In order to encourage services to be outsourced by overseas to Chinese enterprises, on July 28, 2010, the PRC State Administration of Taxation, Ministry of Commerce and Ministry of Finance jointly issued the tax circular Caishui  No. 64, titled Notice on Business Tax Exemption for Offshore Service Outsourcing in Selected Cities.
Starting from July 1, 2010 till December 31, 2013, enterprises registered in 21 selected cities can be exempted from BT for their revenue earned from their foreign customers for providing certain services. These 21 cities are Beijing, Tianjin, Dalian, Harbin, Daqing, Shanghai, Nanjing, Suzhou, Wuxi, Hangzhou, Hefei, Nanchang, Xiamen, Jinan, Wuhan, Changsha, Guangzhou, Shenzhen, Chongqing, Chengdu and Xi’an.
The services eligible for the BT exemption are divided into three categories, i.e. IT Outsourcing (“ITO”), Business Process Outsourcing (“BPO”) and Knowledge Process Outsourcing (“KPO”).
ITO includes software development and software technical services, electronic circuit and integrated circuit design, provision of testing platforms for development and application of software, electronic circuits and integrated circuits, IT system maintenance services and infrastructural IT services.
BPO includes enterprise business process design services, enterprise internal management services, enterprise business operation services and enterprise supply chain management services.
KPO includes IP research, medicine and biotech R&D and testing, product technology R&D, industrial design, data mining, engineering design, teaching class-ware development, animation and internet game design.
If business tax has already been paid on income covered in any of the above categories from July 1, 2010 until the release of the circular, then it can either be deducted from future business tax payments or refunded.
Enterprises located in these 21 cities shall check whether their services provided to foreign customers fall within the above scope. If yes, it is advisable to approach the competent tax authorities for a discussion on the possibility of obtaining a BT exemption.