Laws of the People's Republic of China

State Administration of Taxation

Circular of the State Administration of Taxation on Further Strengthening the Tax Administration of Foreign Contractors

GuoShuiFa [2004] No. 5

January 8, 2004

With a view to strengthening the tax administration of foreign enterprises and individuals (hereinafter referred to as Contractors) that come to China to contract for the off-shore and overland external corporative petroleum (gas) field and maritime self-operating petroleum (gas) field construction activities or to offer labor services (hereinafter referred to as Contract for Petroleum Construction Activities or Offer Labor Services), and for ensuring the implementation of the tax law, in accordance with the Law of the People's Republic of China on the Administration of Tax Collection (hereinafter referred to as the Law on the Administration of Tax Collection) and its Detailed Rules for the Implementation as well as Procedures of the People's Republic of China for the Management of Invoice (hereinafter referred to as the Invoice Management Measures) and its Detailed Rules for Implementation, the tax matters of contractors are hereby noticed:

1.

Contractors that contract for petroleum construction activities or offer labor services in Chinese maritime space and overland shall pay the tax for their acquisition of income in accordance with the Chinese tax law and other relevant provisions. Their employees' individual income tax shall be withheld by Contractors.

2.

Contractors that come to China to contract for petroleum construction activities or offer labor services shall, within 30 days after the receipt of a business license or sign a contract, go through taxation registration formalities with the competent tax authorities and declare taxpaying according to the law. Contractors may handle the matters on declaration of taxpaying by themselves or by their agent.

3.

The companies that contract petroleum construction activities or labor services to contractors (hereinafter referred to as the developer) shall report the contractor's names, the contracted project, project price, contract period, working place and the principal's name, address, telephone number and other related conditions to the competent tax authorities in writing within 15 days from the date they sign the contract. For those who sign contracts frequently, the developer may apply to the competent tax authorities for a regular gathering mass report. The developer used herein refers to the Chinese and foreign enterprises engaged in Chinese-foreign cooperative oil exploration, production and those contracting with petroleum construction activities.

4.

Contractors shall write invoices printed under tax authorities' supervision to the developer for their acquisition of income. The offshore invoice must be exchanged with the competent tax authorities. The offshore invoice shall be attached to the back of the invoice printed under tax authorities' supervision and be handed to the developer as a document of settlement together. The developer shall settle the account and disburse the contract payment against the invoice printed under tax authorities' supervision handed by the contractor.

5.

Where the contractors do not complete tax registration formalities according to the relevant provisions, the competent tax authorities may check and ratify their tax payable in accordance with the relevant provisions of the Law on Management of Tax Collection and its Detailed Rules for Implementation, and make the tax payable withheld by the offer parties when they disburse the contract payment

6.

Where the developer need to disburse foreign currency overseas, it shall submit tax paid certificate or exemption certificate issued by the competent tax authorities to the administration of foreign exchange in accordance with the Circular of the State Administration of Foreign Exchange, the State Administration of Taxation for the Matters of Purchase and Payment Exchange of Nontrade and Partial Capital Items (GuoShuiFa No. 372 [1999]).

7.

Contractors who need to leave the country shall square the tax payable and overdue payment or furnish guaranty to the competent tax authorities. Where they neither square the tax payable and overdue payment nor furnish guaranty, the competent tax authorities may inform the Import and Export Authorities to hold them back from leaving.

8.

The present Circular shall enter into force as of the date of its promulgation. The Circular previously issued by the State Administration of Taxation on Strengthening the Tax Management of Foreign Contractors of Cooperative Petroleum Field (GuoShuiFa No. 213 [1994]) shall be repealed simultaneously.