The State Administration of Taxation ("SAT") has recently issued the Administrative Measures for the Exemption of Value-added Tax on Cross-border Taxable Activities under the Collection of Value-added Tax in Lieu of Business Tax (for Trial Implementation) (the "Measures") with effect as of May 1. Some points for this new measure are as follows.

The background of the Measure

Since 1^st May, the business tax was formally cancelled and VAT was started be applicable to all kinds of service companies all over China. It brings impact on cross-border taxable activities.

New points in the Measure

1. The construction services, financial services, consumer services and etc. which have been newly included in the pilot collection of the Value-added Tax ("VAT") in lieu of Business Tax ("BT") are added into the types of cross-border taxable activities which are exempted from tax, and the specific content of and implementation standards for the cross-border tax exemption policy applicable to the aforesaid taxable activities are clarified.
2. The implementation standards for the tax exemption policies applicable to cross-border services which have been previously included in the pilot collection of VAT in lieu of BT are standardized and refined in accordance with the Provisions on the Zero Value-added Tax Rate and Tax Exemption Policies Applicable to Cross-border Taxable Activities.
3. The record-filing procedures for exemption of tax on cross-border taxable activities are standardized in accordance with the Administrative Measures for Tax Reduction and Exemption, with the obligations and duties of enterprises and tax authorities clarified.
4. Regarding to the cross-border taxable activities which are in line with the zero tax rate policy but are subject to simple taxation method or whose taxpayers renounce the application of zero tax rate and choose tax exemption, the tax exemption administration is connected with administrative measures for the zero rate tax refund (exemption). The taxpayers are required to provide statements on renouncing the application of zero tax rate and choosing tax exemption and other tax exemption record-filing materials.

Although the above regulation is the legal basis for tax exemption for cross-border services, the tax bureau will approve it on case by case basis. Shanghai Dongjin successes helping the foreign client to apply for tax exemption for cross-border taxable activities. If you have any questions, please send the email to me.

Ms. Jojo Hu

TEL: 0086-21-68868335 ext 324 / FAX: 0086-21-68868021

Email: jojohu@shanghaiinvest.com