The State Administration of Taxation (SAT) and the Ministry of Finance released the Circular on Issues Relating to Levying Urban Construction and Maintenance Tax and Education Surcharge on Foreign Enterprises (“Tax Circular”) in November 2010. Under the Tax Circular, urban maintenance and construction tax and education surcharges shall be collected based on value-added tax, consumption tax and business tax (hereinafter referred to as “Base Taxes”) of foreign-invested enterprises accrued after December 1, 2010. No urban maintenance and construction tax and education surcharge shall be collected for Base Taxes accrued prior to December 1, 2010.

According to the Urban Construction and Maintenance Tax and Education Surcharge Circular and the Circular on Unifying the Urban Maintenance and Construction Tax and Education Surtax System for Domestic and Foreign Enterprises and Individuals issued by the State Council, the Tentative Regulations of the People's Republic of China on Urban Maintenance and Construction Tax (“Urban Maintenance and Construction Tax Regulations”) issued by the State Council in 1985 and the Tentative Provisions on the Collection of Education Surcharge (“Education Surcharge Provisions”) issued in 1986 will apply to foreign-invested enterprises, foreign enterprises and foreign individuals as of December 1, 2010.

The Urban Maintenance and Construction Tax Regulations provides that:

  • Any organization or individual liable to pay value-added tax and business tax shall be a payer of the urban maintenance and construction tax;
  • Payment of the urban maintenance and construction tax shall be based on value-added tax and business tax which a taxpayer actually pays;
  • The urban maintenance and construction tax rates shall be as follows:
  • 7% for a taxpayer in a city,
  • 5% for a taxpayer in a county town or town,
  • 1% for a taxpayer living in a place other than a city, county town or town.

And the Education Surcharge Provisions provides that:

  • All institutions and individuals who pay value-added tax and business tax, other than institutions who pay rural education surcharges pursuant to the Circular of the State Council on Raising Funds for Running Rural Schools, shall pay an education surcharge;
  • The education surcharge rate is 3%, based on value-added tax, business tax and excise tax actually paid by each institution or individual.
  • Circular on Issues Relating to Levying Urban Construction and Maintenance Tax and Education Surcharge on Foreign Enterprises
  • Issuing Authority: the State Administration of Taxation and the Ministry of Finance
  • Date of Issuance: November 4, 2010 / Effective Date: November 4, 2010