Supplementary Circular of the State Administration of Taxation (SAT) and the State Administration of Foreign Exchange (SAFE) on Strengthening Administration of Tax Collection on Shipping Income of Foreign Companies and Administration of External Payment in the International Ocean Shipping Industry

GuoShuiFa [2002] No.107 August 15, 2002

Bureaus of state taxation and local taxation in all provinces, autonomous regions, municipalities directly under the Central Government, and municipalities separately listed on the State plan, SAFE branches in all provinces, autonomous regions and municipalities directly under the Central Government, exchange administration offices, SAFE branches in the cities of Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo, and all designated foreign exchange banks:

In order to normalize the implementation of the Circular of the SAT and the SAFE on Strengthening Administration of Tax Collection on Shipping Income of Foreign Companies and Administration of External Payment in the International Ocean Shipping Industry (GuoShuiFa [2001] No.139, hereinafter referred to as the Circular), a supplementary circular on issues related to the administration of tax collection on shipping income of foreign companies and administration of external payment in the international ocean shipping industry is given here-under:

1. Tax Exemption

(1) Applicability of taxation exemption

"If a tax payer is to enjoy tax reduction or exemption treatment" stipulated in Article 4 of the Circular refers to freight incomes or proceeds from international shipping of foreign companies residing in a country (region) that has signed with China agreements on avoidance of double levies of taxes, on bilateral exemption from incomes of shipping enterprises from international transportation, or on ocean shipping, as well as other relevant agreements or exchange of notes (hereinafter referred to as Agreements. The Table of Tax Deduction and Exemption related to International Ocean Shipping is attached to this circular), and income or proceeds attached to international transportation as stipulated in the Circular of the SAT on the Interpretation of Issues Related to International Transportation in Taxation Agreements (GuoShuiHan [1998] No.241). Commissions collected by all kinds of transportation agencies are excluded.

(2) Procedure of tax exemption

Exemption from corporate income tax and business tax shall be, regardless of the number of shipping lines, applied for by the foreign company itself or by its entrusted with holding obligor (hereafter referred to as the applicant) following a one-examination-for-all procedure according to Article 4 of the Circular. Details are as follows:

A. The applicant may choose a prefectural bureau of state taxation in charge of collecting income tax from foreign-funded enterprises within whose jurisdiction the business takes place as the one-examination-for-all taxation agency to process the procedure of tax exemption and to obtain a SAT Certificate for Exemption From Corporate Income Tax on Foreign Companies' Shipping Income (hereinafter referred to as certificate for exemption from income tax). In case a withholding obligor is entrusted to go through the procedure for tax exemption on behalf of the taxpayer, a trust deed issued by the taxpayer shall be presented at the same time.

After receiving the application for a certificate for tax exemption and the attached evidential documents, the one-examination-for-all taxation agency shall check the legitimacy of the Certificate for Resident Identification and other evidential documents conscientiously, issue a certificate for exemption from income tax to the applicant that satisfies the requirements of the Agreements and eligible for exemption from corporate income tax on income from international transportation, affix a seal to the evidential documents such as the taxpayer's Certificate of Resident Identification stating that "A certificate for exemption from income tax has been issued", and file the evidential documents for future check. The applicant shall keep a photocopy of each of the Certificate of Resident Identification and other evidential documents for other related procedure to be conducted by the bureaus of local taxation in the same locality or competent taxation agencies in other localities.

The taxation agency that has issued the Certificate for Exemption from Income Tax shall fill in the name and contact telephone number of the transactor in the last column of the certificate and submit the related materials of the foreign company to which a certificate has been issued to its boss taxation agency at the provincial level, and via it to the SAT for record.

B. If income from international transportation is also exempted from business tax according to the provisions of the Agreements, the applicant shall present the Certificate for Exemption from Income Tax to the prefectural bureau of local taxation in the same locality as the one-examination-for-all taxation agency, and submit a photocopy of each of the Certificate of Resident Identification and other evidential documents to apply for a SAT Certificate for Exemption from Business Tax on Shipping Income of Foreign Companies (hereinafter referred to as the certificate for exemption from business tax).

The bureau of local taxation that has received the application for a certificate for exemption from business tax shall seriously check the Agreement signed by China and the country (region) concerned, issue in time a certificate for exemption from business tax to the applicant that satisfies the requirements of the Agreement and eligible for exemption from business tax on income from international transportation, and affix a seal to the Certificate of Resident Identification and other evidential documents of the taxpayer stating that "A certificate for exemption from business tax has been issued", and file photocopies of the evidential documents for future check. The applicant shall keep a photocopy of each of the Certificate of Resident Identification and other evidential documents for other relevant procedure to be conducted by competent taxation agencies in other localities.

The taxation agency that has issued the Certificate for Exemption from Business Tax shall fill in the name and contact telephone number of the transactor in the last column of the certificate, and submit in time the related materials of the foreign company to which a certificate for tax exemption has been issued to its boss taxation agency in the province (autonomous region, municipality directly under the central government, or city directly under the state planning), and via it to the SAT for record,

C. For a company operating multiple shipping lines, the applicant may present to the bureau of state taxation and bureau of local taxation in any other locality where the business takes place a photocopy of the certificate for exemption from income tax issued by the one-examination-for-all taxation agency or a photocopy of the certificate for exemption from business tax issued by the bureau of local tax in the same locality, and present a photocopy of each of the Certificate of Resident Identification and other evidential documents of the taxpayer to go through procedure of exemption from taxation on freight payment.

After receiving an application, the bureau of state taxation and bureau of local taxation in the other locality shall affix their official seals to and mark the dates in the presented photocopy of the certificate for exemption from income tax or the presented photocopy of the certificate for exemption from business tax, keep one copy each of the Certificate of Resident Identification and other evidential documents of the taxpayer for future check.

Except for special cases, the bureau of local taxation in the locality where the one-examination-for-all taxation agency is located, as well as bureaus of state taxation and bureaus of local taxation in other localities shall not examine the original of the taxpayer's Certificate of Resident Identification.

(3) Identification document of residency

When applying for privileges of exemption from taxation on income from international transportation under Agreements, the applicant shall present a "certificate of resident identification" of any type listed below depending on the country (region) where the foreign company is located.

A. Certificate for exemption from income tax and certificate for exemption from business tax of which the third column (column for resident identification) has been filled, signed, and sealed by a relevant taxation agency of the signatory country (region) of the Agreement where the foreign company resides;

B. Certificate of Resident Identification issued separately by a relevant taxation agency of the signatory country (region) of the Agreement where the foreign company resides;

C. Special certificate issued by a competent shipping agency of the government of the signatory country (region) of the Agreement where the foreign company resides;

D. The original of the Certificate of Business Registration Ordinance of Companies in Hong Kong (a specimen is attached) issued by the taxation bureau of Hong Kong SAR where the Hong Kong company resides. Except for special cases, the applicant shall not be requested to present the Certificate of Resident Identification of Companies in Hong Kong issued by the taxation bureau of Hong Kong SAR.

The "certificates of resident identification" listed above shall be valid within 3 years after issued by relevant agencies of the signatory countries (regions) of the Agreements where the foreign companies reside. A taxpayer whose resident identity changes or "Certificate of Resident Identification" expires during the 3 years shall apply in duetime for a new certificate for exemption from taxation according to above-mentioned procedure with a valid "Certificate of Resident Identification".

2. When a withholding obligor pays freight under the item of export in international trade to a foreign company, he/it shall present the contract or agreement, invoice issued by the foreign company, bill of lading (or its duplicate) and a list of the bill of lading, and one of the evidential documents listed below, and may, after the authenticity of the presented documents has been checked by the designated foreign exchange bank, make outward remittance directly from his/its foreign exchange account for current transactions The bill of lading (or its duplicate) shall be returned to the withholding obligor for preservation. The bank shall keep the contract or agreement (or its duplicate), invoice issued by the foreign company, and the list of the bill of lading for 3 years for future check.

(1) The payment receipts of corporate income tax and business tax issued by competent taxation agencies in the locality;

(2) In case exemption from taxation on income from international transportation is enjoyed according to the provisions of the Agreements, the certificate for exemption from income tax and the certificate for exemption from business tax shall be presented when the payment of freight is applied for in the locality where the one-examination-for-all taxation agency is located.

(3) In case exemption from taxation on income from international transportation is enjoyed according to the provisions of the Agreements, a photocopy of the certificate for exemption from income tax affixed with the official seal of the "bureau of state taxation in "city" province" and marked with the date or the certificate for exemption from business tax affixed with the official seal of the "bureau of local taxation in " city " province" and marked with the date shall be presented when payment of freight is applied for in any other locality where the business takes place. The stamp of the official seal and the mark of the date in the said photocopy must be original.

3. In case a withholding obligor has signed a contract or agreement with an overseas agent of a foreign company and acts as an indirect agent for the foreign company in international transportation, he/it shall, in addition to the evidential materials listed in Article 2 of this supplementary circular, present the letter of authorization (or trust deed) issued by the foreign company to the overseas agent wherever possible, and may, after the authenticity of the presented documents has been checked by the designated foreign exchange bank, pay freight to the overseas agent from his/its foreign exchange account for current transaction.

4. An applicant shall fill in the certificate for exemption from taxation in Chinese or in both Chinese and English.

5. This circular shall take effect as from the date of promulgation. In case of any contradiction with provisions of previous regulations, this circular shall prevail. Any problem encountered in the course of implementation shall be fed back in time to the SAT or the SAFE.

Enclosures:

1. Table of Tax Deduction and Exemption for Income from International Shipping (Omitted)

2. Sample of the Certificate of Business Registration Ordinance of Companies in Hong Kong Issued by the taxation bureau of Hong Kong SAR (Omitted)

Promulgated by The State Administration of Taxation on 2002-8-15