China Taxation Service
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Provisional Regulations on Value Added Tax of the People's Republic of China Promulgated on the Order of the State Council [1993] No.134 On Dec. 13, 1993).
Article 1 An institution or individual engaged in marketing goods and/or providing processing, repair and/or replacements services within the territory of the People's Republic of China shall be a payer of value added tax (hereinafter referred to as "taxpayer") and shall pay value added tax (VAT) in accordance with these Regulations.
Article 2 Rates of VAT
1．The rate of VAT on goods marketed or imported by a taxpayer shall be 17%, except for those provided in 2 and 3 of this article.
2．The rate of VAT on the following goods marketed or imported by a taxpayer shall be 13%:
2.1 Cereals, edible vegetable oils;
2.2 Running water, central heating, air conditioning, hot water, gas, LPG, natural gas, methane gas, coal/charcoal products for household use;
2.3 Books, newspapers, magazines;
2.4 Feed, chemical fertilizer, chemical pesticides, agricultural machinery, and farm-use plastic sheets;
2.5 And other goods stipulated by the State Council.
3．The rate of VAT shall be zero on goods exported by a taxpayer, unless otherwise stipulated by the State Council.
4．The rate of VAT shall be 17% on the processing, repair and/or replacements services (hereinafter referred to as taxable labor service) provided by a taxpayer and any readjustment thereof shall be determined by the State Council.
Article 3 For a taxpayer dealing in goods or providing taxable services taxable at different rates, the volumes of the sales of goods and taxable labor service at different tax rates shall be computed separately. The volumes of sales not computed separately for different rates of VAT shall be subject to the highest rate.
Article 4 The tax payable on goods marketed or taxable services provided by a taxpayer (hereinafter referred to as goods marketed or taxable services ) shall be the amount of the current amount of tax on sales minus the current amount of tax on purchases, except for those provided under Article 13 of these Regulations. The formula shall be:
Tax payable = amount of tax on sales - amount of tax on purchases
In the event the amount of tax on sales is less than the current amount of tax on purchases and insufficient to offset the amount of tax on purchases, the balance shall be carried over to the next term to be further deducted.
Article 5 The amount of VAT assessed on the basis of the sales volume of goods and/or taxable services at the rate prescribed in Article 2 of these Regulations and collected from the buyer by the taxpayer shall be the amount of tax on sales. The formula shall be:
Amount of tax on sales = sales volume X VAT rate
Article 6 The sales volume shall be the total payment for the price of the goods sold and other charges in addition to the price of the goods collected from the buyer by the taxpayer selling goods or providing services taxable, but excluding the amount of tax on sales.
The sales volume shall be computed in RMB. The taxpayer shall convert the payment settled in a foreign currency into RMB for computation at the current exchange rate.
Article 7 Should the goods sold or services taxable provided by a taxpayer be at a conspicuously low price and without a proper reason, the tax authorities shall determine the sales volume thereof.
Article 8 The amount of VAT payable on goods or services taxable bought by the taxpayer (hereinafter referred to as goods and taxable services bought) paid or borne by the taxpayer shall be the amount of tax on purchases.
The amount of tax on purchases permitted to be deducted from the amount of tax on sales, in addition to those as provided by Article 3 of these Regulations, shall be limited to the amount of VAT payable indicated in the following tax credit vouchers:
1. The amount of VAT payable indicated on the special VAT invoices obtained from the seller;
2. The amount of VAT payable indicated on customs duties payment vouchers obtained from the customs house.
The amount of tax on purchases of tax-free agricultural products permitted to be deducted shall be computed on the basis of the purchase price and a 10% tax credit. The tax amount shall be computed by the following formula:
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Tax amount on purchases = payment for the purchase x tax credit rate
Article 9 In case a taxpayer in purchasing goods or services taxable has not obtained or kept the voucher for VAT deduction or the VAT deduction document has not indicated the amount of VAT and the relevant matters in accordance with the regulations, the amount of tax on purchases shall not be deducted from the amount of tax on sales.
Article 10 The amount of tax on purchases of the following items shall not be deducted from the amount of tax on sales:
1. Fixed asset purchased;
2. Purchased goods or taxable services to be used in items not taxable;
3. Purchased goods or taxable services to be used in tax-free items;
4. Purchased goods or taxable services to be used for collective welfare or for personal consumption;
5. Purchased goods or taxable services abnormally damaged or lost;
6. Purchased goods or taxable services abnormally damaged and consumed in the course of making products or semi-finished products.
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