(State Administration of Taxation: 4 July 1994 Coded Guo Shui Fa[1994] No. 152)
To the tax bureaus of various provinces, autonomous regions and municipalities, the tax bureaus of various cities with independent planning and various sub-bureaus of the Offshore Oil Tax Administration:
The question concerning the handling of taxation related to enterprise with foreign investment in medical and educational trades is hereby clarified as follows:
I. In accordance with the principle as stipulated in the Article 1 of the Income Tax Law (hereinafter referred to as Tax Law) for enterprise with foreign investment and Foreign Enterprises and Article 2 of the Detailed Rules for Implementation of the Tax Law for enterprise with foreign investment and Foreign Enterprises (hereinafter referred to as the Detailed Rules for Implementation), enterprise income tax shall be calculated and paid in accordance with the stipulations of the Tax Law and its Detailed Rules for Implementation for the business income and other income of the enterprise with foreign investment in the medical and educational undertakings.
II. The fees collected from students by enterprise with foreign investment in the educational trade as well as other incomes, except for the items which are exempt from business tax in accordance with the stipulations of Section (4), Clause 1, Article 6 of the Provisional Regulations Concerning Business Tax, shall be regarded as business income of the enterprises and business tax is calculated and paid; the balance of the whole lot of income (including income that is exempt from business tax) they gained, after deducting from cost, expenses and losses, shall be regarded as payable amount of income on the basis of which enterprise income tax is calculated and paid. For school operating with foreign investment which first collects cash pledge and then returns the cash pledge in full after the conclusion of the school term in accordance with the school statute or the stipulations of the entrance contract and which uses the interest on cash pledge as tuition, the cash pledge may not be regarded as business income, only the interest gained on the cash pledge is regarded as business income on which tax is calculated and paid; for schools which first collect high-value fees in accordance with the school statute or the stipulations of the entrance contract, the fees are partially returned to the students after the conclusion of the school term or when the students discontinue their schooling midway or leave the school, and are partially retained for the enterprise itself, the part of fees that should be returned may be regarded as cash pledge, not as business income, but tax is calculated and paid for the interest derived therefrom and that part of fees not to be returned which is regarded as business income when received.
III. For the various items of incomes gained by enterprise with foreign investment in the medical trade, with the exception of the projects which are exempt from business tax as stipulated in Section (3), Clause 1, Article 6 of the Provisional Regulations on Business Tax, shall all be subjected to the calculation and payment of business tax; the balance of the various items of income they gained, after deducting related costs, expenses and losses, shall be regarded as the amount of taxable income for which enterprise income tax is calculated and paid.
