As a supporting document to the Value-Added Tax Law of the People's Republic of China and its implementation regulations, this Announcement (the “Announcement No. 12”) continues the existing provisions on the net basis method of VAT calculation. It is noteworthy that the 10 categories of transactions subject to the net basis method covered by the Announcement on Transitional Issues Concerning VAT Preferential Policies Following the Implementation of the VAT Law (the “Announcement No. 10”) have a policy validity period expiring on December 31, 2027, whereas the 8 categories of taxable transactions covered by this Announcement are not subject to any validity period. The main contents of the Announcement are as follows:

• It clarifies eight categories of taxable transactions for which the sales amount may be determined as the balance after deducting the relevant costs: these include the transfer of financial commodities, passenger station services, air transportation services, domestic air ticket agency services, international air ticket agency services, examination services provided by overseas entities within China, visa agency services, and the agency importation of goods exempt from VAT.
• If the deducted amounts are supported by VAT deduction vouchers, the corresponding input VAT shall not be deductible from the output VAT.