Tax policies for survey and design enterprises

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I. Tax categories and rates applicable to the business tax for surveying and design services. In accordance with Article 7, Paragraph 8 of the **Notice of the State Taxation Administration on Issuing the ‘Annotations to the Business Tax Tax Items’ (Trial Draft) (Guo Shui Fa No. 149), design, drafting, surveying and mapping, and exploration fall under the category of “Services – Other Services,” and the applicable business tax rate for these activities is 5%. However, the same paragraph stipulates that aerial exploration, drilling exploration, and blasting exploration are not subject to this tax category. In accordance with Article 2, Paragraph 5 of the Notes on Business Tax Tax Items, drilling (well drilling) for exploration and blasting exploration shall fall under the category of \"Construction Industry – Other Engineering Operations\", and the applicable business tax rate is 3% ； In accordance with Article 1, Paragraph 3 of the \"Notes on Business Tax Items,\" aerial surveying should be classified under \"Transportation Industry – Air Transport,\" and the applicable business tax rate for it is 3%. II. The basis for calculating business tax on surveying and design services. In accordance with the **Notice of the State Taxation Administration on the Collection of Business Tax on Survey and Design Services (Guo Shui Han No. 1245), when a survey and design firm subcontracts or assigns the survey and design work it is responsible for to other survey and design firms or individuals, with those parties collecting the fees on behalf of it, the taxable amount for business tax is calculated as the total income from such survey and design work, minus the fees paid to other survey and design firms or individuals. 　　III. The location where business tax is payable for surveying and design services. In accordance with the provisions of the \"Notice on Several Policy Issues Concerning Business Tax\" issued by the Ministry of Finance and the **State Taxation Administration (Caishui No. 16), for taxable services such as design work (including exploration and surveying activities carried out as part of the design process), project supervision, commissioning, and consulting provided by entities within the People’s Republic of China, the location where business tax is payable is the location where the entity’s headquarters is situated. 　　IV. Reduction or exemption of business tax for surveying and design services. **The Notice of the State Taxation Administration on the Issue of Levying Business Tax on Survey and Design Units Affiliated to Water Resources Departments (Guo Shui Han No. 728) stipulates that financial grants received by water resources survey and design units affiliated to water resources departments for carrying out survey and design tasks assigned at various levels are not subject to business tax. The income generated by water resources survey and design firms from carrying out various other water resources survey and design tasks, including the income obtained from subcontracting such tasks to other firms as assigned, falls within the scope of taxation under the business tax regime. 　　It should be noted that two special exemptions have been repealed or become invalid: The Notice issued by the Ministry of Finance and the State Taxation Administration regarding tax policies during the construction of the Qinghai-Tibet Railway (Caishui No. 128) provided that income generated by survey and design companies from their work on this railway project was exempt from business tax, urban maintenance and construction tax, and education surcharges; this document is no longer in force. **The Supplementary Notice of the State Taxation Administration on the Taxation Issues Concerning Geological Exploration Units Under the Ministry of Geology and Mineral Resources (Guo Shui Han Fa No. 656) stipulates that financial grants received by geological exploration units for carrying out geological exploration work assigned at various levels do not fall within the scope of taxation under the business tax regime. This exemption provision has been explicitly repealed in the **Tax Administration Bureau’s Notice on Publishing a List of Invalid or Abolished Tax Regulatory Documents (Guo Shui Fa No. 62)**; the exploration revenues generated by the geological survey units under the Ministry of Geology and Mining fall within the scope of value-added tax, and therefore value-added tax must be paid in accordance with the law. 　　Special provision: When foreign enterprises undertake architectural design services, since such services can be provided both within and outside the country, there is an issue regarding the allocation of these services between the two jurisdictions. Regarding foreign companies that undertake engineering design work, in accordance with the **Notice of the State Taxation Administration on Issues Concerning the Application of Policies Related to the Collection of Turnover Tax on Foreign Contractors Engaged in Engineering Projects and Providing Services (Guo Shui Fa No. 214): (1) When a foreign company is commissioned by a domestic enterprise to carry out design work for construction or other projects, all activities such as designing solutions, performing calculations, and creating drawings take place outside of China, except for the initial phase when staff are sent to China to conduct on-site inspections, gather information, and understand the situation. After the design is completed, the drawings are delivered to the domestic enterprise. In such cases, it can be considered that the services are provided abroad, and no turnover tax shall be imposed on all the income generated by the foreign company from these design services in China. 　　(II) When foreign firms are commissioned by or cooperate with (or form joint ventures with) enterprises within China to carry out the design of construction and engineering projects, apart from sending personnel to China before the start of the design work to conduct on-site inspections, gather information, and understand the situation, all or part of the tasks such as designing solutions, performing calculations, and creating drawings are carried out outside of China. After the design is completed, these foreign firms send personnel to China to explain the drawings and provide technical guidance for the construction supervision of the designed buildings and projects. Regarding the income they earn from design work, aside from allowing deductions for the fees received for design services carried out outside of China, the remaining income shall be subject to business tax in accordance with the relevant regulations on business tax. However, in the case of design contracts based on commission or cooperation (or joint) arrangements, where the fee for design services provided outside China is not specified, or where accurate supporting documents cannot be provided to determine whether such design work was carried out within or outside China, the income generated from such design services shall be combined with the income from design services provided within China for tax purposes. 　　In addition, in accordance with Article 4 of the Interim Provisions on the Administration of Value-Added Tax for Oil and Gas Field Enterprises, value-added tax must be paid on services such as geological exploration, drilling, design, and testing provided by such enterprises, with a value-added tax rate of 17%.