Since the open door policy, China’s tax system has always been designed to accommodate and support the development of Chinese economy. Value-added tax is one of the most important State Revenue sources in China and is the key tool used by the Chinese government to achieve its economic goals at different stages of development.
Key Publications:
- CaiShui [2011] No.110 – Notice of the Pilot Scheme for Transforming Business Tax (‘BT’) to Value Added Tax (‘VAT’) (“Circular 110”)
- CaiShui [2013] No. 37 - Notice on Tax Policy Concerning Nationwide Implementation of VAT Pilot Program for Transport and Modern Services Sectors
Affected Industries:
Transportation and Modern Services Industries
Key Advantages:
- Removed double taxation that originally existed under the old BT system for affected industries
- Introduced Zero-rated and exemption for certain services provided to overseas entities
VAT management Tips:
- Financial – correct calculation of new rate, review cash flow and frequent communication with local tax bureau about new updates
- Commercial – renegotiation with customers and suppliers and understanding their position on your VAT invoices
- Legal – Review both sales and purchase contract to ensure VAT charge is allowable
- Operational – System upgrade and staff training
Remaining issues:
- Even with a now nationwide VAT reform, different tax bureaus will have different interpretation of the new rules therefore it is a challenge to achieve a consistent approach in China
- Still only a partial reform on service industry sector, double taxation burden remains on financial services, insurance, real estate, construction, post and telecommunication industries
- Very complex VAT compliance system – Golden Tax System and Special VAT invoices
- There are conditions for claiming zero-rated or exemption benefits, foreign individual and service providers from non-treaty countries are generally not qualified for the benefits.
For more information on the VAT Reform and how it effects you please contact ourteam@azuregroup.com.au.
This article is intended to provide general information only, and is not to be regarded as legal or financial advice. The content is based on current facts, circumstances, and assumptions, and its accuracy may be affected by changes in laws, regulations, or market conditions. Accordingly, neither Azure Group Pty Ltd nor any member or employee of Azure Group or associated entities, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused. Readers are advised to consult with qualified professionals for advice specific to their situation before taking any action.