Business Tax is a tax on the provision of services and certain intangible goods that are not subject to VAT. The two critical regulations in relation to business tax are:

1. The Interim Regulation of the PRC on Business Tax (amended in 2009)
2. The Detailed Implementing Rules for the Interim Regulation of the PRC on Business Tax (amended 2009) (the “Detailed Rules”)

Liability for Business Tax

All entities and individuals engaged in:

1. the provision of taxable services;
2. the transfer of intangible assets;
3. or the sale of immovables

within the territory of the People’s Republic of China shall be taxpayers of the business tax, and shall pay the business tax in accordance with these Regulations.

Taxable Services

Article 2 of the Detailed Rules provides that services in the following areas are taxable services:

1. transport,
2. construction,
3. finance
4. insurance,
5. post and telecommunications,
6. cultural;
7. sports,
8. entertainment; and
9. other service areas

“Processing, repair and replacement” services are excluded from the definition of taxable services. The Detailed Rules take a broad interpretation of the phrase “within the territory of the People’s Republic of China”. In respect of the provision of taxable services the Detailed Rules provide that the services will be provided within China if either of the parties to the service transaction is within China. This is of extremely wide scope, for example a US law firm advising a Chinese company on US law in Philadelphia will be deemed to be providing a service within China.

Transfer of intangible assets

Intangible assets are defined and accordingly take their ordinary meaning. A transfer of intangible assets will occur with the PRC where either the transferor or transferee is within the territory.

Sale of immovable assets

Immovable assets effectively refers to real property. A sale of such property includes a temporary assignment of rights over the property (such as a lease) and a gift of the property. The taxable nexus for immovables is that the land is located within the PRC.