Implementing Rules for the PRC Tentative Regulations on Business Tax (Revised)

Revised on October 28 2011. Latest revision can be found at: http://www.chinalawandpractice.com/Article/2945597/Implementing-Rules-for-the-PRC-Tentative-Regulations-on-Business-Tax-2nd-Revision.html

(Issued by the Ministry of Finance and State Administration of Taxation on December 15 2008 and effective as of January 1 2009.)

Order of the MOF and SAT No.52

Article 1: These Rules have been formulated pursuant to the PRC Tentative Regulations on Business Tax (the Regulations).

Article 2: For the purposes of Article 1 of the Regulations, the phrase “services stipulated herein” means services that fall under the tax items for the transport industry, construction industry, finance and insurance industry, post and telecommunications industry, culture and sports industry, entertainment industry and service industry (Taxable Services).

Processing, repair and replacement do not fall under the services stipulated in the Regulations (Non-taxable Services).

Article 3: For the purposes of Article 1 of the Regulations, the phrase “provide services stipulated herein, assign intangible assets, or sell immovable property” means the provision for consideration of services as stipulated in the Regulations, the assignment of intangible assets for consideration or the assignment of the ownership of immovable property for consideration (Taxable Acts). However, the provision of services stipulated in the Regulations to a work unit or a family proprietorship by employees employed thereby is not included therein.

For the purposes of the preceding paragraph, the phrase “for consideration” means the obtaining of money, goods or other economic benefit.

Article 4: For the purposes of Article 1 of the Regulations, the phrase “provide services stipulated herein, assign intangible assets, or sell immovable property in the People's Republic of China (PRC)” means that:

(1) the work unit or individual providing or receiving the services stipulated in the Regulations is located in the PRC;

(2) the work unit or individual receiving the assigned intangible assets (excluding leaseholds) is located in the PRC;

(3) the land to which the leasehold is assigned or let is located in the PRC; or

(4) the immovable property that is sold or let is located in the PRC.

Article 5: If any of the following circumstances applies to a taxpayer, a Taxable Act shall be deemed to have occurred:

(1) a work unit or individual gives immovable property or a leasehold to another work unit or individual without consideration;

(2) where a work unit or individual, after itself or himself constructing a building (Self-construction), sells the same, the act of Self-construction that occurred; or

(3) another circumstance as specified by the Ministry of Finance and the State Administration of Taxation.

Article 6: If a sale involves both Taxable Services and goods, it is a mixed sale. Except as provided in Article 7 hereof, mixed sales by enterprises, enterprise-type work units or family proprietorships that engage in production, wholesale or retail sale of goods shall be deemed a sale of goods and not be subject to business tax. Mixed sales of other work units and individuals shall be deemed the provision of Taxable Services and be subject to business tax.

For the purposes of the first paragraph, the term “goods” means tangible movable property, including electric power, heat and gas.

For the purposes of the first paragraph, the phrase “enterprises, enterprise-type work units or family proprietorships that engage in production, wholesale or retail sale of goods” includes enterprises, enterprise-type work units and family proprietorships that engage in the production, wholesale or retail sale of goods as their core business and engage in the provision of Taxable Services as a sideline business.

Article 7: For the following mixed sales of taxpayers, the business turnover in Taxable Services and the sales turnover of goods shall be accounted for separately and business tax shall be paid on the business turnover in Taxable Services, but no business tax shall be paid on the sales turnover of goods; if the business turnover in Taxable Services and the sales turnover of goods are not accounted for separately, the tax authority in charge shall assess and determine the business turnover in Taxable Services:

(1) the simultaneous provision of construction services and sale of self-produced goods; and

(2) another circumstance as specified by the Ministry of Finance and the State Administration of Taxation.

Article 8: If a taxpayer engages in both Taxable Acts and the sale of goods or the provision of Non-taxable Services, it shall separately account for the business turnover in Taxable Acts and the sales turnover of goods or Non-taxable Services and pay business tax on the business turnover in Taxable Acts, but no business tax shall be paid on the sales turnover of goods or Non-taxable Services. If the business turnover in Taxable Acts and the sales turnover of goods or Non-taxable Services are not accounted for separately, the tax authority in charge shall assess and determine the business turnover in Taxable Acts.

Article 9: For the purposes of Article 1 of the Regulations, the term “work units” means enterprises, administrative work units, public institutions, military work units, associations and other work units.

For the purposes of Article 1 of the Regulations, the term “individuals” means family proprietorships and other individuals.

Article 10: Except as provided in Articles 11 and 12 hereof, a work unit that bears a business tax obligation is a work unit that carries out Taxable Acts and receives money, goods or other economic benefits therefor, but excludes the internal organs of a work unit that, in accordance with the law, are not required to carry out tax registration.

Article 11: If a work unit operates under a subcontracting, leasing or affiliation arrangement and the sub-contractor, lessee or affiliating party (hereinafter collectively referred to as “Sub-contractors”) carries out a Taxable Act, or if a Sub-contractor does business with third parties in the name of the employer, the lessor or the affiliated party (hereinafter collectively referred to as “Employers”) and the Employer bears the relevant legal liability, the Employer shall be the taxpayer, otherwise, the Sub-contractor shall be the taxpayer.

Article 12: The taxpayer for centrally-operated rail business shall be the Ministry of Railways, the taxpayer for rail business operated as an equity joint venture shall be the equity joint venture rail company, the taxpayer for a locally-operated rail business shall be the local railway administrative authority and the taxpayer for the operation of a capital construction provisionally-administered line shall be the capital construction provisionally-administered line authority.

Article 13: For the purposes of Article 5 of the Regulations, the term “additional charges” shall include handling fees that are charged, subsidies, funds, financing expenses, profit recovery, incentives, liquidated damages, late payment fines, default interest, damages, moneys collected on behalf of a third party, moneys advanced on behalf of a third party, penalty interest and other additional charges of whatever nature, but exclude funds of a governmental nature and administrative charges charged on behalf of a third party that satisfy all of the following conditions:

(1) funds of a governmental nature the establishment of which has been approved by the State Council or the Ministry of Finance and administrative charges the charging of which has been approved by the State Council or provincial-level people's government or its competent finance or pricing department;

(2) at the time of the charging thereof, a fiscal receipt printed by the finance department at the provincial level or above is issued; and

(3) all of the moneys collected are paid into the treasury.

Article 14: If, after a taxpayer's calculation of its business turnover and payment of business tax, its business turnover is reduced due to refunds, the paid business tax shall be refunded or the amount thereof shall be deducted from the taxpayer's future business tax payable.

Article 15: If a taxpayer carries out a Taxable Act and the price and discount amount are both indicated on the same invoice, the price after the discount shall be the business turnover. If a separate invoice is issued for the discount, it may not be deducted from the business turnover regardless of how it is treated financially.

Article 16: Except as specified in Article 7 hereof, if a taxpayer provides construction services (excluding decorating services), its business turnover shall include the price of the raw materials, equipment, other supplies and power for the work, but shall exclude the price of the equipment provided by the owner.

Article 17: Business turnover in the entertainment industry shall be the full price and all additional charges collected in operating the entertainment business, including admission fees, stage fees, song request charges, and charges for tobacco products, alcoholic beverages, beverages, tea, fresh flowers, snacks, etc. and the other charges collected in operating the entertainment business.

Article 18: For the purposes of Item (4) of Article 5 of the Regulations, the phrase “business of buying and selling financial commodities such as foreign exchange, negotiable securities and futures” means the business of buying and selling foreign exchange, negotiable securities, non-commodity futures and other financial products engaged in by a taxpayer.

Business tax is not payable on commodity futures.

Article 19: For the purposes of Article 6 of the Regulations, the phrase “documentation … [that complies] with … relevant provisions of the State Council's department in charge of tax” (hereinafter collectively referred to as “Lawful and Valid Documentation”) means:

(1) if a payment is made to a work unit or individual in the PRC and the act carried out by the work unit or individual falls within the scope of one subject to business tax or value-added tax, the invoice issued by the work unit or individual shall be the Lawful and Valid Documentation;

(2) if an administrative charge is paid or a fund of a governmental nature is paid into, the issued fiscal receipt shall be the Lawful and Valid Documentation;

(3) if a payment is made to a work unit or individual outside the PRC, the document signed in receipt thereof by the work unit or individual shall be the Lawful and Valid Documentation; if the tax authority has doubts concerning the document signed in receipt, it may request the provision of a confirmation certificate issued by a notary office outside the PRC; or

(4) other Lawful and Valid Documentation as specified by the State Administration of Taxation.

Article 20: If a “price … is obviously low without legitimate reason” as specified in Article 7 of the Regulations applies to a taxpayer, or one of the circumstances as specified in Article 5 hereof where a Taxable Act is deemed to have occurred applies to a taxpayer, and there is no business turnover, the taxpayer's business turnover shall be determined in the following sequence:

(1) a determination based on the average price of the same type of Taxable Acts that the taxpayer has carried out in the most recent period;

(2) a determination based on the average price of the same type of Taxable Acts that other taxpayers have carried out in the most recent period;

(3) a determination by the following formula:

business turnover = operating costs or projects costs × (1 + profit to cost ratio) ÷ (1 – business tax rate).

The profit to cost ratio in the formula shall be assessed and determined by the tax authority of the province, autonomous region or municipality directly under the central government.

Article 21: Where a taxpayer settles its business turnover in a currency other than the renminbi, it may use the median of the renminbi exchange rate either on the date that the business turnover occurred or on the first day of that month when translating the business turnover into renminbi. The taxpayer shall determine in advance which translation rate it is to use and, once determined, such rate may not be changed for one year.

Article 22: The scope of certain of the items specified in Article 8 of the Regulations that are exempt from tax shall be as follows:

(1) for the purposes of Item (2) of the first paragraph, the phrase “services provided by disabled persons in their individual capacity” means the services provided for the public by disabled persons themselves;

(2) for the purposes of Item (4) of the first paragraph, the term “schools and other educational institutions” means ordinary schools as well as the various schools the establishment of which has been approved by the education departments of people's governments at the prefectural or city level and above or by governments at the same level and the academic credentials of the students of which are recognised by the state;

(3) for the purposes of Item (5) of the first paragraph, the term “agricultural business of tractor ploughing” means the business that uses agricultural machinery in agriculture, forestry and animal husbandry to carry out cultivation operations (including ploughing, planting, harvesting, threshing, plant protection, etc.); the term “irrigation and drainage” means the irrigation and drainage of farmland; the phrase “prevention and control of plant diseases and elimination of pests” means the forecasting, reporting, prevention and control/elimination of plant diseases and insect pests in agriculture, forestry, animal husbandry and fisheries; the term “agricultural and animal husbandry insurance” means the provision of insurance coverage on the animals and plants raised and planted in connection with crop cultivation, breeding and animal husbandry; the term “relevant technical training” means technical training related to agricultural business of tractor ploughing, irrigation and drainage, prevention and control of plant diseases and elimination of pests and plant protection, and technical training to enable farmers to obtain agricultural and animal husbandry insurance knowledge; the scope of exemption for the breeding of, and prevention and control of diseases in, poultry, livestock and aquatic animals shall include the provision of pharmaceuticals and medical apparatus relating to such services;

(4) for the purposes of Item (6) of the first paragraph, the term “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” means the cultural activities organised by these work units on their own premises and which fall within the scope of the culture and sports industry tax item; the term “revenue from admission fees” means the revenue derived from the sale of tickets for the first paying admission; the term “revenue from admission fees for cultural and religious activities organised by religious sites” means the revenue derived from the sale of main entrance tickets to cultural and religious activities organised by Buddhist temples, Taoist temples, mosques and churches; and

(5) for the purposes of Item (7) of the first paragraph, the term “insurance products provided … in connection with the export of goods” includes both export insurance and export credit insurance.

Article 23: For the purposes of Article 10 of the Regulations, the term “threshold for the levy of business tax” means that the total of a taxpayer's business turnover reaches the threshold.

The threshold for the levy of business tax shall apply solely to individuals.

The ranges for the threshold for the levy of business tax are as set forth below:

(1) if tax is paid by period, a monthly business turnover of Rmb1,000 to Rmb5,000; or

(2) if tax is paid per transaction, a business turnover per transaction (day) of Rmb100.

The finance departments (bureaux) and taxation bureaux of the provinces, autonomous regions and municipalities directly under the central government shall determine the thresholds applicable in their jurisdictions within the prescribed ranges based on actual circumstances and shall report the same to the Ministry of Finance and State Administration of Taxation for the record.

Article 24: For the purposes of Article 12 of the Regulations, the phrase “receives the business revenue amount in full” means the amount collected by the taxpayer in the course of or after the completion of a Taxable Act.

For the purposes of Article 12 of the Regulations, the phrase “on the date … obtains the voucher with which the taxpayer can demand payment of the business revenue amount” means on the payment date determined in the written contract. If no written contract was executed or if no payment date is determined in the written contract, then it means the date on which the Taxable Act is completed.

Article 25: If a taxpayer requires advance payment for an assignment of a leasehold or the sale of immovable property, its tax obligation shall arise on the date it receives the advance payment.

If a taxpayer requires advance payment when providing construction or leasing services, its tax obligation shall arise on the date it receives the advance payment.

If a taxpayer gives immovable property or a leasehold to another work unit or individual without consideration as specified in Article 5 hereof, its tax obligation shall arise on the date the ownership of such immovable property or on the date such leasehold is transferred to the other work unit or individual.

If a taxpayer carries out a self-construction act as specified in Article 5 hereof, its tax obligation shall arise on the date its tax obligation on the sale of the self-constructed building arises.

Article 26: If, in accordance with Article 14 of the Regulations, a taxpayer is required to file tax returns with and pay tax to the tax authority in charge of the place where Taxable Services were provided or of the place where land or immovable property is located, but fails to do so within six months from the month in which it was required to do so, the tax authority in charge of the place where its establishment is located or of the place where he is resident shall collect such tax.

Article 27: The term of tax payment for a bank, finance company, trust and investment corporation, credit co-operative or representative office of a foreign enterprise shall be one quarter.

Article 28: These Rules shall be effective as of January 1 2009.