Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax
Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax
Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax
Cai Shui [2016] No. 36
March 23, 2016
The finance departments (bureaus), offices of State Administration of Taxation, and local taxation bureaus, of all provinces, autonomous regions, municipalities directly under the Central Government, and cities specifically designated in the State plan, and the Financial Bureau of Xinjiang Production and Construction Corps,
Upon approval of the State Council, the pilot program of the collection of value-added tax in lieu of business tax (hereinafter referred to as the "VAT in lieu of BT") shall be promoted nationwide in a comprehensive manner as of May 1, 2016, and all taxpayers of business tax engaged in the construction industry, the real estate industry, the financial industry and the life service industry shall be included in the scope of the pilot program with regard to payment of value-added tax (VAT) instead of business tax (BT). The Implementing Measures for the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax, the Provisions on Matters relating to the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax, the Provisions on Transitional Policies for the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax and the Provisions on the Application of Zero-rated Value-added Tax and Tax Exemption Policies to Cross-border Taxable Activities are hereby issued to you for your compliance and implementation.
The contents of the appendices to this Circular shall, unless otherwise specified, take effect as of May 1, 2016. The Circular of the Ministry of Finance and the State Administration of Taxation on the Inclusion of the Railway Transport Industry and Postal Service Industry in the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax (Cai Shui [2013] No. 106), the Supplementary Circular of the Ministry of Finance and the State Administration of Taxation on Policies relating to the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax (Cai Shui [2013] No. 121), the Circular of the Ministry of Finance and the State Administration of Taxation on the Inclusion of Telecommunications Industry in the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax (Cai Shui [2014] No. 43), the Supplementary Circular of the Ministry of Finance and the State Administration of Taxation on the Zero-rated Value-added Tax Policy Applicable to International Waterway Transport Services (Cai Shui [2014] No. 50), and the Circular of the Ministry of Finance and the State Administration of Taxation on the Application of Zero-rated Value-added Tax Policy to Film, Television and Other Export Services (Cai Shui [2015] No. 118) shall be repealed accordingly unless otherwise specified.
Each region shall attach great importance to the pilot program for VAT in lieu of BT, effectively organize and direct the pilot program by making careful arrangements, specifying responsibilities and taking every fruitful measure, prepare well before the start of the pilot program and do well in the monitoring, analysis, publicity and interpretation of the pilot program, in order to ensure that the pilot grogram proceeds in a steady, orderly and smooth manner. Any issue encountered in the reform shall be reported to the Ministry of Finance and the State Administration of Taxation promptly.
Appendix I: Implementing Measures for the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax
Chapter I Taxpayers and Withholding Agents
Article 1 Entities and individuals engaged in sales of services, intangible assets or real property (hereinafter referred to as the "taxable activities") within the territory of the People's Republic of China (hereinafter referred to as "within the territory") are value-added tax payers (hereinafter referred to as the "VAT payers"), and shall pay value-added tax ("VAT") rather than business tax ("BT") according to these Measures.
"Entities" refer to enterprises, administrative authorities, public institutions, military units, social organizations, and other entities.
"Individuals" refer to the individual businesses and other individuals.
Article 2 Where entities do business by way of contracting, leasing, and affiliating to others, and the contractors, lessees or affiliates concerned (hereinafter collectively referred to as the "contractors") do business with others in the name of the employers, lessors and the affiliated parties (hereinafter collectively referred to as the "employers") with the relevant legal liability assumed by the employers, the employers shall be the taxpayers; otherwise, the contractors shall be the taxpayers.
Article 3 Taxpayers are divided into general taxpayers and small-scale taxpayers.
A taxpayer whose annual VAT taxable sales amount of taxable activities (hereinafter referred to as the "taxable sales amount") exceeds the threshold prescribed by the Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT") shall be deemed as a general taxpayer; otherwise, the taxpayer shall be deemed as a small-scale taxpayer.
Other individuals whose annual taxable sales amounts exceed the prescribed threshold shall not be deemed as general taxpayers. Any entity or individual business whose annual taxable sales amount exceeds the prescribed threshold which does not provide taxable services on a recurring basis may choose to pay taxes as a small-scale taxpayer.
Article 4 A taxpayer whose annual taxable sales amount is less than the prescribed threshold may become a general taxpayer by registering the eligibility as a general taxpayer with the competent tax authority provided that it has sound accounting and is able to provide accurate tax information.
"Sound accounting" means that a taxpayer maintains account books in accordance with the uniform accounting system of the State and conducts accounting against lawful and valid vouchers.
Article 5 Taxpayers meeting the conditions set for general taxpayers shall apply to the competent tax authorities for registration of their eligibility as general taxpayers. The specific registration measures shall be formulated by the SAT.
Except as otherwise specified by the SAT, once a taxpayer is registered as a general taxpayer, the taxpayer may not be re-identified as a small-scale taxpayer.
Article 6 Where an entity or individual located outside the territory of the People's Republic of China (hereinafter referred to as "outside the territory") conducts taxable activities within the territory without establishing an operating institution within the territory, the corresponding buyer shall be the VAT withholding agent, unless otherwise specified by the MOF and the SAT.
Article 7 Two or more taxpayers may be deemed as one taxpayer and pay taxes on a consolidated basis upon approval of the MOF and the SAT. The specific measures shall be separately formulated by the MOF and the SAT.
Article 8 Taxpayers shall carry out VAT accounting in accordance with the uniform accounting system of the State.
Chapter II Scope of Taxation
Article 9 The specific scope of taxable activities shall be governed by the Explanatory Notes on Sales of Services, Intangible Assets and Real Property annexed to these Measures.
Article 10 "Sales of services, intangible assets or real property" refer to the paid provision of services, or the paid transfer of intangible assets or real property, except under the following circumstances involving non-operating activities:
1. governmental funds or administrative and institutional fees which comply with all the following conditions and are collected by administrative authorities:
(1) governmental funds are set up upon approval of the State Council or the MOF, or administrative and institutional fees are set up upon approval of the State Council or any provincial people's governments and their finance or price departments;
(2) financial vouchers prepared under the supervision (printed) by the finance department at or above the provincial level are issued for collection; and
(3) all the funds or fees are handed over to the treasury.
2. employees employed by entities or individual businesses provide services for which wages are obtained for their entities or employers;
3. entities or individual businesses provide services for the employees employed by them; and
4. other circumstances specified by the MOF and the SAT.
Article 11 "Paid" refers to the acquisition of money, goods or other economic interests.
Article 12 "Sales of services, intangible assets or real property within the territory" refer to:
1. any seller or buyer of services (except for lease of real property) or intangible assets (except for the right to use natural resources) is located within the territory;
2. the real property sold or leased is located within the territory;
3. the natural resources whose using right is sold is located within the territory; or
4. other circumstances specified by the MOF and the SAT.
Article 13 Any of the following circumstances shall not be deemed as sales of services or intangible assets within the territory:
1. an entity or individual outside the territory sells to any entity or individual within the territory any service that is consumed completely outside the territory;
2. any entity or individual outside the territory sells to any entity or individual within the territory any intangible asset that is used completely outside the territory;
3. any entity or individual outside the territory leases to any entity or individual within the territory any tangible personal property that is used completely outside the territory; or
4. other circumstances specified by the MOF and the SAT.
Article 14 The following circumstances shall be deemed as sales of services, intangible assets or real property:
1. an entity or individual business provides any free services to any other entity or individual, except for those services used for the public good or targeting at the general public;
2. an entity or individual transfers, free of charge, any intangible assets or real property to any other entity or individual, except for the assets or real property used for the public good or targeting at the general public; or
3. other circumstances specified by the MOF and the SAT.
Chapter III Tax Rates and Levy Rate
Article 15 VAT rates:
1. Any taxable activities of taxpayers shall be subject to a tax rate of 6%, except as specified in Items 2, 3 and 4 of this Article.
2. To provide services related to transportation, postal services, basic telecommunications, construction, leasing of real property, sell any real property, or transfer any land use rights, the tax rate is 11%.
3. To provide leasing services of tangible personal property, the tax rate is 17%.
4. For any cross-border taxable activity conducted by an entity or individual within the territory, the tax rate is zero. The specific scope shall be prescribed separately by the MOF and the SAT.
Article 16 The VAT levy rate is 3%, except as otherwise specified by the MOF and the SAT.
Chapter IV Calculation of Tax Payable
Section 1 General Provisions
Article 17 The tax calculation methods for VAT include the general tax calculation method and the simplified tax calculation method.
Article 18 The general tax calculation method applies to the taxable activities conducted by general taxpayers.
Any general taxpayer engaged in any particular taxable activities as specified by the MOF and the SAT may adopt the simplified tax calculation method and shall not change the tax calculation method within 36 months upon adoption of the same.
Article 19 The simplified tax calculation method applies to the taxable activities conducted by small-scale taxpayers.
Article 20 In connection with any taxable activities conducted within the territory by an entity or individual outside the territory without any operating institution within the territory, the withholding agent shall calculate the tax to be withheld according to the following formula:
Tax to be withheld = price paid by the buyer / (1 + tax rate) * tax rate
Section 2 General Tax Calculation Method
Article 21 Tax payable under the general tax calculation method refers to the balance of the current output tax after deducting the current input tax. The tax payable shall be calculated according to the following formula:
Tax payable = current output tax - current input tax
Where the current output tax is less than the current input tax and is insufficient to offset against the current input tax, the excess input tax may be carried forward for offset in the following period.
Article 22 "Output tax" refers to the amount of VAT payable in connection with the taxable activities conducted by any taxpayer, calculated and collected based on the sales amount and VAT rate. The calculation formula for output tax is:
Output tax = sales amount * tax rate
Article 23 The sales amount under the general tax calculation method shall not include the output tax. Where a taxpayer adopts the pricing method based on combination of the sales amount and the output tax, the sales amount shall be calculated according to the following formula:
Sales amount = tax-inclusive sales amount / (1 + tax rate)
Article 24 "Input tax" refers to the amount of VAT paid or payable by a taxpayer in connection with purchase of goods, processing, repair and replacement services, other services, intangible assets or real property.
Article 25 The following input tax incurred is allowed to be offset against the output tax:
1. The VAT amount indicated in the special VAT invoice from the seller (including the uniform invoices of vehicle sales for tax control, hereinafter the same).
2. The VAT amount indicated in the Customs Form of Import VAT Payment issued by the customs.
3. In case of purchase of agricultural products, the amount of input tax calculated based on the purchase price of the agricultural products indicated in the purchase or sales invoice of such products and the deduction rate of 13%, in addition to the amount indicated in the special VAT invoice or Customs Form of Import VAT Payment. The input tax is calculated according to the following formula:
Input tax = purchase price * deduction rate
"Purchase price" refers to the price indicated in the purchase or sales invoice of the agricultural products purchased by the taxpayer plus the amount of tobacco tax payable by the taxpayer in accordance with the relevant provisions.
The provisions of this Article do not apply to the offset against the input tax under the Implementing Measures for the Pilot Program of Assessment and Deduction of Input Value-added Tax on Agricultural Products.
4. In case of purchasing any services, intangible assets or real property from any entity or individual outside the territory, the VAT amount indicated on the tax payment certificate obtained from the competent tax authority or the withholding agent.
Article 46 The places at which VAT shall be paid are as follows:
1. Any business with a fixed establishment shall file a tax return and pay tax to the competent tax authority at the place where the establishment is located or registered. Where a head office and its branches are not in the same county (or city), they shall respectively file a tax return and pay tax to the competent tax authorities at the places where they are located; the head office may, upon approval of the MOF and the SAT or any finance and tax authorities authorized thereby, file a tax return and pay tax on a consolidated basis to the competent tax authority at the place where the head office is located.
2. Any business without a fixed establishment shall file a tax return and pay tax to the competent tax authority at the place where the taxable activities occur; where the business fails to file a tax return and pay tax to such authority, the competent tax authority at the place where such business is located or registered shall collect overdue tax from the business.
3. Other individuals providing construction services, selling or leasing real property, or transferring the right to use natural resources shall file a tax return and pay tax to the competent tax authorities at the places where the construction services are provided or where the real property is or natural resources are located.
4. A withholding agent shall file a tax return and pay tax withheld thereby to the competent tax authority at the place where the withholding agent is located or registered.
Article 47 VAT payment periods shall be one day, three days, five days, ten days, 15 days, one month or one quarter, respectively. The specific tax payment period for a taxpayer shall be determined by the competent tax authority according to the tax payable by the taxpayer. The tax payment period of one quarter shall apply to small-scale taxpayers, banks, finance companies, trust and investment companies, credit cooperatives, and any other taxpayers specified by the MOF and the SAT. Tax payment may be made on a transaction-by-transaction basis if a fixed period is not applicable.
Taxpayers to whom the tax payment period of one month or one quarter applies shall file a tax return and pay tax within 15 days upon expiration of such period; taxpayers to whom the tax payment period of one day, three days, five days, ten days or 15 days applies shall prepay tax within five days upon expiration of such period and within the first 15 days of the following month file a tax return and settle tax payable for the current month.
The provisions of the preceding two paragraphs shall apply to tax payment periods for withholding agents.
Chapter VI Treatment of Tax Exemption or Reduction
Article 48 A taxpayer conducting taxable activities eligible for tax exemption or reduction may waive tax exemption or reduction and instead, pay VAT in accordance with these Measures. The taxpayer shall not apply again for tax exemption or reduction within 36 months after the waiver.
Where a taxpayer conducts any taxable activities where both the provisions on tax exemption and zero tax rate apply, the taxpayer may choose to apply the tax exemption or zero tax rate.
Article 49 The sales amount of taxable activities conducted by an individual which does not reach the threshold for levying VAT shall be exempt from VAT. Where such sales amount reaches the aforesaid threshold, VAT shall be calculated and paid in full.
The threshold for levying VAT shall not apply to individual businesses registered as general taxpayers.
Article 50 The range of thresholds for levying VAT shall be as follows:
1. a monthly sales amount of between CNY5,000 and CNY20,000 (inclusive) for any taxpayer subject to VAT payment by a fixed period; or
2. a sales amount of a single transaction (or sales amount per day) of between CNY300 and CNY500 (inclusive) for any taxpayer subject to VAT payment on a transaction-by-transaction basis.
Adjustment of the thresholds shall be subject to the provisions of the MOF and the SAT. The finance departments (bureaus) and SAT offices of all provinces, autonomous regions and municipalities directly under the Central Government shall determine the thresholds applicable to their own localities within the prescribed range based on their actual conditions and report their thresholds to the MOF and the SAT for the record.
Enterprises or non-enterprise entities that are small-scale VAT taxpayers and whose monthly sales amount is below CNY20,000 shall be exempted from VAT. Before December 31, 2017, small-scale VAT taxpayers whose monthly sales amount is between CNY20,000 (inclusive) and CNY30,000 shall be exempted from VAT.
Chapter VII Collection and Administration
Article 51 VAT in lieu of BT shall be collected by the SAT offices. VAT on the sales of acquired real property by taxpayers or the lease of real property by other individuals shall be collected by the local taxation bureaus under the entrustment of the SAT offices for the time being.
Article 52 A taxpayer conducting taxable activities to which zero tax rate is applicable shall apply for tax rebate or exemption to the competent tax authority on a regular basis. The specific measures in connection therewith shall be formulated by the MOF and the SAT.
Article 53 A taxpayer conducting taxable activities shall issue special VAT invoices at the request of the relevant buyers and indicate the sales amount and output tax respectively in the special VAT invoices.
Under any of the following circumstances, no special VAT invoice may be issued:
1. selling any service, intangible asset or real property to any individual consumer; or
2. any taxable activity to which the provisions on VAT exemption apply.
Article 54 Where a buyer requests a special VAT invoice from a small-scale taxpayer in connection with a taxable activity conducted by such taxpayer, the small-scale taxpayer may apply to the competent tax authority for issuing the invoice on its behalf.
Article 55 The administration over the collection of VAT from taxpayers shall be subject to these Measures, the Law of the People's Republic of China on the Administration of Tax Levying and the relevant existing provisions on the administration of VAT collection.
Annex: Explanatory Notes on Sales of Services, Intangible Assets and Real Property
I. Sale of Services
The sale of services refers to the provision of transportation services, postal services, telecommunications services, construction services, financial services, modern services and life services.
(I) Transportation services.
Transportation services refer to the business activities of transporting goods or passengers to destinations by vehicles and transferring their spatial locations, including land transportation services, water transportation services, air transportation services and pipeline transportation services.
1. Land transportation services.
Land transportation services refer to the business activities of transporting goods or passengers by land (ground or underground), including railway transportation services and other land transportation services.
(1) Railway transportation services refer to the business activities of transporting goods or passengers by rail.
(2) Other land transportation services refer to the business activities of land transportation excluding railway transportation, including road transportation, cable car transportation, cableway transportation, subway transportation and urban light rail transportation.
The management fees collected by taxi companies from taxi drivers using such companies' own taxies shall be subject to value-added tax ("VAT") applicable to land transportation services.
2. Water transportation services.
Water transportation services refer to the business activities of transporting goods or passengers by natural and artificial waterways, such as rivers, lakes and streams, or maritime waterways.
Voyage charter and time charter business in water transportation are water transportation services.
The voyage charter business means that a transportation enterprise completes a particular transportation task for the charterer and collects the rental fee.
The time charter business means that a transportation enterprise leases its ships equipped with operators to the lessee for a fixed period during which the ships are at the disposal of the lessee and collects the rental fee from the lessee by days regardless of whether such ships are in operation, and all the fixed expenses incurred are borne by the ship owner.
3. Air transportation services.
Air transportation services refer to the business activities of transporting goods or passengers by airways.
The wet lease business in air transportation is one type of air transportation service.
The wet lease business means that an air transportation enterprise leases its planes equipped with flight crew to the lessee for a fixed period during which the planes are at the dispose of the lessee, and collects the rental fee from the lessee according to certain standards regardless of whether such planes are in operation, and all the fixed expenses incurred are borne by the lessee.
Space transportation services shall be subject to VAT applicable to air transportation services.
Space transportation services refer to the business activities of launching satellites, space probes and other spacecraft into space orbits by such carriers as rockets.
4. Pipeline transportation services.
Pipeline transportation services refer to the business activities of transporting gases, liquids and solids by pipeline facilities.
The business of carriage without transport machine shall be subject to VAT applicable to transportation services.
The business of carriage without transport machine refers to the business activities in which an operator acting as a carrier enters into a transportation service contract with the shipper, collects the freight, assumes the carrier's responsibilities, and entrusts the actual carrier to complete transportation services.
(II) Postal services.
Postal services refer to the business activities in which China Post Group and its subordinate postal enterprises provide basic postal services such as mail delivery, postal remittance, and classified mail correspondence, including universal postal services, special postal services and other postal services.
1. Universal postal services.
Universal postal services refer to the business activities including the delivery of correspondence, parcels and other mails, issuance of postage stamps, distribution of newspapers and periodicals, and postal remittance.
Correspondence refers to letters, printed matters, postage stamp cards, mails without name or address, postal parcels, etc.
Parcel refer to an article with independent package which is delivered to a specific individual or entity as per the name and address stated in the package, the weight of which does not exceed 50 kilograms, the size of any side of which does not exceed 150 centimeters, and a total of the length, width and height of which does not exceed 300 centimeters.
2. Special postal services.
Special postal services refer to the business activities such as the delivery of ordinary letters of compulsory servicemen, classified mail correspondence, braille reading materials and personal effects of revolutionary martyrs.
3. Other postal services.
Other postal services refer to the business activities such as the sale of stamp albums and other postal items, and postal agency.
(III) Telecommunications services.
Telecommunications services refer to the business activities of using wired or wireless electromagnetic or optoelectronic systems and other communication network resources to provide voice communication services, and to transmit, receive or apply images, short messages and other electronic data and information, including basic telecommunications services and value-added telecommunications services.
1. Basic telecommunications services.
Basic telecommunications services refer to the business activities of providing voice communication services and leasing or selling such network elements as bandwidth and wavelength by use of fixed networks, mobile networks, satellites and the internet.
2. Value-added telecommunications services.
Value-added telecommunications services refer to the business activities of providing SMS and MMS, transmission and application services related to electronic data and information, and internet access services via fixed networks, mobile networks, satellites, the internet, and cable TV networks.
The reception and transfer of satellite TV signals shall be subject to VAT applicable to value-added telecommunications services.
(IV) Construction services.
Construction services refer to the business activities such as the construction, renovation and decoration of various buildings, structures and ancillary supporting facilities thereof, the installation of lines, pipes, equipment and facilities, and other engineer operations, including engineering services, installation services, renovation services, decoration services and other construction services.
1. Engineering services.
Engineering services refer to the engineering operations of constructing or reconstructing various buildings and structures, including the installation or installation engineering operations of various devices or pillars connected with buildings or operating platforms, and engineering operations in relation to kilns and metal structures.
2. Installation services.
Installation services refer to the assembling and placement engineering operations of production equipment, power equipment, lifting equipment, transportation equipment, transmission equipment, medical laboratory equipment and other equipment and facilities, including the installment engineering operations of workbenches, ladders and railings linked to the installed equipment, and engineering operations of insulation, anti-corrosion, heat preservation and painting related to the installed equipment.
Installation fees, initial installation fees, account-opening fees, expansion fees and other similar fees collected by operators of fixed telephone, cable TV, broadband, water, electricity, gas and central heating from users shall be subject to VAT applicable to installation services.
3. Renovation services.
Renovation services refer to the engineering operations such as repair, reinforcement, maintenance and improvement of buildings and structures to restore them to the original use value or to prolong their service life.
4. Decoration services.
Decoration services refer to the engineering operations of decorating buildings and structures to make them beautiful or with particular purposes.
5. Other construction services.
Other construction services refer to the engineering operation services other than the above-mentioned services, such as well drilling, demolition of buildings or structures, land formation, landscaping, dredging (excluding waterway dredging), horizontal movement of buildings, scaffolding, blasting, mine punching, and stripping and cleaning of surface attachments (including rock stratums, soil layers and sand beds).
(V) Financial services.
Financial services refer to activities of operating the finance and insurance business, including loan services, financial services with direct charges, insurance services and transfer of financial instruments.
1. Loan services.
The provision of loans refers to the business activities of lending funds to others for obtaining the interest income.
The income obtained from occupation of or inter-bank lending of funds, including the interest income (break-even proceeds, remuneration, expenses for occupation of funds, compensation, etc.) during the period (including maturity) of holding financial instruments, interest income from credit card overdrafts, from buying of the resale of financial instruments and from margin financing and securities lending, and interest and income as interest obtained from financing sale-leaseback, documentary bills, default interest, discounting of bills, on-lending and other business, shall be subject to VAT applicable to loan services.
Financing sale-leaseback refers to the business activities in which after the lessee sells assets to an enterprise engaged in financing sale-leaseback business for the purpose of financing, the enterprise leases such assets to the lessee.
Fixed profits or break-even profits gained from investment with monetary funds shall be subject to VAT applicable to loan services.
2.
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Cai Shui [2016] No. 36
March 23, 2016
The finance departments (bureaus), offices of State Administration of Taxation, and local taxation bureaus, of all provinces, autonomous regions, municipalities directly under the Central Government, and cities specifically designated in the State plan, and the Financial Bureau of Xinjiang Production and Construction Corps,
Upon approval of the State Council, the pilot program of the collection of value-added tax in lieu of business tax (hereinafter referred to as the "VAT in lieu of BT") shall be promoted nationwide in a comprehensive manner as of May 1, 2016, and all taxpayers of business tax engaged in the construction industry, the real estate industry, the financial industry and the life service industry shall be included in the scope of the pilot program with regard to payment of value-added tax (VAT) instead of business tax (BT). The Implementing Measures for the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax, the Provisions on Matters relating to the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax, the Provisions on Transitional Policies for the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax and the Provisions on the Application of Zero-rated Value-added Tax and Tax Exemption Policies to Cross-border Taxable Activities are hereby issued to you for your compliance and implementation.
The contents of the appendices to this Circular shall, unless otherwise specified, take effect as of May 1, 2016. The Circular of the Ministry of Finance and the State Administration of Taxation on the Inclusion of the Railway Transport Industry and Postal Service Industry in the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax (Cai Shui [2013] No. 106), the Supplementary Circular of the Ministry of Finance and the State Administration of Taxation on Policies relating to the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax (Cai Shui [2013] No. 121), the Circular of the Ministry of Finance and the State Administration of Taxation on the Inclusion of Telecommunications Industry in the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax (Cai Shui [2014] No. 43), the Supplementary Circular of the Ministry of Finance and the State Administration of Taxation on the Zero-rated Value-added Tax Policy Applicable to International Waterway Transport Services (Cai Shui [2014] No. 50), and the Circular of the Ministry of Finance and the State Administration of Taxation on the Application of Zero-rated Value-added Tax Policy to Film, Television and Other Export Services (Cai Shui [2015] No. 118) shall be repealed accordingly unless otherwise specified.
Each region shall attach great importance to the pilot program for VAT in lieu of BT, effectively organize and direct the pilot program by making careful arrangements, specifying responsibilities and taking every fruitful measure, prepare well before the start of the pilot program and do well in the monitoring, analysis, publicity and interpretation of the pilot program, in order to ensure that the pilot grogram proceeds in a steady, orderly and smooth manner. Any issue encountered in the reform shall be reported to the Ministry of Finance and the State Administration of Taxation promptly.
Appendix I: Implementing Measures for the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax
Chapter I Taxpayers and Withholding Agents
Article 1 Entities and individuals engaged in sales of services, intangible assets or real property (hereinafter referred to as the "taxable activities") within the territory of the People's Republic of China (hereinafter referred to as "within the territory") are value-added tax payers (hereinafter referred to as the "VAT payers"), and shall pay value-added tax ("VAT") rather than business tax ("BT") according to these Measures.
"Entities" refer to enterprises, administrative authorities, public institutions, military units, social organizations, and other entities.
"Individuals" refer to the individual businesses and other individuals.
Article 2 Where entities do business by way of contracting, leasing, and affiliating to others, and the contractors, lessees or affiliates concerned (hereinafter collectively referred to as the "contractors") do business with others in the name of the employers, lessors and the affiliated parties (hereinafter collectively referred to as the "employers") with the relevant legal liability assumed by the employers, the employers shall be the taxpayers; otherwise, the contractors shall be the taxpayers.
Article 3 Taxpayers are divided into general taxpayers and small-scale taxpayers.
A taxpayer whose annual VAT taxable sales amount of taxable activities (hereinafter referred to as the "taxable sales amount") exceeds the threshold prescribed by the Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT") shall be deemed as a general taxpayer; otherwise, the taxpayer shall be deemed as a small-scale taxpayer.
Other individuals whose annual taxable sales amounts exceed the prescribed threshold shall not be deemed as general taxpayers. Any entity or individual business whose annual taxable sales amount exceeds the prescribed threshold which does not provide taxable services on a recurring basis may choose to pay taxes as a small-scale taxpayer.
Article 4 A taxpayer whose annual taxable sales amount is less than the prescribed threshold may become a general taxpayer by registering the eligibility as a general taxpayer with the competent tax authority provided that it has sound accounting and is able to provide accurate tax information.
"Sound accounting" means that a taxpayer maintains account books in accordance with the uniform accounting system of the State and conducts accounting against lawful and valid vouchers.
Article 5 Taxpayers meeting the conditions set for general taxpayers shall apply to the competent tax authorities for registration of their eligibility as general taxpayers. The specific registration measures shall be formulated by the SAT.
Except as otherwise specified by the SAT, once a taxpayer is registered as a general taxpayer, the taxpayer may not be re-identified as a small-scale taxpayer.
Article 6 Where an entity or individual located outside the territory of the People's Republic of China (hereinafter referred to as "outside the territory") conducts taxable activities within the territory without establishing an operating institution within the territory, the corresponding buyer shall be the VAT withholding agent, unless otherwise specified by the MOF and the SAT.
Article 7 Two or more taxpayers may be deemed as one taxpayer and pay taxes on a consolidated basis upon approval of the MOF and the SAT. The specific measures shall be separately formulated by the MOF and the SAT.
Article 8 Taxpayers shall carry out VAT accounting in accordance with the uniform accounting system of the State.
Chapter II Scope of Taxation
Article 9 The specific scope of taxable activities shall be governed by the Explanatory Notes on Sales of Services, Intangible Assets and Real Property annexed to these Measures.
Article 10 "Sales of services, intangible assets or real property" refer to the paid provision of services, or the paid transfer of intangible assets or real property, except under the following circumstances involving non-operating activities:
1. governmental funds or administrative and institutional fees which comply with all the following conditions and are collected by administrative authorities:
(1) governmental funds are set up upon approval of the State Council or the MOF, or administrative and institutional fees are set up upon approval of the State Council or any provincial people's governments and their finance or price departments;
(2) financial vouchers prepared under the supervision (printed) by the finance department at or above the provincial level are issued for collection; and
(3) all the funds or fees are handed over to the treasury.
2. employees employed by entities or individual businesses provide services for which wages are obtained for their entities or employers;
3. entities or individual businesses provide services for the employees employed by them; and
4. other circumstances specified by the MOF and the SAT.
Article 11 "Paid" refers to the acquisition of money, goods or other economic interests.
Article 12 "Sales of services, intangible assets or real property within the territory" refer to:
1. any seller or buyer of services (except for lease of real property) or intangible assets (except for the right to use natural resources) is located within the territory;
2. the real property sold or leased is located within the territory;
3. the natural resources whose using right is sold is located within the territory; or
4. other circumstances specified by the MOF and the SAT.
Article 13 Any of the following circumstances shall not be deemed as sales of services or intangible assets within the territory:
1. an entity or individual outside the territory sells to any entity or individual within the territory any service that is consumed completely outside the territory;
2. any entity or individual outside the territory sells to any entity or individual within the territory any intangible asset that is used completely outside the territory;
3. any entity or individual outside the territory leases to any entity or individual within the territory any tangible personal property that is used completely outside the territory; or
4. other circumstances specified by the MOF and the SAT.
Article 14 The following circumstances shall be deemed as sales of services, intangible assets or real property:
1. an entity or individual business provides any free services to any other entity or individual, except for those services used for the public good or targeting at the general public;
2. an entity or individual transfers, free of charge, any intangible assets or real property to any other entity or individual, except for the assets or real property used for the public good or targeting at the general public; or
3. other circumstances specified by the MOF and the SAT.
Chapter III Tax Rates and Levy Rate
Article 15 VAT rates:
1. Any taxable activities of taxpayers shall be subject to a tax rate of 6%, except as specified in Items 2, 3 and 4 of this Article.
2. To provide services related to transportation, postal services, basic telecommunications, construction, leasing of real property, sell any real property, or transfer any land use rights, the tax rate is 11%.
3. To provide leasing services of tangible personal property, the tax rate is 17%.
4. For any cross-border taxable activity conducted by an entity or individual within the territory, the tax rate is zero. The specific scope shall be prescribed separately by the MOF and the SAT.
Article 16 The VAT levy rate is 3%, except as otherwise specified by the MOF and the SAT.
Chapter IV Calculation of Tax Payable
Section 1 General Provisions
Article 17 The tax calculation methods for VAT include the general tax calculation method and the simplified tax calculation method.
Article 18 The general tax calculation method applies to the taxable activities conducted by general taxpayers.
Any general taxpayer engaged in any particular taxable activities as specified by the MOF and the SAT may adopt the simplified tax calculation method and shall not change the tax calculation method within 36 months upon adoption of the same.
Article 19 The simplified tax calculation method applies to the taxable activities conducted by small-scale taxpayers.
Article 20 In connection with any taxable activities conducted within the territory by an entity or individual outside the territory without any operating institution within the territory, the withholding agent shall calculate the tax to be withheld according to the following formula:
Tax to be withheld = price paid by the buyer / (1 + tax rate) * tax rate
Section 2 General Tax Calculation Method
Article 21 Tax payable under the general tax calculation method refers to the balance of the current output tax after deducting the current input tax. The tax payable shall be calculated according to the following formula:
Tax payable = current output tax - current input tax
Where the current output tax is less than the current input tax and is insufficient to offset against the current input tax, the excess input tax may be carried forward for offset in the following period.
Article 22 "Output tax" refers to the amount of VAT payable in connection with the taxable activities conducted by any taxpayer, calculated and collected based on the sales amount and VAT rate. The calculation formula for output tax is:
Output tax = sales amount * tax rate
Article 23 The sales amount under the general tax calculation method shall not include the output tax. Where a taxpayer adopts the pricing method based on combination of the sales amount and the output tax, the sales amount shall be calculated according to the following formula:
Sales amount = tax-inclusive sales amount / (1 + tax rate)
Article 24 "Input tax" refers to the amount of VAT paid or payable by a taxpayer in connection with purchase of goods, processing, repair and replacement services, other services, intangible assets or real property.
Article 25 The following input tax incurred is allowed to be offset against the output tax:
1. The VAT amount indicated in the special VAT invoice from the seller (including the uniform invoices of vehicle sales for tax control, hereinafter the same).
2. The VAT amount indicated in the Customs Form of Import VAT Payment issued by the customs.
3. In case of purchase of agricultural products, the amount of input tax calculated based on the purchase price of the agricultural products indicated in the purchase or sales invoice of such products and the deduction rate of 13%, in addition to the amount indicated in the special VAT invoice or Customs Form of Import VAT Payment. The input tax is calculated according to the following formula:
Input tax = purchase price * deduction rate
"Purchase price" refers to the price indicated in the purchase or sales invoice of the agricultural products purchased by the taxpayer plus the amount of tobacco tax payable by the taxpayer in accordance with the relevant provisions.
The provisions of this Article do not apply to the offset against the input tax under the Implementing Measures for the Pilot Program of Assessment and Deduction of Input Value-added Tax on Agricultural Products.
4. In case of purchasing any services, intangible assets or real property from any entity or individual outside the territory, the VAT amount indicated on the tax payment certificate obtained from the competent tax authority or the withholding agent.
Article 46 The places at which VAT shall be paid are as follows:
1. Any business with a fixed establishment shall file a tax return and pay tax to the competent tax authority at the place where the establishment is located or registered. Where a head office and its branches are not in the same county (or city), they shall respectively file a tax return and pay tax to the competent tax authorities at the places where they are located; the head office may, upon approval of the MOF and the SAT or any finance and tax authorities authorized thereby, file a tax return and pay tax on a consolidated basis to the competent tax authority at the place where the head office is located.
2. Any business without a fixed establishment shall file a tax return and pay tax to the competent tax authority at the place where the taxable activities occur; where the business fails to file a tax return and pay tax to such authority, the competent tax authority at the place where such business is located or registered shall collect overdue tax from the business.
3. Other individuals providing construction services, selling or leasing real property, or transferring the right to use natural resources shall file a tax return and pay tax to the competent tax authorities at the places where the construction services are provided or where the real property is or natural resources are located.
4. A withholding agent shall file a tax return and pay tax withheld thereby to the competent tax authority at the place where the withholding agent is located or registered.
Article 47 VAT payment periods shall be one day, three days, five days, ten days, 15 days, one month or one quarter, respectively. The specific tax payment period for a taxpayer shall be determined by the competent tax authority according to the tax payable by the taxpayer. The tax payment period of one quarter shall apply to small-scale taxpayers, banks, finance companies, trust and investment companies, credit cooperatives, and any other taxpayers specified by the MOF and the SAT. Tax payment may be made on a transaction-by-transaction basis if a fixed period is not applicable.
Taxpayers to whom the tax payment period of one month or one quarter applies shall file a tax return and pay tax within 15 days upon expiration of such period; taxpayers to whom the tax payment period of one day, three days, five days, ten days or 15 days applies shall prepay tax within five days upon expiration of such period and within the first 15 days of the following month file a tax return and settle tax payable for the current month.
The provisions of the preceding two paragraphs shall apply to tax payment periods for withholding agents.
Chapter VI Treatment of Tax Exemption or Reduction
Article 48 A taxpayer conducting taxable activities eligible for tax exemption or reduction may waive tax exemption or reduction and instead, pay VAT in accordance with these Measures. The taxpayer shall not apply again for tax exemption or reduction within 36 months after the waiver.
Where a taxpayer conducts any taxable activities where both the provisions on tax exemption and zero tax rate apply, the taxpayer may choose to apply the tax exemption or zero tax rate.
Article 49 The sales amount of taxable activities conducted by an individual which does not reach the threshold for levying VAT shall be exempt from VAT. Where such sales amount reaches the aforesaid threshold, VAT shall be calculated and paid in full.
The threshold for levying VAT shall not apply to individual businesses registered as general taxpayers.
Article 50 The range of thresholds for levying VAT shall be as follows:
1. a monthly sales amount of between CNY5,000 and CNY20,000 (inclusive) for any taxpayer subject to VAT payment by a fixed period; or
2. a sales amount of a single transaction (or sales amount per day) of between CNY300 and CNY500 (inclusive) for any taxpayer subject to VAT payment on a transaction-by-transaction basis.
Adjustment of the thresholds shall be subject to the provisions of the MOF and the SAT. The finance departments (bureaus) and SAT offices of all provinces, autonomous regions and municipalities directly under the Central Government shall determine the thresholds applicable to their own localities within the prescribed range based on their actual conditions and report their thresholds to the MOF and the SAT for the record.
Enterprises or non-enterprise entities that are small-scale VAT taxpayers and whose monthly sales amount is below CNY20,000 shall be exempted from VAT. Before December 31, 2017, small-scale VAT taxpayers whose monthly sales amount is between CNY20,000 (inclusive) and CNY30,000 shall be exempted from VAT.
Chapter VII Collection and Administration
Article 51 VAT in lieu of BT shall be collected by the SAT offices. VAT on the sales of acquired real property by taxpayers or the lease of real property by other individuals shall be collected by the local taxation bureaus under the entrustment of the SAT offices for the time being.
Article 52 A taxpayer conducting taxable activities to which zero tax rate is applicable shall apply for tax rebate or exemption to the competent tax authority on a regular basis. The specific measures in connection therewith shall be formulated by the MOF and the SAT.
Article 53 A taxpayer conducting taxable activities shall issue special VAT invoices at the request of the relevant buyers and indicate the sales amount and output tax respectively in the special VAT invoices.
Under any of the following circumstances, no special VAT invoice may be issued:
1. selling any service, intangible asset or real property to any individual consumer; or
2. any taxable activity to which the provisions on VAT exemption apply.
Article 54 Where a buyer requests a special VAT invoice from a small-scale taxpayer in connection with a taxable activity conducted by such taxpayer, the small-scale taxpayer may apply to the competent tax authority for issuing the invoice on its behalf.
Article 55 The administration over the collection of VAT from taxpayers shall be subject to these Measures, the Law of the People's Republic of China on the Administration of Tax Levying and the relevant existing provisions on the administration of VAT collection.
Annex: Explanatory Notes on Sales of Services, Intangible Assets and Real Property
I. Sale of Services
The sale of services refers to the provision of transportation services, postal services, telecommunications services, construction services, financial services, modern services and life services.
(I) Transportation services.
Transportation services refer to the business activities of transporting goods or passengers to destinations by vehicles and transferring their spatial locations, including land transportation services, water transportation services, air transportation services and pipeline transportation services.
1. Land transportation services.
Land transportation services refer to the business activities of transporting goods or passengers by land (ground or underground), including railway transportation services and other land transportation services.
(1) Railway transportation services refer to the business activities of transporting goods or passengers by rail.
(2) Other land transportation services refer to the business activities of land transportation excluding railway transportation, including road transportation, cable car transportation, cableway transportation, subway transportation and urban light rail transportation.
The management fees collected by taxi companies from taxi drivers using such companies' own taxies shall be subject to value-added tax ("VAT") applicable to land transportation services.
2. Water transportation services.
Water transportation services refer to the business activities of transporting goods or passengers by natural and artificial waterways, such as rivers, lakes and streams, or maritime waterways.
Voyage charter and time charter business in water transportation are water transportation services.
The voyage charter business means that a transportation enterprise completes a particular transportation task for the charterer and collects the rental fee.
The time charter business means that a transportation enterprise leases its ships equipped with operators to the lessee for a fixed period during which the ships are at the disposal of the lessee and collects the rental fee from the lessee by days regardless of whether such ships are in operation, and all the fixed expenses incurred are borne by the ship owner.
3. Air transportation services.
Air transportation services refer to the business activities of transporting goods or passengers by airways.
The wet lease business in air transportation is one type of air transportation service.
The wet lease business means that an air transportation enterprise leases its planes equipped with flight crew to the lessee for a fixed period during which the planes are at the dispose of the lessee, and collects the rental fee from the lessee according to certain standards regardless of whether such planes are in operation, and all the fixed expenses incurred are borne by the lessee.
Space transportation services shall be subject to VAT applicable to air transportation services.
Space transportation services refer to the business activities of launching satellites, space probes and other spacecraft into space orbits by such carriers as rockets.
4. Pipeline transportation services.
Pipeline transportation services refer to the business activities of transporting gases, liquids and solids by pipeline facilities.
The business of carriage without transport machine shall be subject to VAT applicable to transportation services.
The business of carriage without transport machine refers to the business activities in which an operator acting as a carrier enters into a transportation service contract with the shipper, collects the freight, assumes the carrier's responsibilities, and entrusts the actual carrier to complete transportation services.
(II) Postal services.
Postal services refer to the business activities in which China Post Group and its subordinate postal enterprises provide basic postal services such as mail delivery, postal remittance, and classified mail correspondence, including universal postal services, special postal services and other postal services.
1. Universal postal services.
Universal postal services refer to the business activities including the delivery of correspondence, parcels and other mails, issuance of postage stamps, distribution of newspapers and periodicals, and postal remittance.
Correspondence refers to letters, printed matters, postage stamp cards, mails without name or address, postal parcels, etc.
Parcel refer to an article with independent package which is delivered to a specific individual or entity as per the name and address stated in the package, the weight of which does not exceed 50 kilograms, the size of any side of which does not exceed 150 centimeters, and a total of the length, width and height of which does not exceed 300 centimeters.
2. Special postal services.
Special postal services refer to the business activities such as the delivery of ordinary letters of compulsory servicemen, classified mail correspondence, braille reading materials and personal effects of revolutionary martyrs.
3. Other postal services.
Other postal services refer to the business activities such as the sale of stamp albums and other postal items, and postal agency.
(III) Telecommunications services.
Telecommunications services refer to the business activities of using wired or wireless electromagnetic or optoelectronic systems and other communication network resources to provide voice communication services, and to transmit, receive or apply images, short messages and other electronic data and information, including basic telecommunications services and value-added telecommunications services.
1. Basic telecommunications services.
Basic telecommunications services refer to the business activities of providing voice communication services and leasing or selling such network elements as bandwidth and wavelength by use of fixed networks, mobile networks, satellites and the internet.
2. Value-added telecommunications services.
Value-added telecommunications services refer to the business activities of providing SMS and MMS, transmission and application services related to electronic data and information, and internet access services via fixed networks, mobile networks, satellites, the internet, and cable TV networks.
The reception and transfer of satellite TV signals shall be subject to VAT applicable to value-added telecommunications services.
(IV) Construction services.
Construction services refer to the business activities such as the construction, renovation and decoration of various buildings, structures and ancillary supporting facilities thereof, the installation of lines, pipes, equipment and facilities, and other engineer operations, including engineering services, installation services, renovation services, decoration services and other construction services.
1. Engineering services.
Engineering services refer to the engineering operations of constructing or reconstructing various buildings and structures, including the installation or installation engineering operations of various devices or pillars connected with buildings or operating platforms, and engineering operations in relation to kilns and metal structures.
2. Installation services.
Installation services refer to the assembling and placement engineering operations of production equipment, power equipment, lifting equipment, transportation equipment, transmission equipment, medical laboratory equipment and other equipment and facilities, including the installment engineering operations of workbenches, ladders and railings linked to the installed equipment, and engineering operations of insulation, anti-corrosion, heat preservation and painting related to the installed equipment.
Installation fees, initial installation fees, account-opening fees, expansion fees and other similar fees collected by operators of fixed telephone, cable TV, broadband, water, electricity, gas and central heating from users shall be subject to VAT applicable to installation services.
3. Renovation services.
Renovation services refer to the engineering operations such as repair, reinforcement, maintenance and improvement of buildings and structures to restore them to the original use value or to prolong their service life.
4. Decoration services.
Decoration services refer to the engineering operations of decorating buildings and structures to make them beautiful or with particular purposes.
5. Other construction services.
Other construction services refer to the engineering operation services other than the above-mentioned services, such as well drilling, demolition of buildings or structures, land formation, landscaping, dredging (excluding waterway dredging), horizontal movement of buildings, scaffolding, blasting, mine punching, and stripping and cleaning of surface attachments (including rock stratums, soil layers and sand beds).
(V) Financial services.
Financial services refer to activities of operating the finance and insurance business, including loan services, financial services with direct charges, insurance services and transfer of financial instruments.
1. Loan services.
The provision of loans refers to the business activities of lending funds to others for obtaining the interest income.
The income obtained from occupation of or inter-bank lending of funds, including the interest income (break-even proceeds, remuneration, expenses for occupation of funds, compensation, etc.) during the period (including maturity) of holding financial instruments, interest income from credit card overdrafts, from buying of the resale of financial instruments and from margin financing and securities lending, and interest and income as interest obtained from financing sale-leaseback, documentary bills, default interest, discounting of bills, on-lending and other business, shall be subject to VAT applicable to loan services.
Financing sale-leaseback refers to the business activities in which after the lessee sells assets to an enterprise engaged in financing sale-leaseback business for the purpose of financing, the enterprise leases such assets to the lessee.
Fixed profits or break-even profits gained from investment with monetary funds shall be subject to VAT applicable to loan services.
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