Oct. 15 – The Ministry of Finance and the State Administration of Tax have jointly released Caishui (2009) 111, which details a number of business tax exemption policies.

The circular contains details on exemption from business tax (BT) on financial products trading businesses carried out by individuals, but also a number of BT exemption policies including, certain services provided externally from China.

The circular confirms that revenues derived from financial products trading businesses such as foreign exchange, securities and non-commodity futures by individuals and sole proprietorship businesses can be exempted from BT until further notice.

Circular 111 also clarifies that, until further notice and upon presentation of valid supporting documentation, BT can be exempted on gifts of immovable property and land by individuals under the following circumstances:

• Division of assets upon divorce
• Gifts to spouse, parents, children, grandparents, grandchildren and siblings
• Gifts to individuals that raise or support the donors
• Inheritance of properties by beneficiaries and donations from a deceased’s estate by law or under a will

A tax exemption is also granted to construction and cultural and sports services provided by Chinese entities or individuals outside of China, except broadcasting or film/video presenting.

The circular also confirms that certain services provided by foreign entities or individuals to Chinese entities or individuals wholly outside of China are not subject to BT. The scope of the tax exemption for such services is yet to be defined, however the circular does define such services as culture and sports (excluding broadcasting or film/video showing), entertainment, lodging, food and beverages catering, warehousing, bathing, hairdressing, laundry and dyeing, mounting of paintings, transcribing, engraving, copying and packing as being included.

Circular 111 took effect retroactively from January 1, 2009. Business tax paid or overpaid prior to the announcement of Circular 111 can be offset against future BT payable or refunded.

For advice of tax exemptions or refunds in China, please contact Sabrina Zhang, the national tax partner for Dezan Shira & Associates at tax@dezshira.com.