CaiShuiZi [1983] No.149 July 5, 1983

In accordance with Articles 2 and 8 of Industrial and Commercial Consolidated Tax rule, and Article 1 of the Income Tax Law of the People's Republic of China Concerning Foreign Enterprises and Article 2 of the rules for the implementation of the law, the following provisions are hereby formulated to govern on a temporary basis the levy of industrial and commercial consolidated tax and enterprise income tax on foreign firms, enterprises and other economic establishments (hereinafter referred to as "foreign firms") for their operations to contract for construction projects and provide labor services in China.

1. All income obtained by foreign firms from operations to contract for building, installation, assembly and exploration and other engineering projects or from providing labor services to related projects shall be subject to industrial and commercial consolidated tax and enterprise income tax according to relevant tax rules. But the following deductions shall be made in computing the taxable amount:

(1) The fees for subcontracting part of the projects or labor service to Chinese or other firms.

(2) The actual advanced payments for the machinery and equipment procured or manufactured outside China for the contracted projects.

(3) The expenses for data analysis and processing outside China as provided in special contracts signed separately.

2. Industrial and commercial consolidated tax shall not be levied on income derived from the following labor services before the year 1990. Enterprise income tax shall also be exempted for such incomes, except the labor services relating to the transfer of the proprietary rights of technical know-how, which is governed by separate provisions.

(1) The labor service involving technical personnel provided by foreign firms which have signed equipment sales contracts with Chinese enterprises to direct equipment installation, interpret technical data and train Chinese technical personnel or services in designing relating to the installation and operation of the equipment.

(2) Assistance or technical services provided by foreign firms for giving technical guidance, consultancy and technological designs to technical transformation projects in China's existing enterprises.

3. For the operational income derived from contracted projects or labor services involved, which is subject to industrial and commercial consolidated tax and enterprise income tax in pursuance of Article 1 of the current interim provisions, the foreign firms concerned shall file tax returns according to relevant tax rules for the examination and tax collection by local tax authorities. For cases where the period for contractual operations or providing labor services is too short to provide accurate cost and expense documents and accurately compute the taxable amount of income, the taxable income may be computed upon the decision of local tax authorities by assessing the profit rate according to the provisions of Article 24 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China Concerning Foreign Enterprises. For convenience sake, ten percent of the earnings from construction projects or labor services may be taken for the time being as the taxable income.

4. In subcontracting part of contracted projects or labor services to other foreign firms, the foreign firms concerned shall be responsible for withholding the industrial and commercial consolidated tax payable by the sub-contractors according to the payment for subcontract, at the same time, they shall also be responsible for withholding enterprise income tax if the taxable income is computed by local tax authorities by assessing the profit rate. Failure to withhold such taxes within the prescribed time limit or failure to withhold payable tax shall be dealt with according to the provisions of Articles and 14 and 15 of the Income Tax Law of the People's Republic of China Concerning Foreign Enterprises.

5. Provisions for taxation, tax reduction or exemption specified in the contracts which were signed and became effective before the enforcement of the current interim provisions shall remain effective until the terms of the contracts expire (extension period is not covered).

6. If the Chinese government signs agreements on avoidance of double taxation with foreign governments after the current provisions are published, the provision of the agreements which have become officially valid shall be followed (departments and localities will be informed in time of such agreements signed between the Chinese and foreign government).

Promulgated by The Ministry of Finance on 1983-7-5