PRC Tentative Regulations on Business Tax (Revised)

(Promulgated by the State Council on November 10 2008 and effective as of January 1 2009.)

Order of the State Council No.540

Article 1: Work units and individuals that provide services stipulated herein, assign intangible assets, or sell immovable property in the People's Republic of China shall be payers of business tax and shall pay business tax in accordance herewith.

Article 2: The items and rates of the business tax shall be as set forth in the Table of Business Tax Items and Rates appended hereto.

Adjustments to the tax items and rates shall be determined by the State Council.

The specific tax rates applicable to taxpayers engaged in the entertainment business shall be determined by the people's governments of the provinces, autonomous regions and municipalities directly under the central government within the margins set forth hereof.

Article 3: If a taxpayer provides a service subject to business tax (Taxable Service), assigns an intangible asset or sells immovable property and the same falls under more than one tax item, it shall separately calculate the Business Turnover, assignment amount or sales turnover (hereinafter collectively referred to as the Business Turnover) under each tax item. If it fails to do so, the highest tax rate shall apply.

Article 4: Taxpayers that provide Taxable Services, assign intangible assets or sell immovable property shall calculate the tax payable according to the Business Turnover and the specified tax rates. The formula for calculation of tax payable is set forth below:

tax payable = Business Turnover x tax rate

Business Turnover shall be calculated in renminbi. If a taxpayer settles its Business Turnover in a currency other than renminbi, it shall translate the same into renminbi.

Article 5: The Business Turnover of a taxpayer shall be the full price and all additional charges that are collected by the taxpayer for the provision of Taxable Services, assignment of intangible assets or sale of immovable property, except in the following circumstances:

(1) where the taxpayer shares with another work unit or individual part of the transport business that it has undertaken, its Business Turnover shall be the balance of the full price and all additional charges that it has collected after subtracting the transport expenses it paid to the other work unit or individual;

(2) where the taxpayer engages in the tourism business, its Business Turnover shall be the balance of the full price and all additional charges that it has collected after subtracting the accommodation expenses, meal expenses, transport expenses and tourist site entry ticket costs that it has paid to other work units or individuals on behalf of the tourists and other tourism expenses paid to the tourism enterprise that met the group;

(3) where the taxpayer subcontracts part of a construction project to other work units, its Business Turnover shall be the balance of the full price and all additional charges that it has collected after subtracting the sub-contracting moneys paid to the other work units;

(4) for the business of buying and selling financial commodities such as foreign exchange, negotiable securities and futures, the Business Turnover shall be the balance after subtracting the buying price from the selling price; or

(5) other circumstances as specified by the State Council's departments in charge of finance and tax.

Article 6: If the documentation that the taxpayer has obtained in connection with the deduction of relevant items as specified in Article 5 hereof does not comply with laws, administrative regulations or relevant provisions of the State Council's department in charge of tax, the amount of such items may not be deducted.

Article 7: If a taxpayer's price for a Taxable Service, the assignment of an intangible asset or the sale of immovable property is obviously low without legitimate reason, the department in charge of tax shall determine the taxpayer's Business Turnover.

Article 8: The following items shall be exempt from business tax:

(1) the care provided in nurseries, kindergartens, old people's homes and welfare institutions for disabled persons; matchmaking and funeral services;

(2) services provided by disabled persons in their individual capacity;

(3) medical services provided by hospitals, clinics and other medical institutions;

(4) educational services provided by schools and other educational institutions, and services provided by students under work-study programmes;

(5) the agricultural business of tractor ploughing, irrigation and drainage, prevention and control of plant diseases and elimination of pests, plant protection, agricultural and animal husbandry insurance and relevant technical training, and breeding of, and prevention and control of diseases in, poultry, livestock and aquatic animals;

(6) revenue from admission fees for cultural activities organised by memorial halls, museums, cultural centres, organisations managing protected cultural relic work units, art galleries, exhibition halls, painting and calligraphy galleries, and libraries, and revenue from admission fees for cultural and religious activities organised by religious sites; and

(7) insurance products provided by domestic insurance institutions in connection with the export of goods.

Items that are exempt from business tax or entitled to business tax reduction other than those set forth in the preceding paragraph shall be determined by the State Council. No regions or authorities may determine items exempt from tax or entitled to tax reduction.

Article 9: Taxpayers that concurrently engage in items that are exempt from business tax or entitled to business tax reduction shall separately calculate the Business Turnovers of the items exempt from tax or entitled to business tax reduction. Where the Business Turnovers are not calculated separately, no exemption or reduction of tax may be granted.

Article 10: If the Business Turnover of a taxpayer is below the threshold for the levy of business tax specified by the State Council's departments in charge of finance and tax, it shall be exempt from business tax. If the Business Turnover reaches the threshold, the taxpayer shall calculate and pay the entire amount of business tax in accordance herewith.

Article 11: The following persons shall be business tax withholding agents:

(1) where a work unit or individual outside the People's Republic of China provides Taxable Services, assigns intangible assets or sells immovable property in China but does not have a business establishment in China, its agent in China shall be its withholding agent; where it does not have an agent in China, the assignee or buyer shall be its withholding agent; and

(2) other withholding agents as specified by the State Council's departments in charge of finance and tax.

Article 12: A business tax obligation shall arise on the date that the taxpayer provides a Taxable Service, assigns an intangible asset or sells immovable property, and receives the business revenue amount in full or obtains the voucher with which the taxpayer can demand payment of the business revenue amount. If the State Council's departments in charge of finance and tax provide otherwise, such provisions shall apply.

A business tax withholding obligation shall arise on the date that the taxpayer's business tax obligation arises.

Article 13: Business tax shall be levied and collected by tax authorities.

Article 14: Business tax shall be paid in the following places:

(1) where a taxpayer provides Taxable Services, it shall file tax returns with and pay tax to the department in charge of tax of the place where its establishment is located or resident; however, if the taxpayer provides construction services or another Taxable Service specified by the State Council's departments in charge of finance and tax, it shall file tax returns with and pay tax to the department in charge of tax of the place where the Taxable Service was provided;

(2) where a taxpayer assigns intangible assets, it shall file tax returns with and pay tax to the department in charge of tax of the place where its establishment is located or resident; however, if the taxpayer assigns or lets leaseholds, it shall file tax returns and pay tax to the department in charge of tax of the place where the land is located;

(3) where a taxpayer sells or lets immovable property, it shall file tax returns and pay tax to the department in charge of tax of the place where the immovable property is located.

A withholding agent shall file tax returns and pay the withheld tax to the department in charge of tax of the place where its establishment is located or resident.

Article 15: The terms for payment of business tax shall be five days, ten days, 15 days, one month or one quarter, respectively. Taxpayers' specific terms of tax payment shall be determined by the tax authority in charge on the basis of the different sizes of the taxpayers' amounts of tax payable. Taxpayers that cannot pay tax according to fixed terms may pay tax each time the liability to pay tax arises.

Taxpayers whose term of tax payment is one month or one quarter shall file a tax return and pay tax within a period of 15 days commencing from the date of expiration of the term. Taxpayers whose term of tax payment is five, 10 or 15 days shall prepay the tax within a period of five days commencing from the date of expiration of the term and, within a period of 15 days commencing from the first day of the next month, file a tax return and settle in full the amount of tax payable for the preceding month.

The deadline by which withholding agents shall turn over the tax withheld shall be handled in accordance with the preceding two paragraphs.

Article 16: The levy and collection of consumption tax shall be carried out in accordance with the PRC Law on the Administration of the Levy and Collection of Taxes and relevant provisions hereof.

Article 17: These Regulations shall be effective as of January 1 2009.

Appendix: Table of Business Tax Items and Rates