Article 2 A foreign company which generates transport revenue and income by using ships to carry passengers, cargo or mail out of China shall pay business tax and corporate income tax in accordance with these Measures.

Article 3 A foreign carrier generating transport income by using ships to carry passengers, cargo or mail out of China shall be deemed a tax payer. A tax payer can be:

(1) the foreign chartering company in the case of a time charter sent by the buyer;

(2) the foreign ship-owner in the case of voyage charter;

(3) the foreign company where a foreign-flag ship chartered by a Chinese company is sub-chartered to it on terms of a time charter;

(4) the foreign company which charters a Chinese-flag ship on terms of a time charter;

(5) the ship owner in the case of other foreign-flag ships.

A company approved by law to provide agent service to foreign ships (hereinafter referred to as the "agent") shall act as the withholding agent of the tax payable.

Article 4 The amount payable by the tax payer is computed as 4.65% of the total amount of income generated each time by carrying passengers, cargo or mail out of China form Chinese ports. This rate combines a business tax rate of 3% and an income tax rate of 1.65%.

Article 5 The total amount of income, as referred to in Article 4 of these Measures, shall be the aggregation of the income generated by a ship operated by the tax payer from passenger and cargo transport at the destination each time where the ship carries passengers, cargo or mail out of China from Chinese ports, without deducing any fees or expenses. Income from passenger transport includes ticket revenue, overweight luggage charge, meals, insurance payment, service charge, and recreational charge. Income from cargo transport includes basic freight and all kinds of additional charges.

Article 6 Where a foreign company uses a ship to carry passengers, cargo or mail out of China from Chinese ports, it shall notify the agent of the freight rates, together with address of the carrier, the national flag born by the ship, information on passengers, types and quantity of cargo, as well as the date of arrival.

Article 7 Where a foreign company authorizes the agent to calculate and collect the freight on its behalf for the purpose of carrying passengers, cargo or mail out of China from Chinese ports, the agent shall in accordance with the combined rate specified in Article 4 of these Measures, withhold the amount of tax to be paid directly from the total amount of income of the tax payer after collecting the freight.

Article 8 Where a foreign company does not authorize the agent to collect the freight on its behalf, the agent shall calculate the amount of tax to be paid, according to the combined rate specified in Article 4 of these Measures, and notify the tax payer to remit the amount payable plus a deposit for port charges before the ship's arrival, so that the agent may collect the amount of tax.

After the foreign company has carried passengers, cargo or mail out of China from Chinese ports, the agent shall notify the tax payer to report of a tax authority the total amount of income and the amount of tax to be paid and send a document for freight settlement, while it cables the tax payer the actual number of passengers leaving the country, and the quantity of cargo or mail on board. The tax payer shall notify the tax authority and pay the tax within 60 days of departure.

Article 9 The agent shall turn in the amount of tax withheld or collected to state treasury according to Articles 7 and 8 of these Measures within 10 days of withholding or collection; and shall provide local tax authority with information for the previous month on its agent business, statistics on freight settlement, and a Report on Taxes Withheld and collected on Transport Income of Foreign-Flag ships, etc. in tabulated form, before the 15th of each month.

Article 10 Where a tax payer fails to present complete and accurate documents as stipulated in Articles 6 and 8 of these Measures, or to calculate the accurate total income, the agent shall notify tax authority at the location of the port in a timely manner. The said tax authority may, in cooperation with the agent, cite normal international rates for passenger or cargo transport under same or similar conditions, or tariff fixed by relevant Chinese authorities, to determine the total amount of income of the tax payer and collect taxes thereupon.

Article 11 Where a foreign company carries passengers, cargo or mail out of China from several Chinese ports on the same ship, the tax shall be collected at these ports of departure separately according to transport income generated by transporting passages, cargo or mail from each port. However, in the case of a voyage charter carrying cargo or mail out of China from several Chinese ports consecutively on a pre-fixed package freight, the tax on the total income shall be collected at the first port of departure. When a charge on additional ports is collected in this case, the tax on the prefixed package freight shall be collected at the first port of departure, while the charge on additional ports shall be collected at each port of shipment.

Article 12 Where passengers, cargo or mail are carried from Chinese ports to their destination via another country or region, the business tax shall be collected on the through freight minus freight paid to the following carrier, and the income tax shall be collected on the full amount of the through freight income as specified in the bill of lading.

Article 13 Where an agent withholds or collects the tax according to these Measures, the tax authority shall pay commissions to the withholding agent for that purpose according to related regulations.

Article 14 Where a tax payer or a withholding agent fails to fulfill its obligations in accordance with these Measures, penalties shall be applied according to the Law on the Administration of Taxation of PRC and its detailed Implementing Measures.

Article 15 A standard form of the Report on Taxes Withheld and Collected on Transport Income of Foreign-Flag Ships shall be printed by the State Administration of Taxation to be filled out by the agents.

Article 16 These Measures apply to the transport income generated by a company from Hong Kong, Macao or Taiwan by carrying passengers, cargo or mail abroad from mainland ports, unless otherwise stipulated.

Article 17 Where the People's Republic of China has separate agreement with a foreign country for tax concession or exemption the agreement shall prevail.

The agreement as indicated in the preceding paragraph refers to an agreement on avoiding double taxation on income ( and properties ), on prevention of tax fraud and tax evasion, or on mutual exemption of taxes on transport income of ocean shipping enterprises; as well as maritime agreement and other separate agreement or letters of exchange.

Article 18 Where a foreign company that carries passengers, cargo or mail abroad from Chinese ports is entitled to tax concession or exemption on its transport income and revenue under an agreement specified in Article 17 of these Measures, it shall present necessary information in line with Article 6 in the following documents to be examined by the tax authority on a case by case basis:

(1) Where the agreement stipulates that transport income and revenue can be collected only by the contracting state where the actual managing body of the enterprise or its headquarter is located; or that the source country of income shall grant tax concession or exemption on income and revenue from ocean shipping generated by a resident company of the other contracting state, the foreign company shall present proof documents issued by tax authority of the contracting state on the location of actual managing body of the company, its headquarter, or that of the resident company;

(2) Where the agreement stipulates that the source country of income shall grant tax concession or exemption on transport income and revenue generated by a merchant ship bearing the national flag of the other contracting state, or one operated by a shipping company of the latter which bears the national flag of a third country, the foreign company shall present proof documents issued by the navigation authority of the other contracting state.

Tax concession or exemption shall not be granted unless related proof is presented.

Article 19 These Measures shall be effective on the date of promulgation. Regulations for Taxation on Income of Foreign-Flag Ships approved by the State Council and issued by the Ministry of Finance in June 1974 is hereby annulled at the same time.

[ back ]