CIRCULAR OF THE SAT ON INTERPRETATION AND IMPLEMENTATION OF SOME CLAUSES IN THE ARRANGEMENT BETWEEN THE MAINLAND AND MACAO SAR ON THE AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME

Circular of the SAT on Interpretation and Implementation of Some Clauses in the Arrangement between the Mainland and Macao SAR on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income

The bureaus of state taxation and local taxation of all provinces, autonomous regions, municipalities directly under the Central Government, and cities specifically designated in the state plan, Yangzhou Taxation Institute,

The Arrangement between the Mainland and Macao Special Administrative Region of China on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the Arrangement) was signed on December 27, 2003 and entered into force as of January 1, 2004. With a view to further enhancing the implementation of the Arrangement, in light of the major problems arising in all areas during the implementation of this Arrangement and according to the negotiations between the tax authorities of both sides about the implementation of this Arrangement, the interpretations of the relevant clauses and other problems are hereby clarified as follows:

With regard to the relationship between the stylistic rules and layout of the Arrangement and the tax regulations

The Arrangement is a set of legal norms set forth for the purposes of avoiding double taxation with respect to the same income as well as coordinating and dividing the taxation jurisdiction of both sides on the basis of the current tax regulations of both sides. When there is any discrepancy between the Arrangement and tax code, the Arrangement shall prevail. Besides, according to the common practice, the principle of "choosing the one which is more preferable" shall be complied with in dealing with the relationship between the Arrangement and the tax regulations, that is to say, when a tax treatment as provided in a tax regulation is more preferable than that provided in the Arrangement, the tax regulations may prevail.

The stylistic rules and layout of the Arrangement are the same as those of agreements concluded with foreign countries concerning the avoidance of double taxation, which not only include provisions on the avoidance of double taxation but also the contents concerning the prevention of fiscal evasion. On this account, all areas should pay attention to preventing any taxpayer from evading any tax by taking the advantage of the Arrangement.

Article 2 , the tax categories of Macao to which the Arrangement shall apply are:

The occupation tax, which was formerly limited to company employees, is also applicable to civil servants, teachers and other government personnel. This tax is similar to the individual income tax.

The income supplement tax, which is similar to the enterprise income tax, includes the taxes levied on the income of individual operators. No voucher or stamp tax may be imposed as a supplement tax when such tax is collected.

The voucher & stamp tax as listed in the Arrangement is a supplemental tax, which is not an independent tax.

This Article applies not only to the Mainland's tax categories except for income tax, but also to the business tax.

Paragraph 2. In consideration of the diversified forms of cooperative business operations in the transportation sector and in line with the common practices, the incomes and profits derived from engaging in trans-regional transport by cooperative enterprises of both sides, which have been resident legal persons in the Mainland under the relevant law shall be taxed in the Mainland.

Considering that the Arrangement provides a more preferable restricted tax rate on interest, in order to prevent the abuse of this Article, all areas should make sure that the persons who enjoy the treatment of this Article are residents of either of or both sides when implementing the provisions of Paragraphs 2 and 3 of this Article regarding the deduction and exemption of interest income tax. Upon confirmation of the tax authority of Macao, the "offshore banks" and other financial institutions established in Macao do not fall into the scope of Macao residents.

The term "incomes derived from non-independent personal services" refers to the salaries, wages and other similar remunerations derived from employment (generally, there are fixed employers). According to the provisions of Item 2 of Paragraph 2, an income may be taxed at the place where it derives as long as it meets any of the three requirements. With regard to the frequent comes and goes of working personnel of both sides, and entries and exits or comes and goes within the same day, the State Administration of Taxation, the State Administration of Taxation addressed the relevant problems by issuing the Circular of the State Administration of Taxation about Some Problems concerning the Implementation of Tax Agreements and Individual Income Tax Law Relating to Individuals Who Have No Domicile within the Territory of China (Guo Shui Fa [2004] No.97). Such problems confronted by the trans-regional working personnel should be handled in accordance with the above-mentioned provisions.

With regard to the determination of identity of residents of Macao Special Administrative Region:

According to Article 4 of the Arrangement, the following procedures may be followed in the determination of residents of Macao Special Administrative Region (hereinafter referred to as the Macao residents):

Whether or not a company, enterprise or any other economic organization is a Macao resident should be determined according to the Certificates of Resident Status (For the format of the Certificate, See the Annex) issued by Macao Tax authority. At the same time, the location of its actual management and control center, its legal person certificate (duplicate) and business information (such as its registered name, business scope, etc.) should be taken into consideration as well.

As for a Macao individual who comes to the Mainland engage in any activity upon employment or provide labor service, his identity should be determined according to the information about his domicile, employment or labor service, and his tax obligations in Macao reported by himself, as well as by checking his identity card, home-visiting certificate, information about the company or enterprise that assigns him to the Mainland, and the Application Form for Certificate of Resident Status (For the format of the Application Form, see the Annex) issued by, and bears the seal of, Macao tax authority.

Where a taxpayer with the identity of a Mainland resident who derives any income from Macao applies for enjoying the treatments of the Arrangement, he must submit a Certificate of Mainland Resident Status to the Macao tax authority . The aforesaid Certificate of Mainland Resident Status (See the format of the Certificate of Mainland Resident Status . All areas may print and produce such certificates on their own initiatives if necessary.) may be issued by the Mainland tax authority at the county (city) level of the place where the taxpayer is located after the taxpayer's application documents have been examined and approved by that tax organ. Where a resident as mentioned in Article 4 of the Arrangement files an application with the Macao tax authority for enjoying the treatments prescribed in the Arrangement, if the relevant forms (including application forms for enjoying the treatments prescribed in the Arrangement with the Mainland on the Avoidance of Double Taxation with respect to: 1. dividends and interest proceeds; 2. royalties and independent personal service proceeds; 3. pension and non-independent personal service proceeds; and 4. other proceeds) required by the Macao tax authority are subject to certification by the Mainland tax authorities, the taxation bureaus of all areas should show cooperation.

Where a tax authority at any level raises any objection during the implementation of the Arrangement, and it is necessary to contact and negotiate with the Macao Special Administrative Region, it shall report to the State Administration of Taxation, which will contact and negotiate with Macao tax authority in a centralized manner.

The Government of Macao Special Administrative Region ?C Certificate of Resident Status (Omitted)

Macao Special Administrative Region - Application Form for Certificate of Resident Status (Omitted)

Applicant	Individual	Name
Applicant	Company or Organization	Name
Responsible person		Ratified by	Approval Date

ĄĄĄĄ(Note: This page should be preserved by the competent tax authority for reference)

ĄĄĄĄState Administration of Taxation (applicable to implementation of the Arrangement Between the Mainland and Macao for the Avoidance of Double Taxation)
This is to certify:
ĄĄĄĄ1. Place of residence or information about the headquarters

Individual

Name:

Occupation:

Domicile or Abode:

Company or Organization

Name:

Address of the Headquarters: ĄĄĄĄĄĄĄĄ

ĄĄĄĄ2. The following incomes derived (to be derived) from Macao Special Administrative Region

Income Items	Name of Payer	Address of Payer	Amount	Date of Payment

ĄĄĄĄ3. When this person pays the taxes on the above-mentioned incomes, he is a Mainland resident as provided for in the Arrangement between the Mainland and Macao Special Administrative Region of China on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income.

Date of signature:
Stamped by of the competent tax authority at the county (city) level

Laws of the People's Republic of China

CIRCULAR OF THE SAT ON INTERPRETATION AND IMPLEMENTATION OF SOME CLAUSES IN THE ARRANGEMENT BETWEEN THE MAINLAND AND MACAO SAR ON THE AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME