Laws of the People's Republic of China

the General Administration of Customs

Circular on Issuing Administrative Provisions on Carrying Out Preferential Import Duty Policies on Domestic Aviation Companies Operating International and HK and Macao Airlines for Importing Aviation Materials for Maintenance

Shu Shui Fa [2005] No.479

December 21, 2005

Guangdong Branch of the General Administration of Customs, special commissioners' offices in Tianjin and Shanghai, and each customs office directly under the General Administration of Customs,

Upon the approval of the State Council, as of January 1, 2005, preferential policies of import duty shall be carried out on import aviation materials (including components and parts sent abroad for maintenance) used by domestic aviation companies for the maintenance use of the airplanes in international airlines and Hong Kong and Macao airlines. Together with the General Administration of Customs, the Ministry of Finance has constituted the Interim Provisions on the Import Duty on Aviation Materials for Maintenance Use Imported by Domestic Aviation Companies Operating International Airlines and Hong Kong and Macao Airlines (hereinafter referred to as the Interim Provisions, see Annex II for detail). In accordance with the Interim Provisions, the General Administration of Customs has, upon discussion with the Civil Aviation Administration of China and soliciting the opinions of the relative customs houses and aviation enterprises, constituted the Administrative Provisions of the General Administration of Customs on Carrying Out Preferential Policies of Import Taxation on Domestic Aviation Companies Operating International and Hong Kong and Macao Airlines for their Import of Aviation Materials for Maintenance Use (hereinafter referred to as the Administrative Provisions, see Annex I for detail), which are hereby printed and issued to you. It also makes the circular on relative issues as follows:

I.

In accordance with the Circular of the Ministry of Finance on the Issue of Taxation in 2005 on Domestic Aviation Companies Operating International Airlines and Hong Kong and Macao Airlines for their Import of Aviation Materials for Maintenance Use (Cai Guan Shui [2004] No.63 ), 10 aviation companies have been approved to enjoy the preferential policies of tax exemption on import aviation materials used for maintenance use of airplanes in international airlines and Hong Kong and Macao airlines. The name list of the 10 aviation companies, tax reduction rate, and the name list of the customs taking in charge, shall be seen in Annex III for detail.

II.

For the import aviation materials for maintenance use, the quantity is great, the batch is large, and the time of import is urgent. For the purpose of simplifying the formalities and accelerating the speed of customs clearance, the Administrative Provisions have prescribed such ways for the management on them as follows: firstly, the customs house at the place of import performs the formalities for clearance on the relative import goods in the light of the full amount of tax deposit, then the customs house taking in charge issues the Certificate of Tax Collection and Exemption on Import & Export Goods to the relevant customs house at the place of import in the light of the relevant import documentations and agency import agreement submitted by the aviation companies under its jurisdiction on a quarterly basis, and the customs house at the place of import performs the formalities for tax deduction on this basis.

Each relevant customs house shall pay attention to strengthening cooperation and management so as to ensure that the relative policies and provisions be implemented smoothly.

III.

From January 1, 2005 till the promulgation of this Circular, the tax deposit or tax money collected on the aviation materials imported for maintenance use in the light of the import tax deposit or by means of direct tax collection and in accordance with the provisions are allowed to be refunded after the formalities for the examination and approval of tax deduction have been gone through on the basis of the relative requirements of the Administrative Provisions.

IV.

The General Administration of Customs shall make another circular on the aviation companies that enjoy the aforesaid preferential tax policies annually in the future and the tax deduction rate thereof. Before the said circular is issued, the relative import goods shall still be discharged in the light of the full amount of import tax deposit, but the relative formalities for the examination and approval of tax deduction shall not be performed before the issuance of the said circular.

When confronting any problem in the implementation, please contact the Tariff Department of the General Administration of Customs in time.

Annex I:Administrative Provisions of the General Administration of Customs on Carrying Out Preferential Policies of Import Duty on Domestic Aviation Companies Operating International and Hong Kong and Macao Airlines for their Import of Aviation Materials for Maintenance Use

I.

The present Provisions are formulated in the light of the preferential policies of tax exemption on import duty and import linkage value-added tax on import aviation materials used by domestic aviation companies for the maintenance of airplanes and their engines in international airlines and Hong Kong and Macao airlines upon the approval of the State Council, and the Interim Provisions formulated by the Ministry of Finance together with the General Administration of Customs.

II.

The basic method for carrying out the aforesaid preferential policies of import duty shall be: For the domestic aviation companies operating international airlines and Hong Kong and Macao airlines approved by the Civil Aviation Administration of China (CAAC)(hereinafter referred to as the approved aviation companies), the Ministry of Finance shall, in accordance with the flight mileage of the aviation companies in operating international and Hong Kong and Macao airlines and the total flight mileage as confirmed by the CAAC, ascertain the tax deduction rate on all the aviation materials for maintenance use imported by the aviation companies after making business accounting as a whole. The customs houses shall perform formalities for tax deduction on import aviation materials for maintenance use in accordance with the tax deduction rate specified by the Ministry of Finance.

III.

The import aviation materials for maintenance use as mentioned in this provision refer to the aviation materials imported for the maintenance of airborne equipment and the components and parts thereof, as well as the consumption materials necessary for the maintenance of airplanes, including:

1.

Engines and their components and parts, and accessories;

2.

Accessory Power Units (APU) and their components and parts, and accessories;

3.

Undercarriages and their components and parts, and accessories;

4.

Other components and parts, and accessories of the airplanes;

5.

Lubricating oil and paints necessary for the maintenance of airplanes; and

6.

Components and parts and accessories for the purpose of replacement for the maintenance of the aforesaid equipment, installations, and accessories abroad.

IV.

The principle for calculation of the deducted tax on aviation materials for maintenance use imported by the approved aviation companies shall be: The amount of import duty and import linkage value-added tax on the aviation materials shall be calculated in accordance with statutory tariff rate, and then the amount of tax actually collected shall be calculated in accordance with the verified tax deduction rate on the aviation materials for maintenance use imported by the aviation companies. The basic formula for calculation shall be as follows:

Amount of customs duty actually collected = amount of statutory customs duty¡Á(1-tax deduction rate)

Amount of value-added tax actually collected = amount of statutory value-added tax¡Á(1-tax deduction rate)

V.

The formalities for the examination and approval of tax deduction on aviation materials for maintenance use imported by the approved aviation companies (including import aviation materials operated by aviation materials bonded warehouses) shall be included in the customs' Tax Deduction and Exemption Management System for management. At the time of concrete operation, the import aviation materials for maintenance use shall be released by the customs houses at the place of import in accordance with the full amount of import deposit, and then the formalities for tax deduction shall be performed in accordance with the Certificate of Tax Collection and Deduction on Import & Export Goods issued by the customs house taking in charge on quarterly basis.

VI.

The approved aviation companies declaring the import aviation materials for maintenance use to the customs houses, the ways of supervision over import shall consist of: General Trade (Code No.0110), Goods for Maintenance (Code No. 1300). The nature of collection and exemption shall be "Deduction and Exemption on Aviation Materials" (Code No.888); and the means of tax collection, deduction, and exemption shall be "Special Cases" (Code No.4).

VII.

The approved aviation companies may import by themselves the aviation materials or entrust their own aviation materials import & export companies and China Aviation Materials Import £¦ Export Group Corporation (CASGC) to import aviation materials as agents. The two parties shall sign an entrusted agency import agreement with legal effect, but the entities that take delivery of the goods declaration for importation shall be the approved aviation companies.

VIII.

For urgent maintenance of airplanes, upon the approval of the customs house taking in charge, the approved aviation companies may temporarily borrow aviation materials imported after tax deduction for maintenance use among them, and may return such materials in time after using them.

IX.

Taxes shall be levied as required on the aviation materials rented or borrowed by the approved aviation companies from abroad, or on the aviation materials imported by the approved aviation companies and other aviation companies by means of cooperation or capital contribution together for sharing or exchange specifically.

X.

Tax shall be levied as required on the aviation materials for maintenance use imported by airplane maintenance enterprises. In case the aforesaid aviation materials are used for maintaining the airplanes of the approved aviation companies after they are imported, the relative aviation companies may give an explanation on the situation and offer the relative documents in the next year when handing in the relative tax exemption application materials to the Ministry of Finance and the CAAC.

XI.

Tax shall be levied as required on the equipment, supplies, and components and parts installed or substituted in a whole aircraft for the maintenance and reassemble of the aircraft abroad.

XII.

The approved aviation companies shall enhance administration on the aviation materials for maintenance use imported after tax deduction, and declare to the customs houses in accordance with the facts. The aviation materials without approval of the customs house and whose tax due hasn't been paid within the customs supervision period, shall not be mortgaged, pledged, transferred, appropriated, or made other disposal. Any violation of the provisions shall be punished by the customs house in the light of the Customs Law of the People's Republic of China, Regulation of the People's Republic of China on the Implementation of Customs Administrative Punishment, and the relative state laws and regulations.

XIII.

The present Provisions shall go into effect on conducting aviation materials for maintenance use imported by the approved aviation companies as of January 1, 2005.

Annex II:Interim Provisions on the Import Duty on Aviation Materials for Maintenance Use Imported by Domestic Aviation Companies Operating International Airlines and Hong Kong and Macao Airlines

I.

The present Provisions are formulated in the light of the relative letter of reply of the State Council about the adjustment on the policies of civil aviation import duty.

II.

The present Provisions shall apply to the domestic aviation companies operating regular international airlines and Hong Kong and Macao airlines approved by the CAAC.

The international airlines in the present Provisions refer to the airlines in which at least any one of the departure place, the destination or the agreed-upon stop place is located outside the territory of the People's Republic of China. Hong Kong and Macao airlines refer to the airlines between the Mainland and Hong Kong or Macao Special Administrative Region. The domestic sector through which the international airliners pass and the Mainland sectors through which Hong Kong and Macao airliners pass shall be included in the aforesaid airlines.

The aviation companies satisfying the applicable conditions in the present Provisions shall submit an application to the CAAC, and then shall be reported to the Ministry of Finance by the CAAC after its confirming the name list uniformly.

III.

The aviation materials as mentioned in the present Provisions refer to the import materials used for maintenance of airplanes and engines, consisting of engines, APU, undercarriages, other airplanes, accessories of engines (including the components and parts of the aforesaid contents for maintenance abroad, but excluding the whole aircrafts maintained or reassembled abroad), as well as the consumption equipment used for maintenance. The scope of aviation materials is only in the limit of the airborne equipment of the aircrafts and the components and parts thereof, excluding the equipment and components and parts used in ground service system.

IV.

For domestic aviation companies, upon the approval of the State Council, import duty and import linkage value-added tax on the import aviation materials (including components and parts sent abroad for maintenance) used for maintenance of airplanes and engines in international airlines and Hong Kong and Macao airlines shall be exempted. This tax policy shall be managed in accordance with the ways as follows, and its procedures shall be:

1.

Before November 15 each year, the aviation companies satisfying the conditions listed in Article 2 of the present Provisions shall hand in the Tax Exemption Application Report (hereinafter referred to as the Report) of the ensuing year to the Ministry of Finance and the CAAC, and the Report shall include the contents as follows:

(1)

The implementation on the aviation materials actually imported by the companies during the period of the Report (the period shall be from November 1 of the previous year to October 31 of the current year, hereinafter the same): including the actual import amount and the statistics on the amount of customs duties and the amount of value-added tax paid and exempted on aviation engines, APU, undercarriages, other airplanes and accessories of engines, as well as the consumption equipment used for maintenance by such two ways as direct import and maintenance abroad. And the relative financial statements and explanations enclosed in addition.

(2)

The maintenance business of airplanes of the companies during the period of Report: including airplane repair & overhaul (at home), engine repair & overhaul, APU repair & overhaul, repair of accessories, volume of business for airline maintenance (including type and quantity of the airplanes or engines being repaired, total maintenance expenses, and the expenses for aviation materials, and other contents, the statistics shall be made in accordance with the uniform standard for the in-kinds to enter into the warehouses).

(3)

The planned sum for import aviation materials of the companies in the following year (from January to December) to be declared by large categories. In case there is great difference between the declared overall planned import sum of the following year and the actual import sum during the period of Report, the specific reasons shall be indicated in the Report.

(4)

The flight mileage of international airlines and the total flight mileage of the company during the period of the Report (including the flight mileage on schedule, overtime flight mileage, and flight mileage of chartered flights).

2.

In accordance with the transportation production statements of the domestic aviation companies, the CAAC shall examine and confirm the flight mileage of international airlines and the total flight mileage during the period of the Report submitted by each aviation company, and then report the result of confirmation to the Ministry of Finance before December 1.

3.

In accordance with the confirmation result of the CAAC, the Ministry of Finance shall regard the ratio of the flight mileage of international airlines to the whole flight mileage during the period of the Report of each aviation company as the base tax deduction rate for the import of aviation materials in the following whole year (from January to December) of the company, and shall, based on this and combined with the balance on the implementation of tax deduction policies within the period of the Report of the current year and the total import quota of the next year declared by the aviation companies, ascertain the tax deduction rate of part of import duties and amount of import linkage value-added tax by taking into consideration all the import aviation materials of each company (including the aviation materials needed for the maintenance of all the airplanes in domestic airlines and international airlines).

4.

The customs houses shall conduct formalities for tax collection, deduction, and exemption on import aviation materials in accordance with the tax deduction rate verified by the Ministry of Finance. The General Administration of Customs shall constitute the specific measures for operation separately.

V.

All the aviation companies enjoying the aforesaid policies shall earnestly do a good job on planning, statistics, and management pertinent to the Report, and each company shall be responsible for the truthfulness and accuracy of the contents of the Report. For the purpose of ensuring the truthfulness of the financial accounting information on the amount of import aviation materials provided by the Report, the department of finance shall organize regular or special financial inspection correspondingly.

VI.

If any aviation company is found out to make false report or disguise the report in the finance inspection, it shall be disqualified for tax deduction and exemption for one to three years in accordance with the circumstances, and shall be given relevant punishment in accordance with the relative provisions.

VII.

The present Provisions shall go into effect as of January 1, 2005.