Detailed Rules for the Implementation of the Provisional Regulations

Article 1 These Detailed Rules were formulated according to the provisions of Article 28 of "Provisional Regulations of the People's Republic of China on Value-Added Tax" (hereinafter referred to as 'these Regulations).

Article 2 "Goods" in Article 1 of these Regulations refers to tangible moveable goods, including electricity, heat and gas.

"Processing" in Article 1 of these Regulations refers to the business of contracting to process goods, where the contractor supplies the raw materials and major materials and the sub-contractor manufactures the goods in accordance with the requirements of the contractor and receives a processing fee.

"Repairs and replacements" in Article1 of these Regulation refers to the business of contracting to carry out repairs _ damaged or malfunctioning goods, so as to restore them t< their original condition and functions.

Article 3 "Sales of goods" in Article 1 of the Regulation! refers to the transfer of ownership of goods for any compensation.

"Provision of processing, repairs and replacement services" in Article 1 of the Regulations refers to the provision of processing, repairs and replacement services for any compensation. However the provision of processing, repairs and replacement services by the staff employed by the units or individual business operators for their units or employers shall not be included.

" Compensation" in these Detailed Rules includes money, goods or any economic benefit obtained from the purchaser.

Article 4 The following activities of units or individual operators shall be deemed as sales of goods:

A. consignment of goods to others for sale;

B. sale of goods on consignment;

C. transfer of goods from one establishment to other establishments for sale by a taxpayer that maintains two or more establishments and adopts consolidated accounting, unless the relevant establishments are maintained in the same county city);

D. application of self-produced or processed goods to produce nontaxable items;

E. provision of self-produced, processed or purchased goods to other units or individual operators;

F. distribution of self-produced, processed or purchased goods to shareholders or investors;

G. use of self-produced or processed goods for collective welfare or personal consumption;

H. giving out self-produced, processed or purchased goods to others as free gifts.

Article 5 A sales activity that involves goods and non-taxable services is a mixed sales activity. Mixed sales activities of enterprises, enterprise units or individual business operators engaged in production, wholesaling or retailing of goods shall be regarded as sales of goods which shall be subject to VAT. Mixed sales activities of other units or individuals shall be regarded as sales of non-taxable services which shall not be subject to VAT.

Whether or not a taxpayer's sales activity is a mixed sales activity shall be determined by the taxation authorities under the State Administration of Taxation.

"Non-taxable services" as mentioned in the first paragraph of this Article refers to the services subject to Business Tax within the scope of the taxable items under communications and transportation, construction, finance and insurance, post and telecommunications, culture and sports, entertainment, and service industries.

"Enterprises, enterprise units or individual business operators engaged in production, wholesaling or retailing of goods" in the first paragraph of this Article includes enterprises, enterprise units, and individual business operators principally engaged in the production, wholesaling or retailing of goods and also engaged in non-taxable services.

Article 6 Taxpayers also engaged in non-taxable services shall account separately for the sales amount of goods and tax- able services and non-taxable services. Without separate accounting or where accurate accounting cannot be made, the non-taxable services and goods and taxable services shall together be subject to VAT.

Whether or not the non-taxable services a taxpayer also provides should pay VAT shall be determined by the tax collection authorities under the State Administration of Taxation. .

Article 7 "Sales of goods within the borders of the People's Republic of China" (hereinafter referred to as "within the borders" ) as mentioned in Article 1 of the Regulations means the place of dispatch or the location of the goods sold is within the borders.

"Sales of taxable services within the borders" in Article 1 of the Regulations refers to the sale of taxable services that takes place within the borders.

Article 8 "Units" in Article 1 of the Regulations, refers to State-owned enterprises, collectively-owned enterprises, privately-owned enterprises, joint-stock enterprises, other enterprises, administrative units, institutions, military units, social organizations and other units.

"Individuals" in Article 1 of the Regulations, refers to individual operators and other individuals.

Article 9 Where enterprises lease or contract management to others, the lessees or the sub-contractors shall be the payers.

Article 10 Where taxpayers selling goods or taxable services with different tax rates also provide non-taxable services subject to VAT, the highest of the tax rates on goods or taxable services shall apply to the non- taxable services.

Article 11 For taxpayers other than small - scale taxpayers (hereinafter referred to as "general taxpayers"), the VAT refundable to purchasers due to returns inward or discounts allowed shall be deducted-from the output tax for the period in which the returns inward or discounts allowed takes place. The VAX recovered due to the returns outward or discounts received shall be: deducted from the input tax for the period in which the returns outward or discounts received takes place.

Article 12 "Other charges" in Article. 6 of the Regulations refers; to handling fees, subsidies, funds, fund raising fees, profits shared, incentive bonuses, damages for breach of contract (interest on deferred payments), packaging charges, rentals on packaging materials, contingency charges, quality charges, freight and loading and unloading charges, commission fees, commissioned disbursement and charges of any other nature which are in addition to the price charged to the purchaser. The following items nevertheless shall not be included:

A. the output VAT collected from purchasers;

B. the Consumption Tax withheld on processing of consumer goods subject to Consumption Tax;

C. commissioned disbursement of freight charges that satisfies both the following conditions:

a. a freight invoice from the transportation department was is sued to the purchaser;

b. the same invoice is turned over by the taxpayer to the purchaser.

All other charges, regardless of the treatment under the accounting system adopted, shall be included in the sales amount in calculating tax payable.

Article 13: Where the taxpayer is engaged in mixed sales activities and non-taxable services that are subject to VAT in accordance with Article 5 and Article 6 of these Detailed Rules, his sales amount shall be, respectively, the sum of his sales amounts of goods and non-taxable services, and the sum of the sales amounts of goods or taxable services and the non-taxable services.

Article 14: For general taxpayers selling goods or taxable services that adopt the pricing method of combining the sales amount and the output tax, the sales amount shall be calculated according to the following formula:


Sales amount = Sales amount including tax / ( 1 + Tax rate)

Article 15 Pursuant to the stipulations of Article 6 of the Regulations, if a taxpayer settles the sales amount in foreign exchange, the Renminbi conversion rate for the sales amount can be the foreign exchange rate quoted by the State (the median rate in principle) prevailing on that date or on the first day of the month in which the sales take place. Taxpayers shall determine in advance the conversion rate to be adopted but once determined, it cannot be changed for one year.

Article 16 For taxpayers whose prices are obviously low and without proper justification as mentioned in Article 7 of the Regulations, or who sell goods as listed in Article 4 of these Detailed Rules but without invoiced sales amounts, the sales amount shall be determined according to the following sequence of procedures :

A. determined according to the average selling price of the taxpayer on the same goods in the same month;

B. determined according to the average selling price of the taxpayer for the same goods in the most recent period.

C. determined according to the composite assessable value. The formula of the composite assessable value shall be:

Composite Assessable Value = Cost × (1+Costplus margin rate)

For goods subject to Consumption Tax, the composite assessable value shall include Consumption Tax payable.

"Cost" in the formula refers to the actual cost of products sold for sales of self- produced goods; and the actual cost of purchases for sales of purchased goods. The rate for cost plus margin in the formula shall be determined by the State Administration of Taxation.

Article 17 "Purchase price" in Paragraph 3, Article 8 of the Regulations includes the price paid by taxpayers to agricultural producers for purchasing tax-exempt agricultural products and the Agricultural Special Product Tax withheld according to the regulations.

The "price paid" in the preceding paragraph refers to the price specified on the purchasing voucher approved for use by the responsible taxation authorities.

Article 18 For mixed sales activities and non-taxable services which are subject to VAT according to the stipulations of Article 5 and Article 6 of these Detailed Rules, the input tax on goods purchased for use in the non-taxable services involved in the mixed sales activities or in the non-taxable services that satisfies the stipulations of Articles 8 of the Regulations , may be deducted from the output tax.

Article 19 "Fixed assets" in Article 10 of the Regulations refers to:

A. machinery, mechanical apparatus, means of transport, and other equipment, tools and apparatus related to production or business operations with a useful life of more than one year;

B. Articles that are not the main equipment for production business operations but with a unit value of more than 2000 yuan and a useful life of more than two years.

Article 20 "Non-taxable items" as mentioned in Article 10 of the Regulations refers to the provision of non-taxable services, the transfer of intangible assets, the sales of immovable property and fixed assets under construction, etc..

Article 21 " Abnormal losses" in Article 10 of the Regulation refer to losses other than the normal wear and tear in the course of production or business operations. They include:

A. losses due to natural disasters;

B. losses due to theft, spoilage or deterioration, etc., resulting from improper management;

C. other abnormal losses.

Article 22 Where input tax has already been claimed on goods or taxable services purchased under the circumstances listed in Paragraphs (2) to (6) in Article 10 of the Regulations, the in put tax on these purchases shall be deducted from the output tax for that period; If the input tax cannot be determined accurately, the input tax to be deducted shall be calculated based on the actual costs of that period'.

Article 23 For taxpayers engaged in tax -exempt items or non-taxable items (not including fixed assets under construction) and where the input tax cannot be determined accurately, the non-deductible input tax shall be calculated according to the following formula:

Non-deductible input tax = Total input tax for the month _ Sum of the sales amounts of tax-exempt items
And turnover of non-taxable items for the month
Sum of the total sales amount and turnover for the month

Article 24 The standards for small-scale taxpayers as mentioned in Article 11 of the Regulations are as follows:

A. taxpayers engaged in the production of goods or the provision of taxable services, and taxpayers engaged principally in the production of goods or provision of taxable services but also in wholesaling or retailing of goods, the annual sales amount of which is subject to VAT (hereinafter referred to as "taxable sales amount") is below 1 million yuan;

B. taxpayers engaged in wholesaling or retailing of goods, the annual taxable sales amount of which is below 1.8 million yuan.

Regardless whether or not the annual taxable sales amounts exceed the standards for small-scale taxpayers, all individuals, non-enterprise units, and enterprises which do not often have taxable activities, are charged as small-scale taxpayers.

Article 25 The sales amount of small-scale taxpayers does not include tax payable.

For small-scale taxpayers selling goods or providing taxable services who adopt the method of setting prices by combining the sales amount and the tax payable, the sales amount is computed according to the following formula:

Sales amount = Sales amount including tax / (1 + Assessable rate)

Article 26 For small-scale taxpayers, the sales amount refundable to purchasers due to returns inward or discount allowed shall be deducted from the sales amount for the period in which the returns inward or discount allowed take place.

Article 27 "Sound accounting" as Stated in Article 14 of the Regulations refers to the ability to accurately account for output tax , input tax and tax payable in accordance with accounting regulations and the requirements of the taxation authorities.

Article 28 Individual operators who satisfy the conditions as prescribed in Article 14 of the Regulations and have the approval of the bureaus directly under the State Administration of Taxation may be confirmed as general taxpayers.

Article 29 Once small-scale taxpayers have been confirmed as general taxpayers, they cannot be reclassified as small-scale taxpayers.

Article 30 General taxpayers in any of the following circumstances shall calculate the tax payable based on the sales amount and according to the VAT rates, but no input tax can be deducted and VAT Special Invoices shall not be issued.

A. the accounting system is unsound or cannot provide accurate tax information;

B. the conditions of a general taxpayer are satisfied but the taxpayer has not applied for or carried out the confirmation procedures as a general taxpayer.

Article 31 The scope of those tax-exempt items listed in Article 16 of the Regulations are prescribed as follows:

A. "agricultural" as mentioned in Item (1) of Paragraph (1) refers to the planting, breeding, forestry, animal husbandry and aquatic products industries;

" agricultural producers'' includes units and individuals engaged in agricultural production;

" agricultural products" refers to primary agricultural products; the detailed scope of this definition shall be determined by the taxation bureaus directly under the State Administration of Taxation;

B. "antique books" as mentioned in Items (3) of Paragraph (1) refers to ancient books and old books purchased from the public;

C. "Articles" as mentioned in Item (8) of Paragraph (1) refers to goods other than yachts, motorcycles, and motor vehicles that are subject to Consumption Tax.

"Articles which have been used" refers to goods that have been used by "other individuals" as mentioned in Article 8 of these Detailed Rules.

Article 32 The scope of application of " VAT minimum threshold" as mentioned in Article 18 of the Regulations is limited to individuals.

The range of the VAT minimum threshold is stipulated as follows :

A. the minimum threshold for sales of goods shall be a monthly sales amount of 600 to 2000 yuan;

B. the minimum threshold for sales of taxable services shall be a monthly sales amount of 200 to 800 yuan;

C. the minimum threshold for assessment on a transaction-by-transaction basis shall be the sales amount per transaction (or per day) of 50 to 80 yuan.

"Sales amount" as mentioned in the preceding paragraph refers to the "Sales amount of small -scale taxpayers" as mentioned in the first paragraph of Article 25 of these Detailed Rules.

The bureaus directly under the State Administration of Taxation shall determine the minimum threshold locally applicable in the prescribed range and in accordance with the actual conditions, and shall report these amounts to the State Administration of Taxation for their records.

Article 33 The time at which tax liability arises on the sales of goods or taxable services as prescribed in Item (1), Article 19 of the Regulations is specified according to the different methods of settlement as follows:

A. for sales of goods under the direct payment method, it shall be the date on which the sales sum is received or the documented evidence of the right to collect the sales sum is obtained, and the bills of lading are delivered to the purchasers, regardless whether the goods are delivered;

B. for sales of goods where the sales amount is entrusted for collection, including where entrusted to banks for collection, it shall be the date on which the goods are delivered and the procedures for entrusted collection are completed;

C. for sales of goods on credit or receipt by installments, it shall be the date of collection agreed to in the contracts;

D. for sales of goods with payment received in advance, it shall the date on which the goods are delivered;

E. for sales of goods on consignment to other taxpayers, it shall be the date on which the detailed account of consignment sales are received from the consignee;

F. for sales of taxable services, it shall be the date on which the services are provided and the sales sum is received or the documented evidence of the right to collect the sales sum is obtained;

G. for taxpayers that have deemed sales of goods as listed from Item (3) to Item (8) in Article 4 of these Detailed Rules, it shall be the date on which the goods are transferred.

Article 34 For overseas units or individuals selling taxable services within the territory but have not set up any business establishment within the territory, their agents shall be the withholding agents for their tax payable. If there are no a-gents, the purchaser shall be the withholding agent.

Article 35 For businesses without a fixed base, selling goods or taxable services in a different county (or city) and who have not reported and paid tax with the responsible taxation authorities where the sales take place, the responsible taxation authorities of the location where establishments are located or where the individual resides shall collect the overdue tax.

Article 36 "Taxation authorities" in Article 20 of these Regulations refers to the State Administration of Taxation, and the collection authorities under their jurisdiction.

"Responsible taxation authorities" and "collecting authorities" in the Regulations and these Detailed Rules refer to branch offices under the State Administration of Taxation at county level and above.

Article 37 "Above" and "below" in these Detailed Rules also include the figure or the level itself.

Article 38 These Detailed Rules shall be interpreted by the Ministry of Finance or by the State Administration of Taxation.

Article 39 These Detailed Rules shall be implemented on the date the Regulations come into effect. The "Detailed Rules and Regulations for the Implementation of the Draft Regulations of the People's Republic of China on Value-Added Tax" and the; "Detailed Rules and Regulations for the Implementation of the Draft Regulations of the People's Republic of China on Product Tax" , promulgated by the Ministry or Finance on September 28, 1984, shall be annulled on the same date.