On April 24, 2009, Caishui  No. 63 (“Circular 63”)) was issued to provide a number of tax incentives from January 1, 2009 until December 31, 2013 to the qualified technologically-advanced service enterprises, including a reduction of enterprise income tax rate and an exemption of business tax, with respect to income derived from the qualified offshore outsourcing services. Circular 63 appears to limit the availability of tax benefits by emphasizing the qualifications of enterprises involved (please refer to our China Tax Bulletin June 2009 for more information about Circular 63).
The restrictive nature of Circular 63 does not adequately help the Chinese enterprises compete in the global outsourcing market. On July 28, 2010, the MOF and the SAT jointly issued Caishui  No. 64 (“Circular 64”) to expand the business tax exemption to all enterprises located in the designated cities. The qualifications of enterprises no longer remain a precondition of the business tax exemption. Circular 64 does not address any tax incentive other than the business tax exemption. The business tax exemption granted by Circular 64 is valid from July 1, 2010 to December 31, 2013.
Circular 64 does not change the scope of the qualified offshore outsourcing services. Under Circular 64, the twenty-one designated cities, namely China’s Outsourcing Model Cities, include Beijing, Tianjin, Shanghai, Chongqing, Dalian, Shenzhen, Guangzhou, Wuhan, Harbin, Chengdu, Nanjing, Xi’an, Jinan, Hangzhou, Hefei, Nanchang, Changsha, Daqing, Suzhou, Wuxi and Xiamen. Compared to Circular 63, Circular 64 newly added Xiamen only. To claim the business tax exemption, the services can be performed by either an enterprise located in the designated cities or its subcontractor. It is unclear whether the subcontractor must be located in the designated cities or not.