Shanghai Jerry Group Inc. - China Business Consultants

Provisional Regulations of the Peoples Republic of China on Value-Added Tax

Article 1
All units and individuals engaged in the sales of goods, provision of processing, repairs and replac ement services, and the importation of goods within the territory of the People"s Republic of China are taxpayers of Value-Added Tax (heteinafter ref erred to as "taxpayers"),and shall pay VAT in accordance with these Regulations.

Article 2
VAT rates:
(1)For taxpayers selling or importing goods, other than those stipulated in items (2) and (3) of this Article, the tax rate shall be 17%.
(2)For taxpayers selling or importing the followin -g goods, the tax rate shall be 13%:

i.Food grains, edible vegetable oils;
ii. Tap water, heating, air conditioning, hot wate -r, coal gas, lipuefied petroleum gas, naturalgas, methane gas, coal/charcoal products for household use;
iii. Books, newspapers, magazines;
iv. Feeds, chemical fertilizers, agricultural chem icals, agricultural machinery and covering plastic -film for farming;
v. Other goods as regulated by the State Council. 
(3)For taxpayers exporting goods, the tax rate shall be 0%, except as otherwise stipulated by the State Council.

(4)For taxpayer providung processing, repairs and replacement services (hereimafter referred to as"taxables services"), the tax rate shall be 17%. 
Any adjustments to the tax rates shall be determined by the State Council.

Article 3
For taxpayers dealing in goods or providing taxable services with different tax rates shall be accounted for separately. If the sales amounts have not been accounted for separately, the higher tax rates shall apply.

Article 4
Except as stipuated in Article 13 of these Regulations, for taxpayers engaged in the sales of goodsor the provision of taxable services (hereinfterreferred to as "selling goods or taxable services"), the tax payable shall be the balance of outputtax for the period afterdeducting the input tax for the period. The formula for computing the tax payable is as follows:

Tax payable=Output tax payable for the period - Input tax for the period

If the output tax for the period is less than andinsufficient to offset against the input tax for t-he period, the excess input tax can be carried forword for set-off in the following periods.

Article 5
For taxpayers selling goods or taxable services, the output tax shall be the VAT payable calculatedbased on the sales amounts and the tax rates prescribed in Article 2 of these Regulations and collected from the purchasers, The formula for computingthe output tax is as follows:

Output tax=Sales amount*Tax rate

Article 6
The sales amount shall be the total considerationand all other charges receivable from the purchasers by the taxpayer selling goods or taxable servic-es, but excluding the output tax collectible,The sales amount shall be computed in renminbi. Th-e sales amoumnt of the taxpayer settled in foreign currencies shall be converted into renminbi according to the exchange rate prevailing in the foreign exchamge market.

Article 7
Where the price used by the taxpayer in selling goods or taxable services is obviously low and without proper justification , the sales amount shall be determined by the competent tax authorities.

Article 8
For taxpayers who purchase goods or receive taxable services (hereibafter referred to as "purchasinggoods or taxable services"), VAT paid or borne shall be the input tax.

The amout of input tax that can be credited against the output tax, other than the situations specified in Paragraph 3 of this Article, shall be restricted to the amount of VAT payable as indicated on the following VAT credit document:

(1)VAT indicated in the special VAT invoices obtai-ned from the sellers;

(2)VAT indicated on the payment receipts obtainedfrom the customs office.

The cteditable input tax for the purchasing of taxexempt agricultural products is calculated basedon adeemed deduction rate at 10% on the actual purchasing price. The formula for calculating the inp-ut tax is as follows:

Input tax = Purchasing price * Deduction rate

Article 9
Where taxpayers purchasing goods or taxable services have not obtained and kept the VAT ctedit document in accordance with the regulations, or the VATpayable and other relevant items in accordance with the regulations are not indicated on the VAT credit document, no input tax shall be ctedited against the output tax.

Article 10
Input tax on following items shall not be creditedagainst the output tax:

(1)Fixed assets purchased;
(2)Goods purchased or taxable services used for no-n-taxanle items;
(3)Goods purchased or taxable services used for gr-oup welfare or personal consumption;
(4)Goods purchased or taxable services used for group welfare or personal consumption;
(5)Abnormal losses of Goods purchased;
(6)Goods purchased or taxable services consumed inthe production of work-in-progress or finished goods which suffer abnormal losses.

Article 11
Small-scale taxpayers engaged in selling goods ortaxable services shall use a simplified method forcalculating the tax payable.

The ctiteria for small-scale taxpayers sell be reg-ulated by the Ministry of Finance.

Articke 12
The rate leviable on the small-scale taxpayers goods or taxable services shall be 6%.

Any adjustment to the leviable rate shall be determined by the State Council.

Anticle 13
For small-scale taxpayers selling goods or taxableservices, the tax payable shall be calculated based on the sales amount and the leviable rate prescribed on Article 12 of these Regulations. No inputtax shall be creditable.The formula for calculating the tax payable is as follows:

Tax payable = Sales amount * leviable rate.

The sales amount shall be determined on accordancewith the stipulations of Article 6 and Article 7of these Regulations.

Article 14
Small-scale taxpayers with sound accounting who can provide accurate taxation information may,uponthe approval of the competent taxauthorities, notbe treated as small-scale taxpayers, The tax payable shall be conmputed pursuant to the relevant stipulations of these Regulations.

Article 15
For taxpayers importing goods, tax payable shall be computed based on the composite assessable priceand the tax rates prescribed in Article 2 of these Regulatoins. No tax will be credited. The formulas for computing the composite assessable price and the tax payable are as follows:

Composite assessable price = Customs dutiablevalue + Customs Duty + Consumption TaxTax payable = Composite assessable price * Taxrate

Article 16
The following items shall be exempt from VAT:

(1)Self-produced agricultural products sold by agricultural producers;
(2)Contraceptive medicines and deviced;
(3)Antique books;
(4)Importation of instruments and equipment directly used in scientific research, experiment and education;
(5)Importation of materials and equipment from foreign goverments and international organizations asassistance free of charge;
(6)Equipment and machenery required to be importedunder contract processing, contract assembly andcompensation trade;
(7)Articles imported directly by organizations forthe disabled for special use by the disabled;
(8)Sale of goods which have been used by the sellers.

Excipt as stipulated in the above paragrph, the VA-T exemption and reduction items shall be regulated by the State Council. Local governments or departments shall not regulate any tax exemption or reduction items,

Article 17
For taxpayers engaged in tax exempt or tax reduceditems, the sales amounts for tax exempt or tax reduced items shall be accounted for separately, If the sales amounts have not been separately accounted for, no exemption or reduction is allowed.

Article 18
For taxpayers whose sales amounts have not reachedthe VAT minimum threshold stipulated by the Ministry of Finance, the VAT shall be sxempt.

Article 19
The time at which a liability to VAT arises is asfollows:

(1)For sales of goods or taxable services, it is the date on which the sales sum is received or thedocumented evidence of right to collect the salessum is obtained.
(2)For importation of goods, it is the date of import declaration.

Article 20
VAT shall be collected by the tax authorities.VATon the importation of goods shall be collected bythe customs office on behalf of the tax authorities.

VAT on self-used articles brought or mailed into China by individuals shall be levied together withCustoms Duty. The detailed measures shall be form-ulated by the Tariff Policy Committee of the State Council together with the relevant departments. 
  Article 21
Taxpayers selling goods or taxable services shallissue special VAT invoices to the purchasers. Sales amounts and output tax shall be separately indicated in the special VAT invoices.

Under one of the following situations, the invoiceto be issued shall be an ordinary invoice rather than the special VAT invoice:

(1)Sale of goods or taxable services to consumers;
(2)Sale of VAT exempt goods;
(3)Sale of goods or taxable services by small-scale taxpayers.

Article 22
The place for the payment of VAT is as follows: 
(1)Businesses with a fixed establishment shall report and pay tax with the local competent tax authorities where the establishment is located. If thehead office and branch are not situated in the same county (or city ), they shall report and pay taxseparately with their respective local competent tax authorities. The head office may, upon the app
roval of the State Administration for Taxation orits authorised tax authorities, report and pay taxon a consolidated basis with the local competent tax authorities where the head office is located.

(2)Businesses with a fixed establishment selling goods in a different county (or city ) shall applyfor the issuance of an outbound business activities tax administration certificate from the local competent tax authorities where the establishment is located and shall report and pay tax with the local competent tax authorities where the establishment is located. Businesses selling goods and taxable services in a different county (or city ) without the outbund business activities tax administration certificate issued by the local competent taxauthorities where the establishment is located, shall report and pay tax with the local competent ta-x authorities where the sales activities take place. The local competent tax authorities where theestablishment is located shall collect the overdue tax which has not been reported and paid to the local competent tax authorities where the sales activities take place.

(3)Businesses without a fixed base selling goods o-r taxable services shall report and pay tax withthe local competent tax authorities where the sales activitees take place.

(4)For importation of goods, the importer or his agent shall report and pay tax to the cuetoms office where the imports are declared.

Article 23
The VAT assessable period shall be one day, threedays, five days, ten days, fifteen days or one month. The actual assessable period of the taxpayer shall be determined by the competent tax authorities according to the magnitude of the tax payable ofthe taxpayer; tax that cannot be assessed in regular periods may be assessed on a transaction-by-transaction basis.

Taxpayers that adopt one month as an assessable period shall riprort and pay tax within ten days following the end of the period.If an assessable period of one day, three days, five days, ten days or fifteen days is adopted, the tax shall be prepaidwithin five days following the end of the period and a monthly return shall be filled with any balan-ce of tax due settled within ten days from the first day of the following month.

Article 24
Taxpayers importing goods shall pay tax within seven days after the issuance of the tax payment certificates by the customs office.

Article 25
taxpayers exporting goods with the appliable 0% tax rate shall, upon completion of export procedureswith the customs office, apply for the tax refundon those export goods to the tax authorities on amonthly basis based on such relevant documents asthe export declaration document. The detailed measures shall be formulated by the State Administration for Taxation.

Where the return of goods or the withdrawal of thecustoms declaration occurs after the completion ofthe tax refund on the export goods, the taxpayershall repay the tax refunded according to the laws

Article 26
The collection and administration of VAT shall beconductedd in accordance with the relevabt regulations of the and these Regulations.

Article 27
The collection of VAT from foreign investment enterprises and foreign enterprises shall be conductedin accordance with the resolutions of the standing Committee of the National People"s Congress.

Article 28
The Ministry of Finance shall be responsible for the interpretation of these Regulations and for theformulation of the Detailed Rules and Regulationsfor the Implementation of these Reguations.

Article 29
These Regulations shall come into effect from January 1, 1994, and the promulgated by the State Councilon September 18, 1984 shall be repealed on the same date.