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The business tax is imposed on the entity and individual engaged in providing taxable services, transferring intangible assets or selling immovable property within China. The taxable services cover 7 tax items, such as transportation industry, building industry, and finance and insurance industry.

The business tax payable shall be calculated on the basis of the business turnover, amount of transfer or sales volume in respect of the taxable services or taxable activities at the statutory tax rate. The tax rate applicable to entertainment industry is 20%, except that the tax rate applicable to the billiards clubs and bowling halls in such industry is 5%; the tax rate applicable to all the other tax items is 3% or 5%. The prescribed time limit for paying business tax is the same as those for VAT and consumption tax.

Companies providing services in China are subject to Business Tax, which is a sales tax on the price on the service. Unlike VAT or GST, it is not deductible against onward sales to other businesses, and so cascades/compounds through B2B (Business To Business) sales.

Chinese Business Tax operates alongside Chinese VAT, which is charged on goods.

There is a major reform of Chinese VAT underway following the launch of a successful VAT pilot in Shanghai in 2012. The plan is to withdraw Service Tax, and replace it with VAT by the end of 2015 (and onwards into 2016)

## What services are subject to Service Tax?

The following services provided with the People's Republic of China are subject to Business Tax.

• All Services
• Transportation and communications
• Provision of immovable property and construction
• Entertainment, cultural and sporting events
• Financial services and insurance

Services provided from outside of China to a Chinese-resident company are still subject to Business Tax. It is either the responsibility of the supplier's agent or the customer to account for the tax.

## Taxable items and business tax rates

Table of 'Business Tax' Taxable Items and Rates
Taxable itemsTax rates
Communications and transportation3%
Construction 3%
Post and tele-communication 3%
Culture and sports 3%
Entertainment 5%-20%
Services 5%
Transfer of intangible assets 5%
Sales of immovable properties 5%

## Computation of tax payable

The amount of Business Tax payable is equal to the turnover times the applicable tax rate. The computing formula is:

Tax payable = Turnover × Applicable tax rate

Business Tax may be exempt for:

• Nursing services provided by nurseries, kindergartens, old people's homes, welfare institutions for the handicapped, Matchmaking and funeral services;
• Services provided individually by the disabled to the public; Medical services provided by hospitals, clinics and other medical institutions;
• Educational services provided by schools and other educational institutions, and services provided by students in part-time work;
• Agricultural mechanical ploughing, irrigation and drainage, prevention and treatment of plant diseases and insect pests, plant protection,
• Insurance for farming and animal husbandry, and related technical training services, breeding and the prevention and treatment of diseases of poultry, livestock and aquatic animals;
• Admission fees for cultural activities conducted by memorial hall, museum, cultural centre, art gallery, exhibition hall, academy of painting and calligraphy, library and cultural protective units,
• Admission fees for cultural and religious activities taking place at religious premises

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