In our China Update circulated in January 2012, we reported that
on 17 November 2011 the Ministry of Finance
("MOF") and the State Administration of
Taxation ("SAT") introduced a pilot
program in Shanghai to replace business tax on transportation
services and 'modern' services ("Qualifying
Services") with value-added Tax
("VAT") commencing on 1 January 2012.
The modern services include R&D and technology services, IT
services, cultural and innovation services, logistics services and
consulting services. On 25 July 2012, the central government
decided to expand the pilot program to 10 other provinces/cities in
the period from 1 August 2012 to the end of 2012. On 31 July 2012,
MOF and SAT issued a circular, specifying the following dates
for these provinces/cities to adopt the pilot program:
Beijing, 1 September 2012
Jiangsu and Anhui, 1 October 2012
Fujian and Guangdong, 1 November 2012
Tianjin, Zhejiang and Hubei, 1 December 2012.
In general, the consequences for cross-border service providers
are the following:
Qualifying services provided by Chinese entrepreneurs to
non-Chinese entrepreneurs will be either exempt from VAT or subject
to VAT at the rate of 0% (i.e. VAT refunded). In contrast, such
services were before subject to non-recoverable business tax at the
rate of 5%.
Chinese entrepreneurs will by way of a reverse charge become
subject to VAT in respect of Qualifying Services received from
non-Chinese entrepreneurs. The Chinese entrepreneur can
subsequently offset such VAT against VAT payable by it. In
contrast, such services were before subject to the non-recoverable
business tax to be withheld upon payment by the receiving Chinese
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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