CIRCULAR ON THE QUESTION CONCERNING POLICY LINKS RELATED TO THECOLLECTION OF TURNOVER TAX ON FOREIGN BUSINESSMEN CONTRACTING TO UNDERTAKEENGINEERING OPERATION AND PROVIDE LABOR SERVICES

CIRCULAR ON THE QUESTION CONCERNING POLICY LINKS RELATED TO THECOLLECTION OF TURNOVER TAX ON FOREIGN BUSINESSMEN CONTRACTING TO UNDERTAKEENGINEERING OPERATION AND PROVIDE LABOR SERVICES (State Administration of Taxation: 20 September 1994 Coded GuoShui Fa [1994] No. 214) Whole Doc.

To the state tax bureaus of various provinces, autonomous regions and municipalities, the state tax bureaus of various cities with independent planning and various sub-bureaus of the Off-shore Oil Tax Administration: With regard to taxation related to foreign companies, enterprises and other economic organizations which come to China to engage in undertaking contracted projects operation and providing labor service, previously we worked out a series of stipulations, after implementation of the new tax system, the question regarding policy links is hereby clarified as follows: I. For foreign companies, enterprises and other economic organizations which undertook contracted project operation and provided labor service before December 31, 1993, the prices for the machinery, equipment and building materials they purchased or manufactured on a commission basis to meet the needs of the contractee's engineering operation or labor service projects are allowed to be deducted from the total value of business income from contracted projects or labor service projects and then business tax is calculated and paid, this stipulation is implemented till the expiration of the contract (excluding the extended period of the contract).

II. For trade contracts on the sales of machinery and equipment which were signed by foreign businessmen with Chinese enterprises before the end of 1990 and contracts on providing related services for transforming the existing technologies of Chinese enterprises, if they conform with related stipulations on tax exemption as set in Article 2 of the document coded Cai Shui Zi (83) No. 149, their tax exemption period may be allowed to continue up till the expiration of the contract (excluding the extended period of the contract).

III. The question concerning the levying of tax on the business income gained by foreign businessmen who are entrusted by Chinese domestic enterprises or cooperate with Chinese enterprises in designing for construction and engineering projects.

(1) With regard to foreign businessmen who are entrusted by Chinese enterprises with designing for construction and engineering projects, except that before the start of designing, people are sent to China to conduct on-the-spot exploration, gathering materials and fact-finding, the businesses including the designing formula, calculation and drawing are all carried out outside China, after completion of the design, the blueprints are handed to Chinese domestic enterprises. This situation can be regarded as providing labor service outside China, all the designing business income gained by foreign businessmen from China shall be exempt from business tax.

(2) For foreign businessmen who are entrusted by Chinese domestic enterprises or cooperate or join with Chinese enterprises in designing for construction and engineering projects, except that before the start of designing work, people are sent to China to conduct on-the-spot exploration, gathering materials and fact- finding, all the business including designing formula, calculation and drawing are wholly or partially conducted outside China, after completion of designing, people are again sent to China to explain the blueprint and exercise supervision and management and giving technical guidance for the construction of the construction and engineering projects they design, except for the prices charged for the design labor service provided outside China are allowed to be deducted, business tax shall be levied on the remaining income in accordance with related stipulations concerning business tax. But if the contract on entrusted designing or cooperative (joint) designing lacks clear indication of the prices for designing labor service provided outside China or fails to provide accurate certificate to correctly divide the designing labor service provided in or outside China, tax shall be calculated and levied together with the business income gained from provision of designing labor service within China.

(3) The income gained from the designing for construction and engineering projects conducted by foreign businessmen before December 31, 1993 can be handled in a relaxed manner, tax shall be levied at the original applicable rate, this stipulation shall be implemented till the expiration of the contract (excluding the extended period of the contract).

ding the designing formula, calculation and drawing are all carried out outside China, after completion of the design, the blueprints are handed to Chinese domestic enterprises. This situation can be regarded as providing labor service outside China, all the designing business income gained by foreign businessmen from China shall be exempt from business tax.

(2) For foreign businessmen who are entrusted by Chinese domestic enterprises or cooperate or join with Chinese enterprises in designing for construction and engineering projects, except that before the start of designing work, people are sent to China to conduct on-the-spot exploration, gathering materials and fact- finding, all the business including designing formula, calculation and drawing are wholly or partially conducted outside China, after completion of designing, people are again sent to China to explain the blueprint and exercise supervision and management and giving technical guidance for the construction of the construction and engineering projects they design, except for the prices charged for the design labor service provided outside China are allowed to be deducted, business tax shall be levied on the remaining income in accordance with related stipulations concerning business tax. But if the contract on entrusted designing or cooperative (joint) designing lacks clear indication of the prices for designing labor service provided outside China or fails to provide accurate certificate to correctly divide the designing labor service provided in or outside China, tax shall be calculated and levied together with the business income gained from provision of designing labor service within China.

(3) The income gained from the designing for construction and engineering projects conducted by foreign businessmen before December 31, 1993 can be handled in a relaxed manner, tax shall be levied at the original applicable rate, this stipulation shall be implemented till the expiration of the contract (excluding the extended period of the contract).