How Foreign Companies Pay the Two Additional Taxes

The Zhejiang provincial government officials explain some issues about the two additional taxes, which may resolve puzzles of foreign companies.

Foreign companies and individuals in China began to pay the urban construction and maintenance tax and education supplementary tax from December 1, 2010.

In order to make foreign companies and individuals know better about the new taxation policy, the government officials of Zhejiang provincial taxation department explains some issues about this matter.

Q: What are the rules about the urban construction and maintenance tax and education supplementary tax?

A: The rules having the clauses about the urban construction and maintenance tax and education supplementary tax include: “Temporary Regulations of the People’s Republic of China on Urban Construction and Maintenance Tax” which was issued in 1985, “Temporary Regulations about Imposing Education Supplementary Tax” issued in 1986, “Emergence Notice of the State Council about the Issues of Imposing Education Supplementary Tax” issued in 1994, “Supplementary Notice about Imposing Education Supplementary Tax” issued in 1994 and “Notice of Unifying the Urban Maintenance and Construction Tax and Education Supplementary Tax for Domestic Companies, Foreign Companies and Individuals” issued in 2010.

Q: What kinds of companies and individuals need to pay these two taxes?

A: Those companies and people who need to pay value-added tax, consumption tax and operating tax shall pay the urban construction and maintenance tax and education supplementary tax. No urban construction and maintenance tax and education supplementary tax are imposed on the imported commodities whose value-added tax and consumption tax are charged by the customs. 

Q: What about the rules about the taxation basis of these two additional based on?

A: The taxation basis of urban construction and maintenance tax and education supplementary tax is the actually-paid value-added tax, consumption tax and operating tax. According to the “Notice of the Ministry of Finance about the Supplementary Policies on Urban Construction and Maintenance Tax and Education Supplementary Tax after the Implementation of Tax Exemption, Credit and Refund for the Exported Commodities of Manufacturing Enterprises”, which was issued in 2005, the amount of value-added tax which has been exempted and refunded with the approval of the taxation department shall be included into the scope of taxation.  

Q: How is the rate of urban construction and maintenance tax calculated?

A: The tax rate for the taxpayers in the city is 7% and is 5% for taxpayers in the county and town.

The tax rate for the taxpayers in rural area is 1%.

According to the “Supplementary Stipulations about Several Detailed Issues of Urban Construction and Maintenance Tax”, the categorization of city, town and county shall be based on the administration standard. The taxpayers can pay urban construction and maintenance tax based on the tax rate where they pay value-added tax, consumption tax and operating tax if they meet the two requirements as follows:

1.      Companies or individuals entrusting others to pay value-added tax, consumption tax;

2.      Companies or individuals without fixed place of taxpaying.

Q: How is the rate of education supplementary tax calculated?

A: The rate of education supplementary tax is unified at 3%.

Q: When did the foreign companies begin to pay for the two additional taxes?

A: According to the “Notice of Unifying the Urban Maintenance and Construction Tax and Education Supplementary Tax for Domestic Companies, Foreign Companies and Individuals”, the foreign companies began to pay urban construction and maintenance tax and education supplementary tax from December 1, 2010. The foreign companies should pay these two taxes when they pay value-added tax, consumption tax and operating tax after December 1, 2010.

This policy went effective for the domestic companies and individuals who are entrusted by foreign companies or individuals on December 1, 2010.

Q: Are there any tax reduction and exemption policies on these two taxes?

A: These companies which are exempt from value-added tax, consumption tax and operating tax are also free from urban construction and maintenance tax and education supplementary tax. These enjoying refund of value-added tax, consumption tax and operating tax also enjoy the refund of refund of paid urban construction and maintenance tax and education supplementary tax.

The exported commodities whose value-added tax and consumption tax have been paid can not enjoy the refund of paid urban construction and maintenance tax and education supplementary tax.

In addition, according to the rules, the companies which enjoy tax refund after paying the tax can not enjoy the refund of paid urban construction and maintenance tax and education supplementary tax.

Q: What about the place of tax payment for these two places.

A: The place of tax payment for urban construction and maintenance tax and education supplementary tax basically follows the rules about value-added tax, operating tax and consumption tax.

Q: Are there any rules about the management and imposing of these two taxes?

A: The management and imposing of urban construction and maintenance tax and education supplementary tax follow the rules about value-added tax, operating tax and consumption tax.