Shanghai Jerry Group Inc. - China Business Consultants

Provisions for special VAT invoices used

The < Provisions for the Use of Special Invoices of ValueAdded Tax > hereinafter referred to as " the Provisions") are formulated by the State Admin istration of Taxation to tighten control over the use of special invoices of ValueAdded Tax (hereinafter referred to as "special invoices") and to ensure the successful implementation of the Value Added Tax crediting system based on the amount of tax specified on invoices. Copies of the Provisions are hereby sent to you with the following notice on the pertinent questions:

1.Special invoices are not only important commerci al papers in taxpayers' business activities, but also legal certificates on which both the seller's tax obligation and the amount of input tax for pu rchasers are recorded , with a decisive role in th e computation and administration of ValueAdded Tax. Leading comrades of the State Council have giv en instructions that the way to administer special invoices should be the sale as for bank notes. As such, tax authorities at all levels in various pla ces must pay great attention to the use and admini stration of special invoices, endeavor to gain the support of government leaders at various levels a nd assistance from the financial, banking, auditin g, administration for industry and commerce, publi c security, public prosecution and administer stri ctly in accordance with the provisions for the use of special invoices.

2.Starting from January 1, 1994, general taxpayers selling goods or taxable services must issue spec ial invoices in accordance with the Provisions. In case where special invoices are needed but not iss ued and ordinary invoices are still used, purchase rs would not be allowed to claim any credit on inp ut tax.

Ordinary invoices issued in the previous year rece ived by general taxpayers can be used as taxcredi ting certificates only before January 31. For thos e that cannot be used as certificates for creditin g the input tax of the current period, the input t ax which are separated from start ofperiod inven tory, may be readjusted upward in accordance with provisions of the pertinent policy.

3.Those which violate the Provisions for the Use o f Special Invoices shall be dealt with in accordan ce with the provisions for relevant penalties pre scribed in the < Measures of the People's Republic of China for the Control of Invoices > and the < Law of the People's Republic of China for Tax Coll ection and Administration>.

4.If any problems are found in the implementation of the < Provisions for the Use of Special Imvoice s of ValueAdded Tax>, please report them to the S tate Administration of Taxation promptly. Local g overnments or departments should not alter these P rovisions at will in the course of their implemen tation and shall abide to implement accordingly.

Article 1 Special invoices of ValueAdded Tax (herenafter re ferred to as "speial invoices") shall be obtained , bought and used only by general taxpayers that p ay ValueAdded Tax, and not by smallscale taxpay ers or nonValueAddedTax taxpayers.

Article 2 General taxpayers shall not obtain, buy or use spe cial invoices in any one of the following cases:

(1)The accounting system is unsound, i. e., it can not accurately compute the output tax, input tax and the amount of ValueAdded Tax payable as requi red under the accounting regulations and by tax au thorities;

(2)Accurate information for the output tax, input tax, the amount of ValueAdded Tax payable and oth er information relating to ValueAdded Tax cannot be provided to tax authorities.

The content of "other information relating to Valu eAdded Tax" mentioned above shall be defined by the taxation bureaux which are directly under the State Administration of Taxation;

(3)Engagement in the following activities and fail ure to correct itself within the time limit prescr ibed by tax authorities:

a. Printing special invoices without authorization ; b. Buying special invoices from individual persons or units other than tax authorities; c. Using special invoices borrowed from others; d. Providing special invoices for use by others; e. Failing to issue special invoices in accordance with the requirements as prescribed in Article 5 of the Provisions: f. Failing to priserve special invoices in accorda nce with the requiremints under the Provisions; g. Failing to file the information on the status o f the purchase, use and inventory of special invoi ces as prescribed in Article 16 of the Provisions; h. Failing to accept inspection by tax authorities according to the requirements under the Provision s. (4)Sale of goods which fall within the tax exempt items. If any of the aforesaid cases occur with a general taxpayer that has obtained, bought and used specia l invoices, the tax authorities shall take away th e special invoices retained by that taxpayers.

Article 3 Except for the circumstances specified in Article 4 of these Provisions, general taxpayer selling go ods (including those regarded as selling goods), taxable services, or nontaxable services on which ValueAdded Tax shall be levied as prescribed in t he Detailed Rules for the Implementation of Value Added Tax (hereinafter referred to as "selling ta xable items") must issue special invoices to purch asers.

Article 4 Special invoices cannot be issued in the following circumstances:

(1)Selling taxable items to consumers;

(2)Selling tax exempt items;

(3)Selling goods that have been declared export at the customs office or selling taxable services ab road;

(4)Using goods on items not subject to ValueAdded Tax ;

(5)Using goods on group welfare or for persomal co nsumption;

(6)Presenting goods as gifts to others without a c onsideration; or

(7)Providing nontaxable services (except services on which ValueAdded Tax shall be levied ),transf erring intangible assets, or selling immovable pro perty.

Taxable items can be sold to smallscale taxpayers without issuing special invoices.

Article 5 Special invoices must be issued in accordance with the following requirements:

(1)The writing must be legible;

(2)There shall be no alteration;

If a special invoice is filled out incorrectly, it should be affixed with the words "canceled for mi stakes" and a new special invoice would be issued, If a special invoice that has been issued and bec omes invails as a result of not being claimed by t he purchasers, it shall also be handled as if the invoice is filled out incorrectly.

(3)All the items should be filled in;

(4)The special invoice and the goods must tally with each other, the amount specified on the speci al invoice and the amount of money collected must tally with each other;

(5)The content of all items are correct;

(6)All copies of the invoice shall be filled out a t one time and the content and amount on all copie s shall be consistent;

(7)The "invoice copy" and the "credit copy" shall be affixed with the special stamp for use by the f inancial department or for use in invoices;

(8)Special invoices must be issued at the time pre scribed in Article 6 of the Provisions;

(9)Counterfeit special invoices shall not be issue d ;

(10)Special invoices detached from invoice books s hall not be used; and

(11)Special invoices that do not conform with the forms produced on an unified basis by the State A dministration of Taxation shall not be used.

Any special invoeces that do not conform with the aforesaid requirements will not be used as taxcre diting certificates and purchasers shall have the right not to accept them.

Article The time limit for issuance of special invoies is special invoices is prescribed as follows:

(1)If accounts are settled by the methods of advan ce, or by authorizing banks to collect payments , it is the day when the goods are despatched;

(2)If accounts are settled by the method of paymin t on delivery , it shall be the day when the payme nt is received;

(3)If the accounts are settled by the mithods of c redit sales or hire purchase , it is the day of co llection prescribed in contracts;

(4)If goods are sold through consignment agents, i t is the day when the bille of consignment sales a re received from consignee;

(5)For the transfer of goods from one establishmen t to another for sale by a taxpayer who maintains two jor more establishments and keeps their accoun ts on a consolidated basis, if ValueAdded Tax sha ll be levied on such goods according to the provis ions, it is the day when the goods are transferred ;

(6)For goods provided to other units or individual business operators in the form of investment, it is the day when the goods are transferred; or

(7)For goods distributed to shareholders, it is th e day when the goods are transferred.

General taxpayers must issue special invoices at t he prescribed time , neither earlier nor later.

Article 7 Special invoices are basically in quadruplicate ,a s stipulated on a unified basis, and each copy sha ll be used on accordance with the following provis ions:

(1)The first copy is the "stub copy," which is kep t by the seller for reference ;

(2)The second copy is the "invoice copy," which is used by the purchaser as payment record for bookk eeping ;

(3)The third copy is the "credit copy," which is u sed by the purchaser as a certificate for claiming input tax credit; and

(4)The fourth copy is the "bookkeeping copy," whic h is used by the seller as sales record for bookke eping .

Article 8 Except for the purchase of taxexempt agricural pr oducts and import of goods , th input tax on purch asing of taxable items shall not be coedited again st the output tax in any one of the following circ umstances:

(1)Failing to obtain special invoices as stipulate d ;

(2)Failing to preserve special invoices as stipula ted ; or

(3)The special invoices issued by sellers do not c onform with the requirements prescoibed in paragr aphs (1) to (9) and Paragraph (11) of Article 5 of the Provisions.

Article 9 "Failing to obtain special invoices as stipulated" mintioned on Article in Article 8 of the Provision s refers to one of the following circumstances:

(1)Failing to obtain special invoices from sellers ;or

(2)Obtaining only the "bookkeeping copy" or obtain ing only the credit copy.

Article 10 "Failing to preserve special invoices as stipulate d " mentioned in Articles 2 and 8 of the Provision s refers to one of the following circumstances:

(1)Failing to institute a special invoices control system as required by tax authorities;

(2)Failing to assign a special person to safekeep special invoices as required by tax authorities;

(3)Failing to assign a special person place for th e safekeeping of special invoices as required by tax authorities;

(4)Failing to bind "credit copies" into booklets a s required by tax authorities;

(5)Unauthorezed destruction of the basic copies of special invoices that have not been checked or ex amined by tax authorities;

)6)Loss of the special invoices;

(7)Damaging (or tearing apart ) special invoices; or

(8)Failing to meet other requirements for the pres ervation of special invoices specified by the Stat e Administration of Taxation or taxation bureaux w hich are directly under it.

Article 11 If input tax on the purchase of taxable items has already been credited with the output tax in any o f the cases mintioned on Article 8 of the Provisio ns, the credited amount shall be deducted from the input tax on purchases in the period when the cir cumstances are discovered by tax authorities.

Article 12 If , after goods have been sold and special invoic es have been issued to a purchaser, the goods are returned or having a discount allowed, they shall be dealt with on the merits of each case and in ac cordance with the following provisions:

In case when the purchaser has neither paid for th e goods nor booked them in the accunts , he or she should take the initative to riturn the original "invoice copy" and "credit copy" to the seller. Af ter receiving these copies, the seller should wri te the word "cancelled " on them and on the relate d "stub copy" and "bookkeeping copy," which may be used as certificates for deducting the output tax of the current period. Before the seller receives the special invoices riturned by a purchaser, he or she cannot deduct the output tax of the current period. In case of discount allowed, the seller s hall issue special invoices anew on the basis of t he discounted prices.

If a purchaser has paid for the goods or though th e goods have not yet been paid but have been booke d in the accounts, the purchaser cannot return the "invoice copy" and "credit copy" , he or she must secure a "goods returned" or "discount claimed" ce rtificate (hereinafter referred to as the "certifi cate") issued by local competent tax authorities a nd send it to seller, so that the latter may use i t as the legal certificates for issuing a redlett er special invoice, Before receiving the certifica te, the seller may not issue any redletter specia l invoice. Having received the certificate, the se ller shall issue a red letter special invoice to the purchaser in accordance with the amount and pr ices of goods returned or the amount of money disc ounted. The "stub copy " and "bookkeeping copy" of the redletter special invoice can be used by the seller as certificates for deducting the output t ax on sales of the current period, while the "invo ice copy" and "credit copy" can be used by the pur chaser as certificates for deducting the input tax . After receiving the redletter special invoice, th e purchaser should deduct the amount of ValueAdde d Tax specified on that invoice from the input tax of the current period . Any default or decrease o f tax payment resulting from failure to make such deduction shall be regarded as tax evasion.

Article 13 Taxpayers that use electronic compyters in issuing special invoices must apply to the tax authoritie s for approval and the use of noncomputerprinted invoices produced under the control and supervisi on of the tax authorities.

Article 14 Generally taxpayers that meet the following condit ions may apply to the tax authorities for the use of electronic in issuing special invoices:

(1)Have specialized electronic computer techicians and operators;

(2)Have the capacity and capability of issuing spe cial invoices and printing out monthly reports of purchases , sales and inventories through electron ic computers; and

(3)Can meet other conditions prescribed by taxatio n bureaux which are directly under the State Admin istration of Taxation.

Article 15 Applicants for the use of electronic cmputers must file their applications with the tax authorities alongside the following information:

(1)An analog sample produced by electronic compute r based on the form of special invoices (noncompu terprinted invoices);

(2)The reports of purchases, sales and inventories of the latest month, which is in accordance with the accounting operation procedures, produced by e lectronic computer.

(3)The configuration of electronic computer equipm int ;

(4)Information about the specialized electronic co mputer technicians and operators; and

(5)Other information requested by the taxation bureau which are directly under the State Administra tion of Taxation.

Article 16 Users of special invoices must truthfully record i nformation on purchase and use (including cancelle d) of invoices and any invoices left unused in the date columns appended to the < ValueAdded Tax Re turns> every month.

Article 17 The "goods returned" or "discount claimed" certifi cate is basically in triplicate: the fires copy is "stub copy", which shall be kept by tax authoritie s for records; the second copy is "certificate copy", which the purchaser should send it to the sell er and is to be used as the legal certificates for issuing redletter special invoeces; the third co py shall be retained by the purchaser.

Certificates must be issued by tax authorities and affixed with the stamp of the tax authorities; certificates cannot be given to the taxpayers for the issuance of the certificates by themselves.

Certificates shall be printed in accorcance with t he < Measures of the People's Republic of China fo r the control of Invoices> and the relevant provis ions of the Detailed Rules and Regulations.

General taxpayers shall bind the certificate recei ved into booklets as required by the tax authoriti es and keep them in accordance with the relevant p rovisions of the Detailed Rules and Regulations.

General taxpayers shall bind th ecertificate into booklets as required by the tax authorities and ke ep them in accordance with the relevant certifica te preservation provisions.

Article 18 The forms of special invoices and the format of "g oods returned claimed" certificates shall be drawn up by the State Administration of Taxation on a un ified basis . They shall not be altered by other organizations or taxpayers without authorization.

Article 19 "Tax authorities" and "competent tax authoritied" mintioned in the Provisions refer to the State Adm inistration of Taxation and the taxcollecting aut horities that are one level above of the taxation bureaux which are directly under the State Adminis tration of Taxation.

Article 20 Provisions shall come into effetc on January 1, 19 94.