General Rules

1) The companies and individuals engaged in the sale of goods or in providing services such as processing, repairing and/or supplying of spare parts and importation of goods within China are China's VAT taxpayers, who are divided into general taxpayers and small-scale taxpayers.

2) The two tax rates for these two levels of taxpayer, are 17% and 13% respectively.  The calculation formula for their taxable amount is:

Taxable Amount = Taxable Amount for Period Sales Items - Taxable Amount for Period Purchased Items

If the period sales items taxable amount is less than the period purchased items taxable amount and insufficient for deduction, the insufficient part may be carried over for deduction.

3) The tax rate applicable to the small-scale taxpayers is 6%. No purchased items taxable amount shall be deducted when calculating the taxable amount in this case.  The calculation formula is:

Taxable Amount = Sales Amount x Tax Rate

4) The taxable amount for the importation of goods by taxpayers shall be calculated based on the constituent taxable prices and the applicable tax rates.  No income taxable amount shall be deducted in this case.  The calculation formula for the taxable prices and taxable amount is:

Taxable Price = Dutiable Price for Custom Duty + Custom Duty + Consumption Tax Taxable Amount = Taxable Price x Tax Rate

5) The tax rate for the exportation of goods by the taxpayers is 0%, except for the cases as otherwise specified by the State Council.

Main Preferential Terms for Tax Deduction/Exemption

1) The following items exempt from VAT:

 *Imported instruments and equipment to be directly used for scientific researches, scientific experiments and education;
 *Imported equipment freely provided by the foreign governments and international organizations as an aid;
 *Equipment required to be imported for the use of processing trade, assembling trade and compensation trade;
 *Sales of their used goods;
 *Items in compliance with the categories of advantage industries  and  advantage  projects  run  with  foreign investment in the provinces, autonomous regions and municipalities in the middle and western regions in China and the equipment and technologies imported with funds within the total investment amount;
 *Imported equipment with funds provided by the loan projects by foreign governments and international financial organizations;
 *Construction products produced with offscum according to the state regulations;
Equipment and technologies imported by the foreign-invested enterprises, foreign-invested R&D centers, high-tech and exportation-oriented  foreign-invested  enterprises  duly established under the Encouraged category, with their own funds beyond the total investment amount, to be used in their  technological  renovation,  within  the  approved production and business scopes;
 *Equipment and technologies imported with funds within the total investment amount for the foreign-invested projects and Chinese-invested projects encouraged and supported by the government for development;

2) The VAT tax rate for the mining and dressing products for metal minerals and non-metal minerals are adjusted from 1 7% to 13%.

3) The VAT tax rate for the crude oil and natural gas exploited from the Sino-foreign cooperative petroleum/natural gas fields is 5% and are taxed based on the real goods.  No taxable amount for receipts is to be deducted when calculating the VAT.  No taxes are to be returned when the said crude oil and natural gas are exported.

4) No VAT is to be paid for the gold production links.

5) No VAT is to be paid for the export products which contain gold or platinum from July 29, 2005; and no relevant taxable amount for receipts is to be deducted or returned, which is to be shifted into cost.