Laws of the People's Republic of China

The Ministry of Finance

Circular of the Ministry of Finance Concerning Printing and Distributing the "Rules for the Implementation of the Interim Regulations of the People's Republic of China on Value-added Tax"

CaiFaZi [1993] No.38

December 25, 1993

Ministries and directly subordinate institutions of the State Council, people's governments of various provinces, autonomous regions, municipalities directly under the Central Government, finance departments (bureaus) of various provinces, autonomous regions, municipalities directly under the Central Government, municipalities separately listed on the State plan, branches of the State Administration of Taxation:

"Rules for the Implementation of the Interim Regulations of the People's Republic of China on Value-added Tax" is now deliver to you, please carry out seriously. Attachment:Rules for the Implementation of the Interim Regulations of the People's Republic of China on Value-added Tax

Article 1

The rules are formulated according to the provisions of Article 28 of the Interim Regulations of the People's Republic of China on Value-added Tax (hereinafter referred to as "regulations").

Article 2

The term "goods" mentioned in Article 1 of the regulations refers to tangible assets, including electric power, thermal power and gas.

The term "processing" mentioned in Article 1 of the regulations refers to goods processed on a commissioned basis, that is, the consignee processes the goods with the raw and principal materials provided by the consignor for an amount of processing fee.

The term "repairs" mentioned in Article 1 of the regulations refers to the act to restore goods that have been damaged and lost their original functions under commission to their original state and functions.

Article 3

The term "sell goods" mentioned in Article 1 of the regulations refers to the paid transfer of the ownership of goods.

The term "provide labor services for processing or repairs" mentioned in Article 1 of the regulations refers to "providing paid labor services for processing and repairs". It does not include labor services for processing and repairs provided by staff members of a unit or an employer.

The term "paid" mentioned in the rules includes money, goods or other economic interests obtained from the buyers.

Article 4

The following acts committed by units or individual business people shall be regarded as selling goods:

1.

Commission goods to others for selling;

2.

Sell goods on a commissioned basis;

3.

Taxpayers with more than two organizations in consolidated accounting transfer goods from one organization to another for sales, except that the relevant organizations are in the same county (city);

4.

Use goods of self-made or processed under commission in non-taxable items;

5.

Transfer goods of self-made, processed under commission or purchased from others to other units or individual business people as investment;

6.

Distribute goods of self made, processed under commission or purchased from others to stock holders or investors;

7.

Use goods of self-made or processed under commission for collective welfare or individual consumption; and

8.

Donate to others of goods of self-made, processed under a commission or purchased from others.

Article 5

A sale involving both goods and non-taxable labor services is regarded as a mixed sale. A mixed sale made by an enterprise, an enterprising unit or an individual business people engaging in production, wholesale or retail sales is regarded as a sale of goods and value-added tax shall be levied. A mixed sale made by other units and individuals shall be regarded as a provision of non-taxable labor services and no value-added tax shall be levied.

Whether a sale of a taxpayer can be regarded as a mixed sale shall be subject to the determination of tax collecting organs under the State Administration of Taxation.

The term "non-taxable labor services" mentioned in this article refers to labor services in the areas of transportation, construction, finance and insurance, posts and telecommunications, culture and sports, recreation and services that are subject to business tax.

"An enterprise, an enterprising unit or an individual business people engaging in production, wholesale or retail sales" mentioned in this article include those enterprises, enterprising units and individual business people that mainly engage in production, wholesales or retail sales but also concurrently engage in non-taxable labor services.

Article 6

A taxpayer engaging concurrently in non-taxable labor services should keep separate accountings on sales of goods, taxable labor services and non-taxable labor services. If the accountings cannot be accurately separated, the value-added tax shall be levied on non- taxable labor services consolidatedly with those on goods or taxable labor services.

Whether or not the value-added tax shall be levied consolidatedly for a taxpayer concurrently engaging in non-taxable labor services shall be subject to the determination of the tax collecting organs under the State Administration of Taxation.

Article 7

"Sell goods ..... within the territory of the People's Republic of China" as mentioned in Article 1 of the regulations means that the starting point for shipment or placement of the goods to be sold is within the territory of the People's Republic of China (hereinafter referred to as territory).

"Provide taxable labor services within the territory" mentioned in Article 1 of the regulations means that the labor services are provided within the territory.

Article 8

"Units" mentioned in Article 1 of the regulations refer to State-owned enterprises, collectively-owned enterprises, private enterprises, stockholding enterprises and other enterprises and administrative units, institutional units, military units, social organizations and other units.

"Individuals" mentioned in Article 1 of the regulations refer to individual business people and other individual operators.

Article 9

For enterprises leased or contracted out for operation, the person or persons who lease it or the contractor or contractors are the taxpayers.

Article 10

If a taxpayer sells goods or taxable labor services in different tax rates and concurrently provides non-taxable labor services which are subject to consolidated value-added tax, the higher tax rate shall apply to non-taxable labor services.

Article 11

The amount of value-added tax returned to buyers due to purchase returns and allowances by taxpayers other than small scale taxpayers (hereinafter referred to as "general taxpayers" ) should be deducted from the tax amount under the selling item of the period when the goods are returned or rebated, and the amount of value-added tax returned due to purchase returns and allowances should be deducted from the tax amount for incoming item of the period when the goods are returned or rebated.

Article 12

"Additional expenses" mentioned in Article 6 of the regulations refer to money collected from buyers, including commissions, subsidies, funds, profits returned from fund raising, bonuses, contractual fines (interests on deferred payments), packaging fees, rents for leasing packages, reserve expenses, fine quality fees, loading and unloading charges, funds collected on a commissioned basis, advance money for another and money of other descriptions collected in addition to prices. But the following items are not included:

1.

The selling tax amount collected from the buyer;

2.

The amount of consumption tax withheld for taxable consumer goods processed on a commissioned basis; and

3.

Advance transport charges paid for another if the following requirements are met:

(1) The carrying unit provides the invoices for transport charges for the buying party;

(2) The taxpayer turns over the invoices to the buying party.

All the expenses in addition to prices, irrespective of the methods of accounting, shall be included in the sales volume and taxed accordingly.

Article 13

For mixed sales made concurrently with the provisions of Article 5 and Article 6 of these rules, the sales volume should be the total of the sales of goods and non-taxable labor services and the total of the sales volume of the goods or taxable and non-taxable labor services.

Article 14

If a general taxpayer sells goods or adopts the pricing method of merging sales volume and selling tax amount, the sales volume should be computed according to the following formula:

Sales volume = Sales volume containing tax/ (1 + Tax rate)

Article 15

If a taxpayer settles account of its sales volume in foreign currencies according to the provisions of Article 6 of the regulations, the amount shall be converted to Renminbi according to the exchange rate (usually the medium rate) quoted by the State in the day when the sales occur or on the first day of the month. The taxpayer should decide which conversion rate is to be adopted in advanced and the rate once decided shall remain unchanged within a year.

Article 16

If a taxpayer is found to sell goods or provide taxable labor services at prices obviously on the low side without justifiable reasons as mentioned in Article 7 of the regulations or commit an act of sales as defined in Article 4 of the rules but does not show the sales volume, the sales volume shall be determined according to the following sequence of order:

1.

It shall be determined according to the averaged selling prices of similar goods of the month handled by the taxpayer;

2.

It shall be determined according to the averaged selling prices of similar goods in the latest period handled by the taxpayer;

3.

It shall be determined according to the composition tax assessment prices. The formula for composition tax assessment price is:

Composition tax assessment price = Cost * (1 + cost/ profit rate)

If the goods are subject to consumption tax, the composition tax assessment price should include the amount of consumption tax.

The cost in the formula refers to the actual production cost for goods produced by the taxpayer itself and to the actual procurement cost for goods bought from elsewhere. The cost/profit rate mentioned in the formula shall be determined by the State Administration of Taxation.

Article 17

The term "buying price" mentioned in item 3 of Article 8 of the regulations includes the prices of the non-taxable services paid to the agricultural producers and the agricultural native produce tax paid by the taxpayer.

The price amount mentioned in the preceding paragraph refers to the price specified on the purchasing document approved for use by tax authorities.

Article 18

For mixed sales and concurrent non-taxable labor services that are subject to value-added tax according to the provisions of Article 5 and Article 6 of the rules, if the incoming tax amount for the purchase of non-taxable labor services involved in the mixed sales or the concurrent non-taxable labor services conforms to the provisions of Article 8 of the regulations, it is allowed to be written off from the selling tax amount.

Article 19

The fixed assets mentioned in Article 10 of the regulations include:

1.

Machinery, equipment, means of transport and other equipment, instruments and devices associated with production and operations with the term of use having exceeded one year;

2.

Articles other than principal equipment for production and operation with an unit value of exceeding RMB2,000 and having been used for more than two years.

Article 20

The "non-taxable items" mentioned in Article 10 of the regulations refer to non-taxable labor services, transfer of intangible assets, the selling of immovable properties and fixed assets under construction.

All the building structures newly built, rebuilt, expanded or repaired or decorated by a taxpayer belong to the fixed assets under construction mentioned in the preceding paragraph no matter what accounting method is adopted.

Article 21

"Non-normal losses" mentioned in Article 10 of the regulations refer to losses other than normal in the process of production and operations. They include:

1.

Losses from natural disasters;

2.

Losses from theft and deterioration due to mismanagement; and

3.

Other non-normal losses.

Article 22

If one of the cases listed in subparagraphs 2 to 6 of Article 10 of the regulations occurs for goods which have been bought in and set off against the incoming tax amount or for taxable labor services, the incoming tax amount for such goods and labor services should be deducted from the incoming tax amount of the period. If the incoming tax amount cannot be determined accurately, the deductible incoming tax amount should be computed according to the real cost of the period.

Article 23

If a taxpayer concurrently engaging in tax-free items or non-taxable items (not including fixed assets under construction) is unable to accurately separate the income tax amount that should not be set off, the income tax amount that should not be set off should be computed according to the following formula:

Non-deductible incoming tax amount = All incoming tax amount of the month * Total of the sales amount of the tax-free items and turnover of non-taxable items of the month/ Total of the sales volume and business turnover of the month

Article 24

The standards for small-scale taxpayers as mentioned in Article 11 of the regulations are:

1.

For taxpayers engaging in goods production or providing taxable labor services and taxpayers mainly in goods production or providing taxable labor services and concurrently doing wholesale or retail sales, the annual sales volume that is subject to value-added tax (hereinafter referred to as taxable sales volume) is less than RMB 1 million;

2.

For taxpayers engaging in wholesale or retail sales, the annual taxable sales volume is less than RMB 1.8 million.

Individuals, non-enterprise units or enterprises not often committing taxable acts whose annual taxable sales volumes exceed the standards for small-scaled taxpayers shall be taxed as small-scaled taxpayers.

Article 25

The sales volume of a small-scale taxpayer does not include its taxed amount.

If a small-scale taxpayer adopts the method of pricing by combining sales volume and taxed amount in selling goods or providing taxable labor services, its sales volume shall be computed according to the following formula:

Sales volume = Sales volume containing tax/ (1 + Tax rate)

Article 26

If a small-scale taxpayer returns the sales volume to the buyers due to purchase returns or allowance, the volume should be deducted from the sales volume of the period when the purchase returns or allowances occur.

Article 27

The reference about "sound accounting system" mentioned in Article 14 of the regulations is the accurate accounting of selling tax amount, incoming tax amount and taxed amount according to the requirements of the accounting system and tax authorities.

Article 28

An individual business people may be acknowledged as a general taxpayer if he meets the requirements listed in Article 14 of the regulations and has the approval of the tax bureaus under the direct management of the State Administration of Taxation.

Article 29

A small-scale taxpayer once designated as a general taxpayer is not allowed to turn-back as a small-scale taxpayer.

Article 30

The taxed amount should be computed according to the sales volume and value-added tax rate and it is not allowed to set off against incoming tax amount or to use special value-added tax invoices for a general taxpayer belonging to one of the following cases:

1.

The accounting system is not sound or no accurate tax data can be provided;

2.

The taxpayer meets the requirements of a general taxpayer but fails to apply for acknowledgment procedures.

Article 31

The tax-free items exempted for value-added taxes as mentioned in Article 16 of the regulations are:

1.

The term "agriculture" mentioned in subparagraph 1 refers to plant culture, breeding, forestry, animal husbandry and aquatic products.

Agriculture producers include units and individuals engaging in agricultural operations.

Agricultural products refer to the primary agricultural produce and the scope shall be determined by the tax bureaus directly under the State Administration of Taxation.

2.

"Old and second-hand books" mentioned in subparagraph 3 refer to old books and second-hand books purchased from the society at large.

3.

Articles mentioned in subparagraph 8 refer to cruisers, motorcycles and goods other than cars subject to consumption tax.

Articles used refer to the articles used by others as mentioned in Article 8 of the rules.

Article 32

The starting point for levying value-added tax as mentioned in Article 18 of the regulations applies to individuals only.

The starting points for levying value-added tax are as follows:

1.

For selling goods, a monthly sales volume in the range of RMB 600-2,000;

2.

For providing taxable labor services, a monthly sales volume in the range of RMB 200-800;

3.

For paying taxes by installments, each sales volume (day) in the range of RMB 50-80.

Sales volume mentioned in the preceding paragraphs refers to the sales volume of small-scale taxpayers as mentioned in Paragraph 1 of Article 25 of the rules.

The tax bureaus directly under the State Administration of Taxation should fix the starting points for levying value-added tax for their own areas in line with actual circumstances and submit them to the State Administration of Taxation for the record.

Article 33

The time for tax obligations in selling goods or taxable labor services as provided for in subparagraph 1 of Article 19 of the regulations should be defined according to different methods of settlements as:

1.

For cases of selling goods with direct payment, no matter whether the goods are dispatched or not, the time is set at the very day when the bill of lading is handed over to the buying party and the sales volume or document for sales volume is received;

2.

For cases of entrusting receipt of payment to others or banks, the time is set at the very day when the goods are sent and collection procedures are completed;

3.

For cases of credit or installment sale, the time is set at the day as agreed by contracts;

4.

For cases of advance payment, the time is set at the day when the goods are dispatched;

5.

For cases of consignment sales, the time is set at the day when the consignment purchase list is received;

6.

For cases of providing taxable labor services, the time is set at the day when payment or document for payment is received;

7.

For cases of sales as listed in subparagraphs 3 to 8 of Article 4 of the rules, the time is set at the day when the goods change hands.

Article 34

For sales of taxable labor services made within the territory of China by a unit or individual outside China of no operating organizations inside the territory, the agents of the latters will be the withholding agents and if there is no agent, the buyers will be the withholding agents.

Article 35

If a household of no fixed operation sells goods or taxable labor services in places other than its residence and fails to file tax returns with the tax authorities of the place of sales, the tax authorities of the place of its organization or residence will levy tax in retrospect.

Article 36

Tax authorities mentioned in Article 20 of the regulations refer to the State Administration of Taxation and tax collecting agencies under its administration.

The tax authorities in charge or tax collecting agents mentioned in the rules refer to the tax agencies above the level of the tax bureaus under the administration of the State Administration of Taxation.

Article 37

The terms "less than" or "more than" mentioned in the rules all include the base figures.

Article 38

The rules shall be interpreted by the Ministry of Finance or by the State Administration of Taxation.

Article 39

The rules shall enter into force as of the date of the promulgation of the regulations. The Rules for the Implementation of the Regulations (draft) of the People's Republic of China on Value-Added Tax and the Rules for the Implementation of the Regulations (draft) of the People's Republic of China on Product Tax issued by the Ministry of Finance on September 28, 1984 shall be repealed simultaneously.