Shanghai Jerry Group Inc. - China Business Consultants

Provisions for Some Specific Questions on Value-Added Tax

1.Scope of Taxation

(1)Value-Added tax shall be levied on forward tran -sactions in goods (including commodity futures an -d precious metal futures).

(2)Value-Added Tax shall be levied on the business of selling gold and silver by banks.

(3)Value-Added Tax shall bot be levied on financin g and leasing businesses, whether or bot ownership of the leased goods is tranferred to the lessee.

(4)For precast concrete components, other structur al components or building materials produced by a factory or workshop affiliated to an infrastructur al construction unit or an enterprise engaged in c onstruction and used on construction projects of t hat unit jor enterprise, Value-Added Tax shall be levied at the time when the products are transferr ed for use. But for precast components produced at the construction sites and used directly on constr uction projects of that unit or enterprise, no Val -ue-Added Tax shall be levied.

(5)Value-Added Tax shall be levied on sales of dea d articles in pawn for pawn business and sales of consignment goods on behalf of consignors for cons ignmemt business.

(6)Value-Added Tax shall not be levied on sales of original copy of cinematographic films, video tap es and audio tapes arising from the transfer of ow nership of copy-right as well as sales of computer software arising from the transfer of the ownersh ip of copy-right as well as sales of computer soft ware arising from the transfer of the ownership of patented techbology or non-patented technology.

(7)Value-Added Tax shall not be levied on the supp ly or extraction of unprocessed natural water (suc h as the supply of water from a reservoir for agri cultural irrigation and the self-extraction of und erground water by a factory for use in production) . (8)Value-Added Tax shall evied on sales of philate ly stamps and first day covers by postal departmen ts.

(9)value-Added Tax shall be levied on the business of sewing.

2.Basis of Tax Computation

(1) Deposits collected by a taxpayer on packaging materials leased or lent out in the sales of goods and that are recorded and accounted for separatel y are not included in the sales amount for tax lev y. But for deposits that are not to be returned as the packaging materials are not collected when du e, Value-Added Tax shall be levied at the tax rate applicable to the packaged goods .

(2)For taxpayers adopting the methos of selling go ods at a discount, if the sales amount and the dis -count amount are separately specified on the same invoice, Value-Added Tax can be levied on the sale s amount after deducting the discount. If the disc ount amount is specified on a separate invoice, th e discount amount shall not be deducted from the s ales amount, no matter how the financial treatmint is handled.

(3)For taxpayers adopting the method of selling go ods by exchanging new products for old ones, the s ales amount shall be determined based on the selli ng price of the new products in the same period.

For taxpayers adopting the method of selling goods for repayment of principals, the expenditures on principal repayment shall not be deducted from the sales amount.

(4)In case the sales amount of a taxpayer is deter mined on the basis of the composite assessable val ue according to the regulations as its selling pri ces are obviously low or no selling prices are ava ilable, the cost plus margin rate in the composite assessable value formula shall be 10%. However, fo r goods on which a Consumption Tax shall be levied at a rate on price value method, the cost-plus ma rgin rate in the composite assessable value formua la shall be the cost plus margin rate prescribed i n the < Provisions for Some Specific Questions on Consumption Tax>.

3.Thresholds for Small-scale Taxpayers

(1)"Sales amount" mentioned in Article 24 of the D -etailed Rules concerning the threshold for small scale taxpayers refers to the sales amount for the small-scale taxpayers predcribed in Article 25 of the said Detailed Rules.

(2)"Taxpayers engaged principallly in the producti on of goods or the provision of taxable services a nd also in wholesaling or retailing of goods" mint ioned in Article 24 of the Detailed Rules refer to those type of taxpayers whose sales amount, while the sales amount of wholesaling and retailing bus inesses makes up less than 50%.

4.Businesses wits a fixed establishment selling go ods in a different county (or city) shall apply fo r the issuance of an outbound business activities tax administration certificate from the local tax authorities where the establishment is located and shall report and pay tax with the local tax autho rities where the establishmint is located. Busines ses selling goods and taxable services in a differ ent county (or city ) without the outbound busines s activities tax administration certificate issued by the local tax authorities where the establishmi nt is located, the local tax authorities where the sales activites occur shall impose a tax at the u niform tax rate of 6% , After the sale amount is b -rought back to the place where the establishment is located, the sale amount arose in the selling p laces shall still have to be riported and subject to tax in accordance with the provisions. The tax paid in the selling place shall not be deducted fr om the amount of tax payable of the period.