Laws of the People's Republic of China

Circular of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation concerning Adjustment of the related Taxation Policies on Diamonds and Shanghai Diamond Exchange

Cai Shui [2006] No. 65

The finance departments (bureaus) and state taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government, the Finance Bureau of Xinjiang Production and Construction Corps, the Guangdong sub-administration of the Customs General Administration, the Tianjin and Shanghai special commissioner's offices of the Customs General Administration, and all the customs directly under the Customs General Administration,

In order to regulate the domestic diamond market and balance the taxation burden on commodities of one kind, with the approval of the State Council, the related taxation policies on diamond and Shanghai Diamond Exchange are hereby notified as follows:

1.

The rough diamonds sold by a taxpayer in the domestic market through Shanghai Diamond Exchange shall be exempt from the value-added tax in the link of import. For the finished diamonds sold by a taxpayer in the domestic market through Shanghai Diamond Exchange, the portion of the actual tax burden of value-added tax in the link of import more than 4 % shall be refunded immediately upon payment. After reaching the domestic link, the taxpayer shall offset the amount of the value-added taxation as indicated in the tax payment certificate drawn by the customs house against the input tax.

After carrying out the policies on the exemption and immediately refunding upon payment of value-added tax in the link of import on diamonds sold by a taxpayer in the domestic market through Shanghai Diamond Exchange, the customs house shall manage the diamonds sold towards the domestic market, when they leave Shanghai Diamond Exchange in accordance with the present provisions.

2.

The value-added tax of the following diamond products exported by an export enterprise shall be exempted, and the corresponding input tax amounts shall not be refunded or offset, but be changed to the costs. The scope of specific products is that under these tariff codes: 71021000, 71023100, 71023900, 71042010, 71049091, 71051010, 7l131110, 71131911, 71131991, 71132010, 71162000.

The taxation organs of all places shall attach importance to the export tendency of the products containing diamond, when finds that any product exported by an enterprise contains diamond and the value of the diamond takes up a relatively high proportion of that of the whole product and is not listed in the scope of products above simultaneously, or finds any other problem in carrying out this Circular, any taxation organ shall report to the Ministry of Finance or the State Administration of Taxation in time.

3.

For the self-produced rough diamonds sold by a domestic diamond exploitation enterprise through Shanghai Diamond Exchange, the value-added tax shall be exempted; for those not sold through Shanghai Diamond Exchange, the value-added tax shall be imposed in the light of the related provisions.

4.

For the finished diamonds processed in China, those of which sold through Shanghai Diamond Exchange shall be exempted from value-added tax in the link of the domestic sale; while those of which not sold through Shanghai Diamond Exchange, the value-added tax shall be imposed at 17% in the link of domestic sale.

When entering into Shanghai Diamond Exchange, the finished diamonds processed in China shall be deemed as exporting, for which there shall be no tax to be refunded. When they re-enter the domestic market through Shanghai Diamond Exchange, the portion of the actual tax burden of value-added tax in the link of import more than 4% shall be immediately refunded upon payment.

5.

For the incomes from the transaction commission charges and annual membership fees of Shanghai Diamond Exchange, the business tax shall be imposed according to the related provisions.

6.

The bonded policies on Shanghai Diamond Exchange and other tax policies governing diamonds shall be carried out in the light of the present provisions.

7.

The specific operating measures concerning the immediate levy and the immediate refund upon payment of valued-added tax in the link of import shall be instituted by the General Administration of Customs. The administrative measures for the levy of value-added tax on the diamonds in the link of import and the administrative measures for the special invoice of the value-added tax shall be instituted by the State Administration of Taxation in addition.

8.

For the diamonds for the industrial use which are declared and imported by way of ordinary trade, they shall be no longer centralized to go through the customs declaration formalities, be subject to uniform management or pay import customs duties and value-added tax in the link of import according to the related provisions in Shanghai Diamond Exchange (See the scope of the specific commodities in the Annex).

This Circular shall go into effect as of July 1, 2006.

Ministry of Finance

General Administration of Customs

State Administration of Taxation

June 7, 2006