Shanghai Jerry Group Inc. - China Business Consultants

Detailed Rules and Regulations for the Implementation of the Provisional Regulations of the People's Republic of China on Business Tax

Article 1 These Detailed Rules are formulated in accordance with the stipulations of Article 16 of < Provision al Regulations of the People's Republic of China o n Business Tax > (hereinafter referred to as the ` Regulations').

Article 2 "Taxable services" as mentioned in Article of the Article 1 of the Regulations refers to services wi thin the scope of taxable items in the communicati ons and transportation, construction, finance and insurance, posts and telecommunications, culture a nd sports, entertainment and service industries.

Processing, repair and replacement are not taxable swevices as mentioned in the Regulations (hereina fter referred to as `non-taxable services').

Article 3 "The foreign exchange, marketable securities and f utures buying and selling business" as mentioned i n Item 5 of Article 5 of the Regulations refers to the foreign exchange, marketable securities and f utures buying and selling business carried on by f inancial institutions (including babks and non-ban k financial institutions). The buying and selling of foreign exchange, marketable securities or futu res by non-financial institutions or individuals s hall not be subject to Business Tax.

"Futures" as mentioned in Item 5 of Article 5 of t he Regulations refer to non-commodities futures. Futures on commodities shall not be subject to Bus iness Tax.

Article 4 "Provision of taxable services, transfer of intang ible assets or the sale of immovable properties" as mentioned in Article 1 of the Regulations refers to activities of providing taxable services, tran sferring intangible assets or ownership of immovab le properties with consideration (hereinafter refe rred to as the `taxable activities'). However, tax able services provided by the staff employed by units or individual operators to their own units or employers shall not be included therein.

The term "with consideration" in the preceding paragraph includes receipt of currency , goods and ot her economic benefits.

For units or individuals that sell their newly self-constructed buildings (hereinafter referred to a s `self-construction'), their self-construction activities shall be regarded as provision of taxable services.

Transfers of limited property rights, or permanent rights, to use immouable properties, and transfer s by units of immouable properties by way of gifts to others shall be regarded as sales of immovable properties.

Article 5 A sales activity that involves both taxable services and goods is deemed to be a mixed sales activity Mixed sales activities of enterprises, enterpris e units or individual business operators engaged i n production, wholesale or retail of goods shall be classified as sales of goods, and Business Tax s hall not be levied on the sales; mixed sales activ ities of other units and individuals shall be clas sified as provision of taxable services, and Busin ess Tax shall be levied on the sales.

Whether taxpayers' sales activities are mixed sale s activities shall be determined by the collection authorities under the State Administration of Taxation.

"Goods" as mentioned jin Paragraph 1 refers to tangible moveable goods, including electricity, heat and gas.

"Enterprises, enterprise units or individual business operators engaged in the production, wholesale and retail of goods" as mentioned in Paragraph 1 include enterprises, units with an enterprise nature and individual business operators engaged principally in the production, wholesale and retail of goods, and also engaged in taxable services.

Article 6 For taxpayers engaged in both taxable services and the sales of goods or non-taxable services, the sales amount of taxable services and the sales amount of goods or non-taxable services shall be accounted for separately. For taxpayers that have not a ccounted for separately or cannot account for accurately, the taxable services and goods and non-tax able services shall together be subject ot Value A dded Tax , and Business Tax shall not be levied.

Whether the taxable services engaged concurrently by taxpayers are together subject to Value Added Tax, this tax shall be determined by the collection authorities under the State Administration of Taxation.

Article 7 Except as otherwise stipulated in Article 8 of these Detailed Rules, any one of the following activi ties shall be regarded as provision of taxable ser vices, transfer of intangible assets or sale jof i mmovable properties within the territory of the Pe ople's Republic of China (hereinafter referred to as `within the territory') as mentioned in Article 1 of the Regulations:

(1)Provision of services occurs within the territory;

(2)Transportation from within the territory of pas sengers or cargos to outside the territory;

(3)Organization of tourist groups within the terri tory to travel outside the territory;

(4)Transfer of intangible assets to be used within the territory;

(5)Sales of immovable properties located within th e teritory.

Article 8 Any one of following situations shall be providing insurance services within the territory:

(1)Insurance services provided by insurance organi zations within the territory, except for insurance provided for export goods by insurance organizati ons within the territory.

(2)Insurance services provided by insurance organi zations outside the territory jin relation to good s within the territory.

Article 9 "Units" as mentioned in Article 1 of the Regulatio ns refers to State-owned enterprises, collectively -owned enterprises, private enterprises, joint sto ck enterprises, other enterprises and administrati ve units, institutions, military units, social gro ups and other units.

"Individuals" as mentioned in Article 1 of the Regulations refers to individual industrial or commercial households and other individuals that have bu siness activities.

Article 10 For enterprises which lease or contract to other to operate, the lessees or sub-contractors shall be the taxpayer.

Article 11 Except otherwise stipulated in Article 12 of these Detailed Rules, units that are liable to Business Tax shall be those that have taxable activities and receive money, goods or other economic benefits from the other parties. They shall include units both with and without independent accounting .

Article 12 The taxpayer for the business of central railway transportation shall be the Ministry of Railways. The taxpayers for the business of Sino-foreign equi ty joint venture railway transportation shall be t he joint venture railway companies, The taxpayers for the business of local railway transportation s hall be the local organization for railway adminis tration. The taxpayers for the business of provisi onal administration for infrastructural route tran sportation shall be the organization for provision al administration for infrastructural routes.

Units engaged in the business of waterway, air, pi peline and other land transportation liable to Business Tax shall be those units engaged in transpor tation business and accountable for profit or loss

Article 13 Charges of legislative, judicial and administrativ e authorities that meet the following conditions shall not be subject to Business Tax;

(1)Charges which are permitted under official docu ments by the Satae Council, provincial People's governments, or the finance or pricing departments thereunder, and where the charging standard is in a ccordance with the stipulations of the documents.

(2)Charges which are collected directly by the leg islative, judicial and administrative authorities themselves.

Article 14 "Other charges" as mentioned in Article 5 of the R egulations shall include handling fees, funds, fun d raising fees, receipts on behalf, payment on beh alf and other charges of every nature received fro m other perties.

All other charges shall be included in the turnover in computing the tax payable regardless of the t reatments applicable according to the stipulations of the accounting policies.

Article 15 Where the prices of the taxpayers providing taxable services, transferring intangible assets or sell ing immovable properties are obviously low and wit hout proper justification, the competent tax authorities shall have the right to determine the turno ver according to the following esquence:

(1)Determined according to the average prices of similar services provided or similar immovable properties sold by the taxpayers in the same month.

(2)Determined according to the average prices of similar services provided or similar immovable properties sold by the taxpayers in the most recent period.

(3)Determined acording to the following formula:

Assessable Operating value    = (1 + the cost plus margin rate) costs or    * project costs / (1 - Business Tax rate)

The cost-plus margin rate in the above formula sha ll be determined by the tax authorities under the People's governments of the provinces, autonomous regions and municipalities.

Article 16 In accordance with the stipulations of Article 4 o f the Regulations, taxpayers settling the turnover on foreign currencies can select to convert the turnover into Regulations, taxpayers settling the turnover in foreign currencies can select to conver t the turnover into Renminbi according to the exch ange rate quoted by the State of either the date t he turnover occurs or on the first date of the mon th (the average rate in principle). However, the Renminbi conversion rate for the turnover of financial and insurance enterprises shall be the exchange rate ascertained in the prior year's financial statements.

Taxpayers shall decide in advance the conversion r ate selected, Once selected, it cannot be changed within one year.

Article 17 Turnover of transportation enterprises engaged in through transport business shall be the turnover a ctually received.

"Other situations" as mentioned in Item 6 of Artic le 5 of the Regulations include tourist enterprise s organising tourist groups to travek within the t erritory of China . The turnover shall be the bala nce of tourist fees received after deduction of ro om charges, meal charges, meal charges, transporta tion, admission fees and other charges paid to oth er units on behalf of the tourists.

Article 18 For taxpayers engaged in construction, repair and decoration project operations, their turnover shal l include the prices of raw mathrials, other mater ials and energy used in the projects irrespective of the method in which the accounts are settled wi th the other parties.

For taxpayers engaged in installation project oper ations, as far as the price of the equipment insta lled is taken as part of installation project sum, their turnover shall include the price of the equ ipment.

Article 19 The turnover of self-construction activities as me ntioned in Article 4 of these Detailed Rules shall be determined with reference to the stipulations of Article 15 of these Detailed Rules.

Article 20 "Re-lending business" as mentioned in Item(4) of A rticle 5 of the Regulations refers to the business of lending to others the funds borrowed. Lending to others with the funds from deposits taken from units or individuals and the funds from lender's o wn capital contributions shall not be regarded as relending business.

Article 21 For insurance business that reinsures with other p arties, the turnover of the initial insurance busi ness shall be the total insurance premiums after d eduction of the premiums paid to the reinsurers.

Article 22 For entertainment performances by units or individ uals , the turnover shall be total box-office proc eeds or block-booking proceeds after deduction of the payments to units providing performance venues , entertainment companies and managers.

Article 23 Turnover of the entertainment business shall be th e various charges collected from customers in the entertainment business operations, including box-o ffice receipts, on-stage fees, song dedication fee s, charges on cigarettes and drinks, and other cha rges in the entertainment business operations.

Article 24 For travel business, the turnover shall be the bal ance of total charges after deduction of payments to other units for meals, lodging and transportati on for the tourists.

For travel enterprises that organis tours within t he territory and then hand over the groups to othe r travel enterprises, the trunover shall be determ ined with reference to the stipulations of Item 2 of Article 5 of the Regulations.

Article 25 For units giving immovable properties to others as free gift, the turnover shall be determined with reference to the stipulations of Article 15 of the se Detailed Rules.

Article 26 The scope of the tax-exempt items as stipulated ji n Article 6 of the Regulations shall be defined as follows:

(1)"Personal services provided on individual basis by the disabled" as mentioned in Paragraph 1, Ite m 2 refers to services provided to the Public by the disabled individual.

(2)"Medical services provided by hospitals, clinics and other medical institutions" as mentioned in Paragraph 1, Item 3 refers to such services as dia gnosis and treatment to patients, epidemic prevent ion, child delivery and family planning, as well as the business jof providing medicine, medical apparatus, hospital lodging and meals in relation to these services.

(3)"Schools and other educational institutions" as mentioned in Paragraph 1, Item 4 refers to ordina ry schools and schools of various kinds approved t o be established by the People's govermments above the prefecture and city levels or departments for educational administration under govermments of t he same level and where the academic qualification s of their students are recognized by the State.

(4)"Agricultural mechanical ploughing" as mentione d in Paragraph 1, Item 5 refers to the business of farming operations applying agricultural machiner y in farming, forestry and husbandry (including pl oughing, planting, harvesting, threshing and plant protection).

"Irrigation and drainage" refers to the business o f irrigation and drainage of farmland.

"Prevention and treatment of diseases and insect p ests" refers to the business jof forecast, prevent ion and treatment of diseases and insect pests for farming, forestry, husbandry and fishery.

"Imsurance for farming and husbandry" refers to th e business of providing insurance to animals and p lants grown and raised in planting, breeding and h usbandry.

"Related technical training " refers to technical training services related to the business jof agri cultural mechanical ploughing, irrigation and drainage, prevention and treatment of diseases and ins ect pests, and plant protection, as well as services to enable the farmers to obtain knowledge of insurance for farming and husbandry.

The scope of the tax exemption for the breeding an d the prevention and treatment of diseases of poul try, livestock and aquatic animals includes the business of providing medicine and medical apparatus in relation to those services.

(5)"Cultural activities conducted by memorial hall , museum, cultural cintre, art gallery, exhibition hall, academy of painting and calligraphy, librar y and cultural protective units" as mentioned in P -aragraph 1, Item 6 refers to cultural activities that fall within the taxable scope of taxable items under culture and sports activities conducted by those units in their own locations. The admission fees refers to the box-office receipts on the sal es at the first entrance.

"Admission fees for cultural and religious activit ies conducted at places of religious worship" refe rs to cultural and religious activities held by temples, Taoist temples, mosques and churches.

Article 27 The application of the Business Tax minimum threshold as mentioned in Article 8 of the Regulations shall be limited to individuals.

Ranges for the Business Tax minimum threshold are as follows:

For those assessable on a period basis, the Business Tax minimum threshold shall be a monthly turnov er of 200-800 yuan.

For those assessable on a transaction basis, the Business Tax minimum threshold shall be turnover of 50 yuan per transaction (or per day).

Taxpayers whose turnovers reach the minimum threshold shall compute the tax payable based on the to tal turnover.

The tax authorities under the People's governments of provinces, autonomous regions and municipaliti es shall determine the minimum threshold locally a pplicable within the prescribed ranges and in acco rdance with the actual conditions, and shall repor t the amounts to the State Administration of Taxat ion for their records.

Article 28 For taxpayers transferring land use rights or sell ing immovable properties that accept receipts in a dvance, the timing at which the tax liability aris es shall be the date on which the advance receipts are received.

For taxpayers that have self-construction activities as mentioned in Article 4 of these Detailed Rules, the timing at which the tax liability arises on the self-construction activities shall be the date on which the self-constructed buildings are sol d and the turnovers are received of the documented evidence of the right to collect the sales sum is obtained.

For taxpayer giving immovable properties to others as free gift, the timing at which the tax liability arises shall be the date on which the titles of the immovable properties are transferred.

Article 29 Other withholding agents as mentioned in Article 1 1 of the Regulations are defined as follows:

(1)For overseas units or individuals that have taxable activities within the territory but have not set up any establishment within the territory, the agents shall be the withholding agents for their tax payable. If there are no agents, the transferees and the purchasers shall be the withholding agents.

(2)For units or individuals that present performances where the tickers are sold by others , the ticket sellers shall be the withholding agents for their tax payable.

(3)For individual performance managers, the ticket sellers shall be the withholding agents on their tax payable on the performance management business.

(4)For reinsurance business, the initial insurers shall be the withholding agents.

(5)For individuals transferring other intangible assets as mentioned in Item 2, Article 12 of the Regulations, the transferees shall be the withholding agents for their tax payable.

Article 30 For taxpayers providing taxable services that take place in a different county (or city) that should report and pay with the competent tax authorities where the services taken place but have not reported or paid the tax, the competent tax authorities where the establishments are located or where the individuals reside shall collect the overdue tax.

Article 31 Taxpayers with contracted projects extending across provinces, autonomous regions and municipalities shall report and pay tax to the competent tax authorities where the establishments are located.

Article 32 For taxpayers that have taxable activities within the area of their own province, autonomous region and municipality, and need to change the tax payme nt location, the location shall be determined by tax authorities under the People's governments of t he province, autonomous region or municipality.

Article 33 The assessable period for the financial industry ( excluding pawn-broking ) shall be one quarter of a year.

The assessable period for the insurance industry shall be one month.

Article 34 The terms "above " and "below" as mentioned in these Detailed Rules also include the figure or level itself.

Article 35 These Detailed Rules shall be interpreted by the Ministry of Finance or by the State Administration of Taxation.

Article 36 These Detailed Rules shall be implemented on the same day the Regulations are come into effect, The < Detailed Rules and Regulations for the Implement ation of the Draft Regulations of the People's Republic of China on Business Tax> promulgated on September 28, 1984 shall be repealed on the same date.