On November 10, 2008, the State Council promulgated new Provisional Regulations on the PRC Business Tax (State Council Order (2008) 540, the New Regulations). The New Regulations will take effect on January 1, 2009.

The New Regulations amend several provisions of the current Provisional Regulations on the PRC Business Tax (the Old Regulations), which were promulgated in 1993. Major differences include: a change in the business tax filing location, a different method for calculating business taxes for foreign currency on-lending businesses, removal of the detailed scopes of taxable industries listed in the appendix, clarifications on the definition of withholding agents for certain foreign enterprises and individuals, and an extended filing deadline for business tax returns.

Under the Old Regulations, a business taxpayer has to file its business tax returns at the location in which it has rendered labor services. The New Regulations expressly provide, however, that the business tax filing location should be where the taxpayer is currently located or resides. This provision does not apply to construction businesses or certain other taxable services prescribed by the Ministry of Commerce and the State Administration for Taxation.

Under the New Regulations, foreign currency on-lending businesses will no longer enjoy the favorable calculation method (that involves deducting interest payments to the on-lender’s lender) used to determine turnovers for business tax purposes that the Old Regulations provide.

The New Regulations have removed the detailed scope of taxable industries listed in the appendix of the Old Regulations, in order to provide government authorities with more flexibility in changing the scope when necessary without having to amend the New Regulations. Under the New Regulations, and also as specified in the Provisional Regulations on the PRC Value-Added Tax, when a foreign enterprise or individual (the Foreign Taxpayer) does not have a business establishment in China but is nonetheless subject to the PRC business tax, the business agent of the Foreign Taxpayer, the purchaser of the taxable services rendered by the Foreign Taxpayer, or the purchaser of the intangible assets or immovable properties of the Foreign Taxpayer will act as its withholding agent and withhold the business tax payable.

Like the Provisional Regulations on the PRC Value-Added Tax, the New Regulations extend the filing deadline for business tax returns from 10 days to 15 days after the month-end.

Except for those businesses explicitly exempted from business tax under both regulations, all entities and individuals engaged in the provision of services, the transfer of intangible assets, or the sale of real properties in the PRC are subject to the business tax.