What is new?
SAT Announcement  No. 42
Clarification of VAT taxation of various taxable activities
The Announcement sheds light on several practical issues regarding VAT of various taxable activities.
VAT exemption for Sino-foreign cooperation in running educational programs It is clarified that foreign educational institutions can enjoy VAT exemption for revenues derived from Sino-foreign cooperation in running educational programs.
VAT rules for airline agents The Announcement clarifies that, for agency services of booking domestic airline tickets, the taxable revenue shall be the total proceeds received from the customers minus the ticket prices passed to the airline companies or third party agents. Valid certificates, which may include invoices, receipts, etc. received from the airline companies or third party agents, should be provided to substantiate such deduction. Airline agents may issue to customers the travel itineraries or normal VAT invoices, reflecting the full amounts received.
VAT rules for transfer of farmland use right under the farmland compensation system Currently in China, if farmland is developed and used for non-agricultural purposes, the user should contribute farmland of equivalent area as compensation. The right to develop the farmland (also the quota for contribution of farmland of equivalent area) is transferrable and such transfer shall be treated as “sales of intangible assets” for VAT purposes.
Rules of determining purchase price for restricted shares caused by material asset restructuring SAT Announcement  No. 53 stipulates that the purchase price for restricted shares caused by material asset restructuring for VAT calculation purposes shall be determined based on the closing price of the last day of trading before the stock exchanges are suspended due to restructuring. The Announcement makes it clear that under situations where the underlying shares are not under normal trading status before restructuring, the purchase price for VAT calculation purpose shall be the opening price of the first day of trading when the stock exchanges are resumed after the restructuring.
VAT rules for sales of equipment and provision of installation services simultaneously
Sales of self-produced equipment and provision of associated installation services The associated installation services shall be regarded to be provided on the customer-provided equipment and the taxpayer can choose to adopt the “simplified taxation method” for the service incomes.
Sales of acquired equipment and provision of associated installation services If the revenues for sales of equipment and provision of installation services are not separately booked, the entire transaction shall be treated as “mixed sales” for VAT purposes. If the revenues for sales of equipment and provision of installation services are separately booked, the taxpayer can choose to adopt the “simplified taxation method” for the service incomes.
Daily maintenance of the installed equipment in service If the taxpayer provides daily maintenance services for the installed equipment in service, the maintenance services shall be subject to VAT under the taxable item of “other modern services”.
SAT Announcement  No. 43
Supplemen- tary regulation for preferential taxation policy on venture capital firms and individual angel investors
The Announcement is a supplementary regulation of the circular Caishui  No. 55 (“Circular 55”) and clarifies below issues:
Interpretations on certain issues under Circular 55:
According to Article 1 of Circular 55, investors investing into newly-established technological enterprises may deduct 70% of the invested amount from their taxable income at the end of the 2nd year of investment. The Announcement makes it clear that the “2nd year” refers to the time when 2 years have been reached since the investment amount is fully paid in. Investment period shall be calculated from the date on which administrative registration at the relevant authorities is completed.
The stipulation regarding the percentage of total R&D expenses accounting for the total costs shall be interpreted as follows: the percentage of total R&D expenses of the current and the following year of investment against the total cost of the current and the following year of investment shall exceed 20%.
Investment proportion of each partner under Article 3 Item 3 of Circular 55 refers to the proportion by the end of the 2nd year of investment.
Headcount and total assets in Circular 55 refer to the average figures of the previous 12 months prior to the investment. If the enterprise is established for less than 12 months, the average figures shall be calculated based on actual number of months.
The Announcement also illustrates administrative procedures and documents required for declaration and recordal for the preferential tax policy, respectively for corporate investors, corporate partners of partnership investors, individual partners of partnership investors, agent investors, etc.
Caishui  No. 80
Local surcharges relating to the refund of uncredited input VAT
Uncredited input VAT which is refunded by the month-end can be deducted from the calculation base for city construction tax, educational surcharge and local educational surcharge.