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Upon research, we hereby clarify some issues concerning business tax as follows: I. LEVY SCOPE (a) The money raised (including the money raised for pipeline gas ), handling charge, money received upon entrustment, etc., which is collected by gas companies and entities that produce, sell goods or provide services for which value-added tax is payable from purchasers on behalf of the relevant departments when selling goods or providing services for which value-added tax is payable, shall belong to value-added tax excluding charges, and value-added tax, instead of business tax, shall be levied on such money. (b) No business tax shall be levied on the recovered money obtained by the insurance enterprises. The recovered money mentioned above shall refer to the money recovered by the insurance company from the insured for exercising the right of recovery of the insured object after the insurance accident has occurred and the insured has been compensated as stipulated in the insurance contract. (c) It is provided in the Circular of the Ministry of Finance and the State Administration of Taxation on the Issue Concerning Taxation of Welfare Lotteries (No. 59 [2002] of the Ministry of Finance) that: "No business tax shall be levied on the income obtained by the welfare lotteries institutions from issuance and sale of welfare lotteries". The mentioned "welfare lotteries institutions" include the institutions for sale and management of welfare lotteries and the booking offices of computer welfare lotteries that conclude the agreement on proxy sale of computer welfare lotteries at the booking offices with the institutions for sale and management, and are directly supervised and managed by the institutions for sale and management of welfare lotteries. (d) It is provided for in the Circular of the Ministry of Finance and the State Administration of Taxation on the Issue That No Business Tax Shall Be Levied on the Export and Credit Insurance Business Undertaken by China Export & Credit Insurance Corporation (No. 157 [2002] of the Ministry of Finance) that: "No business tax shall be levied on the export and credit insurance business undertaken by China Export & Credit Insurance Corporation". The "export and credit insurance business" mentioned here includes export and credit insurance business as well as export and credit guaranty business. The export and credit guaranty business mentioned above shall refer to the credit guaranty business related to export and credit insurance, including financial guaranty (such as design financial guaranty, project financial guaranty, trade financial guaranty, etc.) and non-financial guaranty (such as bidding guaranty, contract-implementation guaranty, prepayment guaranty, etc.). (e) Value-added tax shall be levied on the service of automobile mortgage provided along with the sale of automobiles and on the business of the related agency services. If only the service of mortgage or agency is provided, and no automobiles are sold, business tax shall be levied. II. APPLICATION OF TAXABLE ITEMS (a) If a movie distribution entity permit, by means of leasing movie copies, a movie projection entity to use the right to project the movie copies within a certain period, business tax shall be levied under the taxable item of "transfer of intangible assets". (b) Business tax shall be levied under the taxable item of "posts and telecommunications" on entities and individuals engaging in express delivery business. (c) Business tax shall be levied under "tourism" in the taxable item of "servicing" on the income obtained by entities and individuals from operation of ropeways in scenic spots. (d) Business tax shall be levied under the taxable item of "entertainment" on the income obtained by entities and individuals from opening "Internet bars". (e) Business tax shall be levied under the taxable item of "posts and telecommunications" on the telecommunication business (including basic telecommunication business and value-added telecommunication business, the same below) provided by the telecommunication entities (which shall mean the telecommunication enterprises and the entities approved by the administrative department for telecommunication to undertake telecommunication business, the same below). กก Basic telecommunication business mentioned above shall refer to the business of providing services of public network infrastructure, public data transmission and basic sounds communications. It includes the business of domestic fixed-network long-distance and local telephone, mobile communications business, satellite communications business, Internet and other data transmission business, the business of leasing and selling network elements, the business of leasing telecommunication equipment and electric circuits, the business of network receipt and network trusteeship, international telecommunication business based on infrastructure of international communications, wireless paging business and sold basic telecommunication business. Value-added telecommunication business mentioned above shall refer to the business of providing telecommunication and information services by utilizing infrastructure of public networks. It includes services such as the value-added telecommunication business through fixed telephone networks, the value-added telecommunication business through mobile phone networks, the value-added telecommunication business through satellite networks, the value-added telecommunication business through Internet, and the value-added telecommunication business through other data transmission networks, etc.. (f) Where both parties conclude a contract (agreement, the same below) on undertaking contract or on lease to let the contract of or to lease an enterprise or part of the enterprise's assets, business tax shall be levied under the taxable item of "servicing" on the contracting fee collected by the contract letting party from the contractor or the rental collected by the lessor from the lessee. If any contracting fee collected by the contract letting party meanwhile meets the following three conditions, and belongs to the internal distribution acts of the enterprise, no business tax shall be levied: 1. the contractor operates in the name of the contract letting party, and the contract letting party bears the relevant legal liabilities; 2. all the contractor's operative income and expenditure are included in the contract letting party's financial accounting; and 3. the benefits distribution between the contract letting party and the contractor is based on the contract letting party's profits. (g) When an entity or individual transfers a project under construction, no matter whether it/he has gone through the formalities of changing the names of the project initiator and land user, it/he has substantially transferred the ownership of the immovable property or land use right. On the transfer of projects under construction, business tax shall be levied in the following methods: 1. in case of transfer of a project under construction with the pre-stage land development been completed or being carried out, which has not entered the building stage, business tax shall be levied under "transfer of land use rights" in the taxable item of "transfer of intangible assets"; 2. in case of transfer of a project under construction which has entered the building stage, business tax shall be levied under the taxable item of "sale of immovable properties". Projects under construction shall refer to the real estate projects or other construction projects that have been initiated for construction but haven't been completed. (h) On the income obtained by land rehabilitation, reservation & supply centers (including land exchange centers) from transfer of land use rights, business tax shall be levied under "transfer of land use rights" under the taxable item of "transfer of intangible assets". III. BUSINESS TURNOVER (a) In case of any money refunded from an entity's or individual's provision of taxable services, transfer of intangible assets or sale of immovable properties, on which business tax has been levied, the levied tax is permitted to be returned, or may be deducted from the tax payer's future turnover. (b) If, when providing taxable services, transferring intangible assets or selling immovable properties, an entity or individual indicates the price and discounted amount on the same invoice, the post-discount price shall be regarded as the turnover. If the discounted amount is indicated on another invoice, it shall not be deducted from the turnover no matter how it is treated in accounting. For the various priced telephone cards sold by the telecommunication entities, as the billing system can only issue bills according to the nominal value of the priced telephone cards and confirm the income according to the nominal value, instead of directly indicating on the sales invoices the discounted amount, the balance after the sales discount embodied on the current accounting is subtracted from the income confirmed according to the nominal value shall be regarded as the turnover. (c) The compensation income obtained during the provision of taxable services, transfer of intangible assets or sale of immovable properties by an entity or individual from a transferee due to the latter's breach shall be included into the turnover, on which business tax shall be levied. (d) If, due to the change of financial accounting methods, an entity or individual converts the pre-collected price on which business tax has been levied into its/his business income stage by stage, the said money may be deducted from the turnover. (e) An insurance enterprise's any insurance premium which should have but has not been collected and on which business tax has been levied may, if having not been recovered within the accounting period provided for in the financial accounting systems, be deducted from the turnover. The offset insurance premium which should have but has not been collected and which is recovered after the accounting period, shall be included in the current turnover. (f) Where an insurance enterprise carries out non-compensated encouragement business, the insurance premiums actually charged from the policy holders shall be regarded as the turnover. (g) Where an insurer inside the territory of the People's Republic of China handles reinsurance for re-insurers outside the territory by operating the insurance business of using the objects within the territory, which it has insured, as the objects for insurance, the balance after the reinsurance premiums are subtracted from all the insurance premium income shall be regarded as the turnover. กก A re-insurer outside the territory shall assume the obligation for paying the business tax for the income from the reinsurance, and the payable business tax amount of the re-insurer outside the territory shall be withheld by the insurer inside the territory. (h) For the financial enterprises (including banks and non-bank financial institutions, the same below) engaging in the trading of stocks and bonds, the balance after the buying price of the stocks and bonds is subtracted from the selling price shall be regarded as the turnover. The buying price shall, according to the financial accounting systems, be determined on the basis of the balance after the extra dividend income obtained during the holding of the stocks or bonds is subtracted from the purchasing price of the stocks or bonds. (i) A financial enterprise may, when buying and selling financial commodities (including stocks, bonds, foreign exchanges and other financial commodities, the same below), consolidate the positive differences and negative differences arising in different tax payment periods of one accounting year to calculate and pay the business tax at the end of the same accounting year. If consolidated and calculated payable business tax amount is less than the business tax which has been paid in the current year, the financial enterprise may apply to the taxation organ for refund of tax, provided that it shall not carry forward the negative differences after the consolidation within one accounting year to the next accounting year. (j) Where a financial enterprise engages in authorized collection of money, such as telephone bills, water and electricity charges, gas charges, information charges, tuition and fees, charge for wireless paging, uniformly arranged social security fees, fines for violation of traffic rules, tax amount, etc., the balance after the money paid to the entrusting party is subtracted from all the income shall be regarded as the turnover. (k) Where an entity approved by the People's Bank of China, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the State Economic and Trade Commission to operate the financial lease business engages in the financial lease business, the balance after the actual costs borne by the lessor for leasing the goods are subtracted from all the prices and price excluding expenses (including the scrap value) collected from the lessee shall be regarded as the turnover. The actual costs for leasing the goods mentioned above include the price for purchasing the goods, customs duty, value-added tax, consumption tax, freight and expenses, installation fee, insurance premium and interest of loans (including interest of foreign exchange loans and Renminbi loans) which the lessor bears. (l) Where a labor service company is entrusted by an employing entity to arrange the laborers, and to pay and handle all the wages that the employing entity should pay to the laborers and all the social insurances (including old-age pensions, medical insurance, unemployment insurance, industrial injury insurance, etc., the same below) it should pay for the laborers as well as the housing accumulation fund, the balance after the wages paid to the laborers, the social insurances paid for the laborers and the housing accumulation fund are subtracted from all the prices the labor service company charged from the employing entity shall be regarded as the turnover. (m) Articles such as the electric cables, optical cables used in communication circuit projects and pipeline projects, and the anti-corrosive tabulations and pipe fittings (bends, tee joints, cold-blending pipes, insulative joints) constituting the principal part of the pipeline projects, tube cleaners, mechanical pumps, heating furnaces, metal containers, etc. shall all belong to equipment, and their value shall not be included in the taxation turnover of the projects. The taxation turnover of other construction and installation projects shall not include the value of the equipment either. The specific name list of the equipment may be enumerated by the local taxation organs at the provincial level in light of their respective actual situation. (n) Where a posts and telecommunications entity cooperates with another entity to jointly provide the users with posts and telecommunications business and other services, and the posts and telecommunications entity solely charges the prices, the balance after the prices paid to the cooperator are subtracted from all the income shall be regarded as the turnover. (o) Where China Mobile Communications Corporation receives donations on behalf of Children's Foundation of China through the special commonweal service number of "8858" by mobile phone messages, the balance after the prices paid to Children's Foundation of China are subtracted from all the income shall be regarded as the turnover. (p) Where an entity which is approved by the local taxation organ to use invoices of transport enterprise and on which business tax is levied under the taxable item of "communications and transportation" lets the contract of the transport business it undertakes to other transport enterprises but solely charges the prices, the balance after the freights paid to other transport enterprises are subtracted from all the income shall be regarded as the turnover. (q) Where a travel enterprise organizes a tour to travel inside the territory of China, the balance after the lodging expenses, food expenses, traffic expenses and admission charges paid on behalf of the tourists to other entities or the travel expenses paid to other travel enterprises receiving tours are subtracted from all the charged travel expenses shall be regarded as the turnover. (r) For anyone who engages in the advertisement agency business, the balance after the advertisement publishing fee paid to other advertisement company or advertisement publisher (including the media or the carrier) is subtracted from all the income shall be regarded as the turnover. (s) For an estate management entity, the balance after the prices of water, electricity and gas paid on behalf of the estate owners as well as the prices of water, electricity and gas and the tenement rental paid on behalf of the lessees are subtracted from all the income related to the estate management shall be regarded as the turnover. (t) Where an entity or individual sells or transfers an immovable property it/he purchased or a land use right transferred to it/him before, the balance after the purchase price or original transfer price of the immovable property or land use right is subtracted from all the income shall be regarded as the turnover. Where an entity or individual sells or transfers an immovable property or land use right obtained from repayment of debts, the balance after the price of the immovable property or land use right valuated at the time of repayment is subtracted from all the income shall be regarded as the turnover. IV. MANAGEMENT OF DOCUMENTS ON ITEMS DEDUCTIBLE FROM THE TURNOVER If the payment of an item deductible from the turnover is made inside the territory of China, the documents on payment of the deductible item must be invoices or legitimate and effective documents. If the payment is made to the outside of the territory, the documents on payment of the deductible item must be documents on payment of foreign exchange, receipts signed or public notarization certificate issued by a foreign company. V. STARTING TIME OF THE OBLIGATION FOR TAX PAYMENT When an entity or individual provides taxable services, transfers patent right, non-patent technologies, trademark right, copyright or commercial goodwill, the starting time of the obligation for payment of business tax levied on the price (including the pre-collected money, pre-paid money, pre-deposited expenses, and pre-collected deposit, the same below) pre-collected from the other party shall, in accordance with the provisions on financial accounting system, be subject to the time when such prices are confirmed the income. VI. PLACE OF PAYMENT OF TAX (a) The place for payment of business tax levied on an entity or individual for its/his leasing land use right or immovable properties shall be the locality of the land or immovable properties; the place for payment of business tax levied on an entity or individual for its/his leasing movable properties such as articles or equipment, etc. shall be the entity's domicile or the individual's residence. (b) The place for payment of business tax levied on a telecommunication entity inside the territory of the People's Republic of China for its provision of telecommunication business shall be the locality of the telecommunication entity. (c) Where an entity inside the territory of the People's Republic of China provides taxable services such as designs (including the survey and measurement. carried out during the design, the same below), project supervision, testing and consultancy, the place for payment of business tax shall be the locality of the entity. (d) Where an entity inside the territory of the People's Republic of China provides through network other entities and individuals with services of training, information and long-distance testing, check, etc., the place for payment of business tax shall be the locality of the entity. The present notice shall come into force on January 1, 2003. If any previous provisions are inconsistent with the present notice, the present notice shall prevail. The tax amount levied before due to the inconsistency with the present notice shall not be refunded, and the tax amount un-levied shall not be levied any longer. |
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