Provisional Regulations on Value-Added Tax of the People's Republic of China

Article 1 All units and individuals, within the territory of the People's Republic of China, who are engaged in the sales of goods, provision of processing, repair and replacement services, and the import of goods, are persons liable to pay Value-Added Tax ( hereinafter referred to simply as "taxpayers"), and shall pay VAT in accordance with these Regulations.

Article 2 VAT Rates:

A. For taxpayers selling or importing goods, other than those stipulated in items (2) and (3) of this Article, the tax rate shall be 17%.

B. For taxpayers selling or importing the following goods, the tax rate shall be 13%:

a. Food grains, edible vegetable oils;

b. Tap water, heating, air conditioning, hot water, coal gas, liquefied petroleum gas, natural gas, methane gas, coal/charcoal products for household use;

c. Books, newspapers, magazines;

d. Feeds, chemical fertilizers, agricultural chemicals, agricultural machinery and covering plastic-film for farming;

e. Other goods as regulated by the State Council.

C. For taxpayers exporting goods, the tax rate shall be 0%, except as otherwise stipulated by the State Council.

D. For taxpayer providing processing, repair and replacement services (hereinafter referred to as "taxable services"), the tax rate shall be 17%.

Any adjustments to the tax rates shall be determined by the State Council.

Article 3 For taxpayers dealing in goods or providing taxable services with different tax rates shall be accounted for separately. If the sales amounts have not been accounted for separately, the higher tax rates shall apply.

Article 4 Except as stipulated in Article 13 of these Regulations, for taxpayers engaged in the sales of goods or the provision of taxable services (hereinafter referred to as "selling goods or taxable services" ), the tax payable shall be the balance of output tax for the period after deducting the input tax for the period. The formula for computing the tax payable is as follows:

Tax payable = Output tax payable for the period-Input tax for the period

If the output tax for the period is less than and insufficient to offset against the input tax for the period, the excess input tax can be carried forward for set-off in the following periods.

Article 5 For taxpayers selling goods or taxable services, the output tax shall be the VAT payable calculated based on the sales amounts and the tax rates prescribed in Article 2 of these Regulations and collected from the purchasers, The formula for computing the output tax is as follows:

Output tax =Sales amount ¡Ñ Tax rate

Article 6 The sales amount shall be the total compensation and all other charges received from the purchasers by the taxpayer selling goods or taxable services, but excluding the output tax due.

The sales amount shall be calculated in Renminbi. The sales amount of the taxpayer settled in foreign currencies shall be converted into Renminbi according to the exchange rate prevailing in the foreign exchange market.

Article 7 Where the price used by the taxpayer in selling goods or taxable services is obviously low and without proper justification , the sales amount shall be determined by the competent tax authorities.

Article 8 For taxpayers who purchase goods or receive taxable services (hereinafter referred to as "purchasing goods or taxable services"), VAT paid or borne shall be restricted to the amount of VAT payable as indicated on the following VAT deduction documents:

The input tax allowed for deduction from output tax, apart from the situations specified in Paragraph 3 of this Article, is limited to the VAT amounts noted on the deduction documents listed below.

A. VAT indicated in the special VAT invoices obtained from the sellers;

B. VAT indicated on the tax payment receipts obtained from the customs office.

The deductible input tax for the purchasing of tax exempt agricultural products is calculated based on a deemed deduction rate at 10% on the actual purchasing price. The formula for calculating the input tax is as follows:

Input tax = Purchasing price ¡ÑDeduction rate

Article 9 Where taxpayers purchasing goods or taxable services have not obtained and kept the VAT deduction documents in accordance with the regulations, or the VAT payable and other relevant items in accordance with the regulations are not indicated on the VAT deduction document, no input tax shall be deducted from the output tax.

Article 10 Input tax on following items shall not be deducted from the output tax:

A. Fixed assets purchased;

B. Goods purchased or taxable services used for non-taxable items;

C. Goods purchased or taxable services used for tax exempt items;

D. Goods purchased or taxable services used for group welfare or personal consumption;

E. Abnormal losses of goods purchased;

F. Goods purchased or taxable services consumed in the production of work-in-progress or finished goods which suffer abnormal losses.

Article 11 Small-scale taxpayers engaged in selling goods or taxable services shall use a simplified method for calculating the tax payable.

The standard for small-scale taxpayers is determined by the Ministry of Finance.

Article 12 The rate levied on the small-scale taxpayers goods or taxable services shall be 6%.

Any adjustment to tax rates shall be determined by the State Council.

Article 13 For small-scale taxpayers selling goods or taxable services, the tax payable shall be calculated on the sales amount and the tax rate stipulated in Article 12 of these Regulations. No input tax shall be deducted. The formula for calculating the tax payable is as follows:

Tax payable = Sales amount ¡ÑTax rate.

The sales amount shall be determined in accordance with Article 6 and Article 7 of these Regulations.

Article 14 Small-scale taxpayers with sound accounting who can provide accurate taxation information may, upon the approval of the competent tax authorities, not be treated as small-scale taxpayers. The tax payable shall be computed pursuant to the relevant stipulations of these Regulations.

Article 15 For taxpayers importing goods, tax payable shall be computed based on the composite assessable price and the tax rates prescribed in Article 2 of these Regulations. No tax will be deducted. The formulas for computing the composite assessable price and the tax payable are as follows:

Composite assessable price = Customs dutiable value + Customs Duty + Consumption Tax

Tax payable = Composite assessable price ¡Ñ Tax rate

Article 16 The following items are exempt from VAT:

A. Self-produced agricultural products sold by agricultural producers;

B. Contraceptive medicines and devices;

C. Antique books;

D. Importation of instruments and equipment directly used in scientific research, experiment and education;

E. Importation of materials and equipment from foreign governments and international organizations as assistance free of charge;

F. Equipment and machinery required to be imported under contract processing, contract assembly and compensation trade;

G. Articles imported directly by organizations for the disabled for special use by the disabled;

H. Sale of goods which have been used by the sellers.

Except as stipulated in the above paragraph, the VAT exemption and reduction items shall be regulate d by the State Council. Local governments or departments shall not regulate any tax exemption or reduction items.