8,000 on VAT, urban maintenance and construction tax, educational surcharges, local educational surcharges and individual income tax that shall be paid for the current year shall be offered to a retired soldier seeking employment on his/her own for three years. The limit for deductions may be raised by 20% in maximum, and the people’s governments of all provinces, autonomous regions and municipalities directly under the Central Government may determine the specific limit within the said scope in light of their actual situation and report the same to the Ministry of Finance and the State Administration of Taxation for record-filing.

 

Where a taxpayer’s annual payable taxes for a certain year are below the limit for deductions mentioned above, the payable taxes shall be the upper limit; where the payable taxes exceed the limit mentioned above, such limit shall apply. If the actual operation period of a taxpayer is less than one year, the competent taxation authority shall calculate its limit of tax deduction and exemption based on the actual months, and the calculating formula shall be: Limit of tax deduction and exemption = annual limit of tax deduction and exemption ÷ 12 × actual operating months.

 

Taxpayers shall, in the month when they enjoy the tax preferential policies, go through the formalities of record-filing with the competent taxation bureaus by presenting the Certificates of Discharge of Conscripts of the Chinese People's Liberation Army from Active Service or the Certificates of Discharge of Sergeants of the Chinese People's Liberation Army from Active Service and relevant materials required by taxation authorities.

 

B. When commercial and trade enterprises, service-oriented enterprises, processing-oriented enterprises among labor employment service enterprises and the small-sized enterprise entities with processing nature of neighborhoods and communities, newly recruited retired soldiers, who seek employment by themselves, in the current year to work at their newly-added posts, concluded labor contracts of at least one year with them and additionally pay social insurance premium for them in accordance with the law, the VAT, urban maintenance and construction tax, educational surcharges, local educational surcharges and enterprise income tax paid by these enterprises are deducted according to the above-mentioned sequence and the number of actually-recruited persons within three years. The annual limit is RMB 4,000 for each recruit, which may float 50%. The people's governments of all provinces, autonomous regions and municipalities directly under the Central Government may determine the specific limit within the said scope in light of their actual situation and report the same to the Ministry of Finance and the State Administration of Taxation for record-filing.

 

Service-oriented enterprises mentioned in this Article shall refer to enterprises engaged in business activities in the scope of “real property leasing services”, “business support services” (excluding freight forwarding and customs clearance services) and “life services” (excluding culture and sports services) prescribed in the Annotation on Sales of Services, Intangible Assets and Real Estate as well as the private non-enterprise entities registered and established according to the Interim Regulations on the Administration of the Registration of Private Non-enterprise Organizations (Decree No. 251 of the State Council).

 

Taxpayers shall approve the enterprise’s total limit for deductions pursuant to the enterprise’s number of recruited persons and the term of the signed labor contract and deduct the VAT, urban maintenance and construction tax, educational surcharges and local educational surcharges in the said sequence every month within the approved total limit for deductions. Where the amount of VAT, urban maintenance and construction tax, educational surcharges and local educational surcharges actually paid by a taxpayer is less than the total limit for deductions approved, the amount of VAT, urban maintenance and construction tax, educational surcharges and local educational surcharges actually paid shall be deducted; where the amount of VAT, urban maintenance and construction tax, educational surcharges and local educational surcharges actually paid by a taxpayer is more than the total limit for deductions approved, the total limit for deductions shall be deducted.

 

At the end of a tax year, if the amount of enterprise’s VAT, urban maintenance and construction tax, educational surcharges and local educational surcharges actually deducted is less than the total limit for deductions approved, the enterprise are entitled to deduct the enterprise income tax at them time of settling the enterprise income tax payable or refundable. Any amount not deducted in the current year shall not be carried forward to the following years.

 

The calculation formula is: enterprise’s total limit for deductions = ∑months during which a retired soldier seeking employment by himself/herself works in the enterprise in the year ÷ 12 × annual limit.

 

Enterprises shall enjoy the tax preferential policy from the month next to the one when they recruit the retired soldiers seeking employment on their own, and they shall report such recruitment to the competent taxation authorities for record-filing with the following materials in the month when they enjoy the tax preferential policy:

 

a. Certificates of Discharge of Conscripts of the Chinese People's Liberation Army from Active Service or Certificates of Discharge of Sergeants of the Chinese People's Liberation Army from Active Service of the newly recruited retired soldiers seeking employment on their own;

 

b. Labor contract (copy) signed between the enterprise and newly recruited retired soldiers seeking employment on their own, and the record of social insurance premiums paid for employees by enterprise;

 

c. Work schedule of the current year of retired soldiers seeking employment on their own in enterprises; and

 

d. Other relevant materials required by the competent taxation authority.

 

C. Retired soldiers seeking employment on their own mentioned above shall refer to the retired soldiers discharged from active service and placed by means of getting employed independently according to the Regulations on Retired Soldier Placement (Order No. 608 of the State Council and the CPC Central Military Commission of the People’s Republic of China).

 

D. The effective period of the above preferential tax policies shall be from May 1, 2016 to December 31, 2016. Where taxpayers fail to enjoy such policies for three years by December 31, 2016, such policy preference may be effective till a full three years.

 

Taxpayers that enjoy the business tax preferential policies in accordance with the Notice of the Ministry of Finance, the State Administration of Taxation and the Ministry of Civil Affairs on the Adjustment and Improvement of Tax Policies for Supporting Pioneering Business and the Employment of Retired Soldiers Seeking Employment on Their Own (Cai Shui [2014] No. 42) shall enjoy the VAT preferential policies pursuant to the above provision as of May 1, 2016. Where taxpayers fail to enjoy such policies for three years by December 31, 2016, such policy preference may be effective till a full three years.

 

VAT exemption policy for urban retired soldiers seeking employment prescribed in Item (12) of Article 1 of Appendix 3 to the Notice of the Ministry of Finance and the State Administration of Taxation on Including Railway Transport and Postal Services under the Pilot Program of Replacing Business Tax with Value-Added Tax (Cai Shui [2013] No. 106) shall cease to apply as of July 1, 2014. Where an aforesaid soldier fails to enjoy such policy for three years by June 30, 2014, such policy preference may be effective till a full three years.

 

(2) Entrepreneurial and employment activities of priority groups.

 

A. Annual deductions of up to RMB 8,000 on VAT, urban maintenance and construction tax, educational surcharges, local educational surcharges and individual income tax shall be offered to each self-employed individual who holds the Startup Self-Employment Certificate (which indicates “tax preferences for entrepreneurship” or “tax preferences for entrepreneurship within the calendar year of graduation”) or obtained the Certificate of Employment and Unemployment Registration (which indicates “tax preferences for entrepreneurship” or is appended with the Certificate of College Graduate Entrepreneurship) before January 27, 2015, for three years. The limit for deductions may be raised by 20% in maximum, and the people’s governments of all provinces, autonomous regions and municipalities directly under the Central Government may determine the specific limit within the said scope in light of their actual situation and report the same to the Ministry of Finance and the State Administration of Taxation for record-filing.

 

Where such a taxpayer's payable taxes for a certain year are below the above limit for deduction, the taxes actually paid shall apply; where the payable taxes exceed the above limit, such limit shall apply.

 

The abovementioned persons shall refer to:

 

a. Anyone who has been registered with the public employment service agency of the human resources and social security authority for unemployment for more than half a year;

 

b. Anyone who has reached the legal work age but is registered for unemployment and whose family members are not employed or are receiving minimum living allowances for urban residents; and

 

c. Anyone who is a new college graduate for a specific year. College graduates mean those that graduate from a university or adult school that offer higher education. A specific year means the natural year when a student graduates, namely the period between January 1 and December 31 of a year.

 

B. When commercial and trade enterprises, service-oriented enterprises, processing-oriented enterprises among labor employment service enterprises and the small-sized enterprise entities with processing nature of neighborhoods and communities, newly recruited anyone who has been registered with the public employment service agency of the human resources and social security authority for unemployment for more than half a year and holds the Startup Self-Employment Certificate or obtained the Certificate of Employment and Unemployment Registration (which indicates “tax preferences for entrepreneurship”) before January 27, 2015, in the current year to work at their newly-added posts, concluded labor contracts of at least one year with them and additionally pay social insurance premium for them in accordance with the law, the VAT, urban maintenance and construction tax, educational surcharges, local educational surcharges and enterprise income tax paid by these enterprises are deducted according to the above-mentioned sequence and the number of actually-recruited persons within three years. The annual limit is RMB 4,000 for each recruit, which may float 30%. The people's governments of all provinces, autonomous regions and municipalities directly under the Central Government may determine the specific limit within the said scope in light of their actual situation and report the same to the Ministry of Finance and the State Administration of Taxation for record-filing.

 

The deductible amount calculated according to the above standards shall be deducted from the actual VAT, urban maintenance and construction tax, educational surcharges, local educational surcharges and enterprise income tax payable by the enterprise concerned in the current year. Any amount not deducted in the current year shall not be carried forward to the following year.

 

Service-oriented enterprises mentioned in this Article shall refer to enterprises engaged in business activities in the scope of “real property leasing services”, “business support services” (excluding freight forwarding and customs clearance services) and “life services” (excluding culture and sports services) prescribed in the Annotation on Sales of Services, Intangible Assets and Real Estate as well as the private non-enterprise entities registered and established according to the Interim Regulations on the Administration of the Registration of Private Non-enterprise Organizations (Decree No. 251 of the State Council).

 

C. Persons subject to the above preferential policies shall apply for the Startup Self-Employment Certificate according to the following provisions:

 

a. According to Article 63 of the Regulations on Employment Service and Employment Administration (Order No. 28 of the Ministry of Human Resources and Social Security), permanently-based urban residents within the range of legal working ages, having employment desire and in jobless status, may make their unemployment registration at a public employment service institution and apply for the Startup Self-Employment Certificate. Migrant persons from rural areas and other persons whose domiciles are not at their employment places may be registered at their usual places of residence after having been steadily hired for no less than six months at their usual places of residence.

 

b. A person with none of his/her family members employed shall register with the public employment service agency for unemployment to apply for the Startup Self-Employment Certificate by providing the attestation document issued by the competent authority of the community where the family is located; a person from a family receiving the minimum living allowance for urban residents shall register with such agency for unemployment to apply for the Startup Self-Employment Certificate by providing the document supporting such allowance.

 

c. A graduating college student may, within the calendar year of graduation, apply with the public employment service agency for the Startup Self-Employment Certificate when he/she is still enrolled in school by providing student's identity card, or entrust the career guidance center of the institution of higher learning to apply for and collect the Startup Self-Employment Certificate from the public employment services agency on his/her behalf; within the calendar year of graduation and after leaving school, he/she shall directly apply for and collect the Startup Self-Employment Certificate from the public employment services agency as required.

 

d. After the persons mentioned above have applied for and obtained relevant certificates, the human resources and social security authorities in the place where they work or start business shall check and verify the coverage, employment or unemployment status and receiving of preferences, and add “tax preference for entrepreneurship”, “tax preference for enterprise recruitment in the calendar year of graduation” or “tax preference for enterprise recruitment” to the Startup Self-Employment Certificate; where a person is eligible for both tax preference for entrepreneurship and tax preference for enterprise recruitment, both may be added to the certificate. The competent taxation authority shall stamp the Startup Self-Employment Certificate with its official chop and indicate the period for tax preferences.

 

D. The effective period of the above preferential tax policies shall be from May 1, 2016 to December 31, 2016. Where taxpayers fail to enjoy such policies for three years by December 31, 2016, such policy preference may be effective till a full three years.

 

Taxpayers that enjoy the business tax preferential policies in accordance with the Notice of the Ministry of Finance, the State Administration of Taxation and the Ministry of Human Resources and Social Security on Continuous Implementation of Taxation Policies Supporting and Promoting the Entrepreneurial and Employment Activities of Priority Groups (Cai Shui [2014] No. 39) shall enjoy the VAT preferential policies pursuant to the above provision as of May 1, 2016. Where taxpayers fail to enjoy such policies for three years by December 31, 2016, such policy preference may be effective till a full three years.

 

VAT preferential policy for unemployed persons prescribed in Item (13) of Article 1 of Appendix 3 to the Notice of the Ministry of Finance and the State Administration of Taxation on Including Railway Transport and Postal Services under the Pilot Program of Replacing Business Tax with Value-Added Tax (Cai Shui [2013] No. 106) shall cease to apply as of January 1, 2014. Where an unemployed person fails to enjoy such policy for three years by December 31, 2013, such policy preference may be effective till a full three years.

 

4. After a financial enterprise issues a loan, the receivable interests not collected by financial enterprises that occur within 90 days as of the interest settlement date shall be subject to VAT; as for the receivable interests not collected by financial enterprises that occur after 90 days as of the interest settlement date, the financial enterprise, for the time being, is not required to pay VAT, and VAT shall be paid after the interests are actually received.

 

Financial enterprise mentioned above shall refer to bank (including State-owned, collectively-owned, joint-stock, joint-venture, foreign-funded bank and bank in other forms of ownership), urban credit cooperative, rural credit cooperative, trust investment company and finance company.

 

5. Where an individual sells the formerly purchased residential property thereof possessed for less than two years to others, VAT shall be levied at 5% on the full amount of the sales income; if an individual sells to others the formerly purchased residential property thereof possessed for more than two years (including two years), VAT shall be exempted. The above policy only applies to regions beyond Beijing, Shanghai, Guangzhou and Shenzhen.

 

Where an individual sells the formerly purchased residential property thereof possessed for less than two years to others, VAT shall be levied at 5% on the full amount of the sales income; where an individual sells to others the formerly purchased non-regular residential property thereof possessed for more than two years (including two years), VAT shall be levied on the difference between the sales income and the original purchase price of the residential property; where an individual sells to others the formerly purchased regular residential property thereof possessed for more than two years (including two years), VAT shall be exempted. The above policy only applies to Beijing, Shanghai, Guangzhou and Shenzhen.

 

The specific procedures for processing tax exemption, time of purchasing residential property, invoicing, acquiring housing through methods other than purchasing, and other regulations related to tax administration shall be implemented in accordance with the relevant provisions of the Notice of the General Office of the State Council on Forwarding Opinions of the Ministry of Construction and Other Departments concerning Doing a Good Job of Stabilizing Housing Prices (Guo Ban Fa [2005] No. 26), the Notice of the State Administration of Taxation, the Ministry of Finance and the Ministry of Construction on Strengthening Real Estate Tax Administration (Guo Shui Fa [2005] No. 89) and the Notice of the State Administration of Taxation on Certain Issues Concerning the Implementation of Real Estate Tax Policies (Guo Shui Fa [2005] No. 172).

 

6. Except for the items for which the period have been prescribed and the policy in Article 5 in the aforesaid VAT preferential policies, other policies shall apply in the period of pilot collection of VAT in lieu of business tax. If the taxpayer of the pilot project has already enjoyed tax incentives of business tax according to relevant policies and regulations before the application of pilot collection of VAT in lieu of business tax, he may, in the remaining period of tax incentives, enjoy tax incentives of VAT in accordance with the relevant provisions.

 

Appendix 4:

 

Provisions on the Application of Zero-rated Value-added Tax and Value-added Tax Exemption Policies to Cross-border Taxable Activities

 

1. The following services and intangible assets sold by entities and individuals within the territory of the People's Republic of China (hereinafter referred to as the "Mainland") shall be eligible for zero-rated value-added tax ("VAT"):

 

(1) International transport services.

 

International transport services shall refer to:

 

a. Carrying/transporting Mainland passengers or goods abroad;

 

b. Carrying/transporting overseas passengers or goods into the Mainland; and

 

c. Engaging in the carriage/transportation of passengers or goods overseas.

 

(2) Space transport services.

 

(3) The following services that are provided for overseas entities and are fully consumed overseas:

 

a. R&D services;

 

b. Energy performance contracting services;

 

c. Design services;

 

d. Services for the production and distribution of radio, film and television programs (works);

 

e. Software services;

 

f. Circuit design and testing services;

 

g. Information system services;

 

h. Business process management services;

 

i. Offshore service outsourcing business; and

 

Offshore service outsourcing business shall include information technology outsourcing (ITO) services, technical business process outsourcing (BPO) services and technical knowledge process outsourcing (KPO) services. The specific business activities involved shall be governed by the business activities corresponding to the Notes on the Sales of Services, Intangible Assets and Real Estate.

 

j. Technology transfer.

 

(4) Other services prescribed by the MOF and the SAT.

 

2. The following services and intangible assets sold by entities and individuals within the Mainland shall be exempted from VAT, except for those that are eligible for zero-rated VAT as prescribed by the MOF and the SAT:

 

(1) The following services:

 

a. Construction services for engineering projects located overseas;

 

b. Engineering supervision services for engineering projects located overseas;

 

c. Engineering survey and exploration services for engineering projects and mineral resources located overseas;

 

d. Conference and exhibition services where the conference and exhibition venues are located overseas;

 

e. Warehousing services where the storage locations are overseas;

 

f. Tangible moveable assets leasing services where the subject matters are used overseas;

 

g. Services provided overseas for broadcasting radio, film and television programs (works); and

 

h. Cultural and sports services, education and health care services, and tourism services provided overseas.

 

(2) Postal services, collection and delivery services, and insurance services provided for exports;

 

Insurance services provided for exports shall include export cargo insurance and export credit insurance.

 

(3) The following services and intangible assets that are provided for overseas entities and are fully consumed overseas:

 

a. Telecommunications services;

 

b. Intellectual property rights services;

 

c. Supporting logistics services (excluding warehousing services and collection and delivery services);

 

d. Appraisal and consulting services;

 

e. Professional technical services;

 

f. Business support services;

 

g. Advertising services where advertisements are published overseas; and

 

h. Intangible assets.

 

(4) International transport services provided by means of carriage without transportation tools;

 

(5) Financial services of direct fee collection that are provided for the monetary fund transactions and other financial services between and among overseas entities, and that are irrelevant to goods, intangible assets and real estate located within the Mainland; and

 

(6) Other services prescribed by the MOF and the SAT.

 

3. As regards projects of international transport services for which relevant qualifications shall be obtained in accordance with relevant provisions of the State, taxpayers who have obtained relevant qualifications shall be eligible for the policies of zero-rated VAT, while those who have not obtained relevant qualifications shall be eligible for the policies of VAT exemption.

 

Where an entity or individual within the Mainland provides voyage charter services, if the leased transportation tools are used for international transport services or transport services involving Hong Kong, Macao and Taiwan regions, the lessor shall apply for the application of zero-rated VAT pursuant to relevant provisions.

 

Where an entity or individual within the Mainland provides time charter or wet lease services for another entity or individual within the Mainland, if the charterer uses the leased transportation tools to provide other entities or individuals with international transport services or transport services involving Hong Kong, Macao and Taiwan regions, zero-rated VAT shall be applicable to the charterer. Where an entity or individual within the Mainland provides time charter or wet lease services for an overseas entity or individual, zero-rated VAT shall be applicable to the lessor.

 

As regards international transport services provided by an entity or individual within the Mainland by means of carriage without transportation tools, zero-rated VAT shall be applicable to the actual carrier within the Mainland; and, the business operator engaging in the business of carriage without transportation tools shall be eligible for the policies of VAT exemption.

 

4. Where an entity or individual within the Mainland provides services or intangible assets that are eligible for zero-rated VAT, the approach of VAT exemption shall be adopted if the method of simplified taxation is applicable to the said entity or individual. If the method of general VAT taxation is applicable, the method of tax exemption, credit and refund shall apply if the said entity is a production enterprise; if the said entity is a foreign trade enterprise that exports services or intangible assets it has purchased from external parties, the method of tax exemption and refund shall apply; and, if the said entity is a foreign trade enterprise that directly exports services or intangible assets of independent R&D, the said entity shall be deemed as a production enterprise, and the method of tax exemption, credit and refund shall be uniformly applied to its exported goods.

 

The rates of tax refund applicable to services and intangible assets shall be the applicable VAT rates as prescribed by Item (1) through to Item (3) of Article 15 of the Implementing Measures for the Pilot Program. Where the competent tax authority is of the opinion that the export price of a service or intangible asset subject to the method of tax refund (exemption) is too high, it shall be entitled to calculate the amount of tax refund (exemption) according to the approved export price. If the approved export price is lower than the purchase price paid by a foreign trade enterprise, the amount of input tax on the portion lower than the purchase price shall not be refunded, and shall be included in costs.

 

5. An entity or individual within the Mainland that sells services or intangible assets eligible for zero-rated VAT may waive the application of zero-rated VAT, and instead choose to be exempted from VAT or pay VAT pursuant to relevant provisions. After waiving the application of zero-rated VAT, the said entity or individual may not re-apply for the application of zero-rated VAT within 36 months.

 

6. An entity or individual within the Mainland that sells services or intangible assets eligible for zero-rated VAT shall apply to the competent tax authority in charge of tax refund for going through VAT refund (exemption) procedures on a monthly basis. Specific administrative measures in this regard shall be separately formulated by the SAT in consultation with the MOF.

 

7. For the purpose of these Provisions, "being fully consumed overseas" shall mean:

 

(1) That the actual recipient of the services is located overseas, and that the services are irrelevant to the goods and real estate within the Mainland;

 

(2) That the intangible assets are used exclusively overseas, and are irrelevant to the goods and real estate within the Mainland; or

 

(3) Any other circumstances prescribed by the MOF and the SAT.

 

8. Unless otherwise prescribed herein, taxable activities conducted by entities and individuals within the Mainland vis-à-vis Hong Kong, Macao or Taiwan parties shall be governed by reference to the foregoing provisions.

 

9. Contracts concluded before April 30, 2016 may continue to enjoy the policies of zero-rated VAT or VAT exemption prior to their expiry if they satisfy the conditions on zero-rated VAT or VAT exemption as prescribed by Appendix 4 to the Notice of the Ministry of Finance and the State Administration of Taxation on Including Railway Transport and Postal Services under the Pilot Program of Replacing Business Tax with Value-added Tax (Cai Shui [2013] No. 106) and the Notice of the Ministry of Finance and the State Administration of Taxation on Applying Zero-rated Value-added Tax to Film and Television Services as well as Other Export Services (Cai Shui [2015] No. 118).