Decree of the State Council of the Peoples Republic of China

No. 538 The Interim Regulations of the Peoples Republic of China on Value Added Tax revised and adopted by the 34th standing meeting of the State Council on November 5, 2008 is hereby promulgated, which shall enter into force on January 1, 2009. Premier Wen Jiabao November 10, 2008

Interim Regulations of the Peoples Republic of China on Value Added Tax

(Promulgated by No.134 Decree of the State Council of the Peoples Republic of China on December 13, 1993, and revised and adopted by the 34th standing meeting of the State Council on November 5, 2008) Article 1 All units and individuals engaged in the sales of goods, provision of processing, repairing and replacement services, and the importation of goods within the territory of the People's Republic of China are the taxpayers of Value-Added Tax (hereinafter referred to as the taxpayers), and shall pay VAT in accordance with the Regulations. Article 2 VAT rates: (1) For taxpayers selling or importing goods other than those specified in items (2) and (3) of this Article, the tax rate shall be 17%. (2) For taxpayers selling or importing the following goods, the tax rate shall be 13%: a. Grains, edible vegetable oils; b. Tap water, heating gas, cooling gas, hot water, coal gas, liquefied petroleum gas, natural gas, methane gas, coal/charcoal products for household use; c. Books, newspapers, magazines; d. Feeds, chemical fertilizers, agricultural chemicals, agricultural machinery and plastic film for farming; and e. Other goods as specified by the State Council. (3) For taxpayers exporting goods, the tax rate shall be 0%, unless otherwise specified by the State Council.

(4) For taxpayer providing processing, repairs and replacement services (hereinafter referred to as taxable services), the tax rate shall be 17%. Any adjustments to the tax rates shall be determined by the State Council. Article 3 For taxpayers concurrently dealing in goods or providing taxable services of different tax rates, the sale amounts of goods or taxable services of different tax rates shall be accounted separately and if the sale amounts have not been accounted separately, higher tax rates shall apply. Article 4 Except as stipulated in Article 11 of the Regulations, for taxpayers engaged in the sales of goods or the provision of taxable services (hereinafter referred to as selling goods or taxable services), the tax payable shall be the balance of the output tax of the period after deducting the input tax of the period. The formula for computing the tax payable is as follows: Tax payable = Output tax payable of the period - Input tax of the period If the output tax of the period is less than and insufficient to offset the input tax of the period, the excessive input tax can be carried forward for set-off in the following periods. Article 5 For taxpayers selling goods or taxable services, the output tax shall be the VAT payable calculated on the basis of the sale amounts and the tax rates prescribed in Article 2 of the Regulations and collected from the purchasers. The formula for computing the output tax is as follows: Output tax = Sale amount x Tax rate Article 6 The sales amount shall be the total of all the prices and all other fees receivable from the purchasers by the taxpayer selling goods or taxable services, exclusive of the output tax collected. The sale amount shall be computed in Renminbi. The sale amount of the taxpayer settled in other currencies than Renminbi shall be converted into Renminbi. Article 7Where the price used by the taxpayer in selling goods or taxable services is obviously low without due reasons, the sale amount shall be determined by the competent tax authorities. Article 8 For taxpayers who purchase goods or receive taxable services (hereinafter referred to as purchasing goods or taxable services), VAT paid or borne shall be the input tax. The following amounts of input tax shall be credited against the output tax: (1) VAT indicated in the special VAT invoices obtained from the sellers; (2) VAT indicated on the special letter of payment of duties of customs import VAT from the customs office; (3) For purchase of agricultural produces, except for obtaining the special VAT invoices or the special letter of payment of duties of customs import VAT, the input tax shall be calculated on the basis of the purchase price indicated in the invoices for purchase of agricultural products and at the deduction rate of 13%. The formula for calculating the input tax is as follows:

Input tax = Purchase price x Deduction rate (4) For purchasing or selling goods and payment of transportation expenses during production and operation process, the input tax shall be calculated on the basis of the transportation expenses indicated on the documents of settlement of transportation expenses and at the deduction rate of 7%. The formula for computing input tax is as follows: Input tax = Transportation Fee Deduction rate The adjustment of credit items and deduction rate shall be determined by the State Council. Article 9Where the deduction vouchers of VAT for the taxpayers purchasing goods or taxable services are not in compliance with laws, administrative regulations or the relevant provisions of the tax competent authorities under the State Council, no input tax shall be credited against the output tax. Article 10 Input tax of the following items shall not be credited against the output tax: (1) Goods purchased or taxable services used for Non-VAT taxable items, VAT exempt items, collective welfare or individual consumption; (2) Abnormal losses of goods purchased and related taxable services; (3) Goods purchased or taxable services that are consumed for work in progress or finished goods of abnormal losses. (4) Self-use consumer goods of the taxpayers provided for by the competent authorities of finance and tax under the State Council; (5) Transportation expenses of the goods specified in Items (1)-(4) of this Article and the transportation expenses for selling tax-exempted goods. Article 11 Small-scale taxpayers engaged in selling goods or taxable services shall adopt a simplified method for calculating the tax payable on the basis of the sale amount and the levy rates without credit against input tax. The formula for calculating the tax payable is as follows: Tax payable = Sales amount Levy rate The criteria for small-scale taxpayers shall be regulated by the competent financial and tax authorities under the State Council. Article 12The rate of VAT levied on small-scale taxpayers shall be 3%. Any adjustment to the levy rate shall be determined by the State Council. Article 13 Other taxpayers than the small-scale taxpayers shall apply with the competent tax authorities for qualification verification, the specific measures of which shall be formulated by the competent tax authority under the State Council.

Small-scale taxpayers with sound accounting who can provide accurate taxation information may apply to the competent tax authorities for qualification verification and not being treated as small-scale taxpayers and their tax payable shall be computed pursuant to the relevant provisions of the Regulations. Article 14 For taxpayers importing goods, tax payable shall be computed on the basis of the composite assessable price and the tax rates prescribed in Article 2 of the Regulations. The formulas for computing the composite assessable price and the tax payable are as follows: Composite assessable price = Customs dutiable value + Customs Duty + Consumption Tax Tax payable = Composite assessable price x Tax rate Article 15 The following items shall be exempt from VAT: (1) Self-produced agricultural produces sold by agricultural producers; (2) Contraceptive medicines and devices; (3) Antique books; (4) Importation of instruments and equipment directly used in scientific research, experiment and education; (5) Importation of materials and equipment from foreign governments and international organizations as assistance free of charge; (6) Articles imported directly by the organizations of the disabled for special use by the disabled; and (7) Sale of goods which have been used by the sellers. Except as stipulated above, VAT exemption and reduction items shall be prescribed by the State Council. Local governments or departments may not specify any tax exemption or reduction items. Article 16 For taxpayers concurrently engaged in tax exempt or tax reduction items, the sale amounts for tax exempt or tax reduction items shall be accounted separately. If the sale amounts have not been separately accounted, no exemption or reduction is allowed. Article 17 For the taxpayers whose sale amounts have not reached the minimum VAT threshold stipulated by the competent financial and tax authorities under the State Council, the VAT shall be exempt, and otherwise, VAT shall be fully computed and paid according to the provisions of the Regulations. Article 18 Where the units or individuals outside of the Peoples Republic of China provide taxable services inside China and have not established business institutions, their agents in China

shall be the withholding persons; and where any of such units or individuals has no agent in China, the purchasers shall be withholding person. Article 19 The time of occurrence of payment obligations of VAT: (1) For sales of goods or taxable services, it is the date on which the sale amount is received or the vouchers for collecting the sale amount are obtained. Where invoices have been issued in advance, it is the date when invoices were issued. (2) For importation of goods, it is the date of import declaration. The obligation of VAT withholding happens when the obligation for payment of VAT of the taxpayers occurs. Article 20 VAT shall be collected by the tax authorities. VAT on the importation of goods shall be collected by the customs office on behalf of the tax authorities. VAT of self-used articles brought or mailed into China by individuals shall be levied together with Customs Duty, the detailed measures of which shall be formulated by the Tariff Commission of the State Council together with the relevant departments. Article 21 Taxpayers selling goods or taxable services shall issue special VAT invoices to the purchasers who request for special VAT invoices and the sale amounts and output tax shall be separately indicated in the special VAT invoices. In any of the following circumstances, no special VAT invoice shall be issued: (1) Sale of goods or taxable services to individual consumers; (2) Sale of goods or taxable services with applicable tax exemption; or (3) Sale of goods or taxable services by small-scale taxpayers. Article 22 The place for payment of VAT is as follows: (1) Businesses with fixed establishment shall report and pay tax with the local competent tax authorities where the establishment is located. If the head office and branches are not in the same county (or city), they shall report and pay taxes separately with their respective local competent tax authorities. The head office may, upon approval by the competent financial or tax authorities of the State Council or their authorized tax authorities, report and pay taxes on a consolidated basis with the local competent tax authorities where the head office is located. (2) Businesses with fixed establishment selling goods in other county (or city) shall apply for issuance of tax administration certification of outbound business activities from the local competent tax authorities where the establishment is located and shall report and pay taxes with the local competent tax authorities where the establishment is located. Businesses selling goods and taxable services in other county (or city) without tax administration certification of outbound business activities issued by the local competent tax authorities where the establishment is located

shall report and pay taxes with the local competent tax authorities where the sale or service takes place. The local competent tax authorities where the establishment is located shall collect the overdue taxes that have not been reported and paid to the local competent tax authorities where the sale or service takes place. (3) Businesses without fixed base selling goods or taxable services shall report and pay taxes with the local competent tax authorities where the sale or service takes place. The local competent tax authorities where the establishment is located shall collect the overdue taxes that have not been reported and paid to the local competent tax authorities where the sale or service takes place. (4) For importation of goods, tax shall be reported and paid to the customs office where the imports are declared. The withholding persons shall report and pay the withheld taxes to the local competent tax authorities where their establishments are located or domiciled. Article 23 The payment period of VAT shall be one day, three days, five days, ten days, fifteen days, one month or one quarter. The actual payment period of a taxpayer shall be determined by the competent tax authorities according to the amount of the tax payable of the taxpayer; and tax that cannot be paid in regular periods may be paid on transaction basis. Taxpayers that adopt one month or one quarter as an payment period shall report and pay taxes within fifteen days of the end of the period. If a payment period of one day, three days, five days, ten days or fifteen days is adopted, the tax shall be prepaid within five days of the expiration of the period and reported and paid within fifteen days from the first day of the following month with settlement of any balance of tax payable of the previous month. The cut-off time for the withholding persons to release the tax shall be implemented in accordance with the above-mentioned two paragraphs. Article 24 Taxpayers importing goods shall pay taxes within fifteen days after the issuance of the special letter of payment of customs import VAT by the customs office. Article 25 Taxpayers exporting goods with applicable exemption and refund of tax shall, upon completion of export procedures with the customs office, apply for tax refund and exemption on those export goods to the tax authorities within the prescribed period of export tax refund and exemption report on a monthly basis by producing such related vouchers as export declaration documents, the detailed measures of which shall be formulated by the competent financial and tax authorities of the State Council. Where the return of goods or the withdrawal of the customs declaration occurs after the completion of tax refund on export goods, the taxpayer shall repay the tax refunded according to law. Article 26 The collection and administration of VAT shall be conducted in accordance with the relevant provisions of the Law of the Peoples Republic of China on Tax Collection and Administration and the Regulations.

Article 27 The Regulations shall enter into effect on January 1, 2009.