Recent rules promulgated by the state and local tax
administrations in China pave the way for exempting cross-border
services from value added tax ("VAT"). These new rules
include Circular 521, and two sets of
Implementation Rules, one for Shanghai and one for
This welcome development should facilitate more growth in
services trade generally, and indirectly simplify selection of and
payment for services sourced from China. The process for obtaining
this new VAT exemption is relatively straightforward. Although some
upfront paperwork is involved, the procedures are taking shape, and
we expect they will shortly become routine. This Haiwen Alert
summarizes the basic requirements for the exemption and the
procedures for obtaining an exemption.
Scope of cross-border services eligible for a VAT
Not all cross-border services are eligible for a VAT exemption.
Circular 52 sets forth nine categories of services that can qualify
for a VAT exemption. Certain types of services, such as
distribution of movies and TV programs, must be performed outside
China. For certain other types of services, such as consultancy
services and production of movies and TV programs, the recipients
must be overseas entities. Accordingly, as a first step,
professional advice should be sought to determine whether Circular
52 and the Implementation Rules are applicable to a particular
Qualifying for a VAT exemption
The basic criteria are:
taxpayers must enter into written contracts with service
recipients with respect to cross-border services;
for cross-border services provided to overseas recipients, all
revenue shall be received from overseas; and
taxpayers must make the record filings with the relevant
authorities in a timely manner to enjoy the exemption.
Please note that Circular 52 and the Implementation Rules also
provide specific criteria for certain types of cross-border
services. Again, a case-by-case analysis is required.
To obtain a VAT exemption, Circular 52 calls for filing
"for the record". In other words, no advance approval
from the tax authorities is required. In Beijing, the
Implementation Rules require the tax authorities to complete the
filing on submission by the taxpayer if the materials are complete
and satisfy the relevant requirements. By contrast, in Shanghai,
the Implementation Rules state that the tax authorities must
complete the filing within 14 working days following submission by
the taxpayer of all relevant materials. In general, it appears from
early practice that the tax authorities in both Beijing and
Shanghai are completing these types of filings expeditiously.
Under Circular 52, the documents submitted to the tax
authorities primarily include:
a prescribed form for use in connection with a "for the
record" filing for a VAT tax exemption in respect of
cross-border taxable services;
the original and photocopies of the cross-border services
evidence showing that the services were performed outside China
(if required by the terms of Circular 52); and
evidence showing that the recipient of the services is a
non-Chinese entity (if required by the terms of Circular 52).
When preparing the filing materials, taxpayers should strictly
follow the instructions set out in the Implementation Rules, which
include specific requirements regarding the form and content of the
Please note that although Circular 52 took effect on August 1,
2013, the VAT exemption may be obtained for cross-border services
provided prior to that date.
Circular 52 clarifies the scope and types of cross-border
services that can be exempted from VAT. The Implementation Rules in
Shanghai and Beijing have also resolved a number of practical
issues relating to the filing process, and our experience to date
has been positive. These developments point to accelerated growth
of cross-border services, and contribute to the simplification of
providing and making payment in transactions of this sort.
1 Administrative Measures on Exemption of Value-added Tax
for Cross-border Taxable Services in the Collection of Value-Added
Tax in Lieu of Business Tax (For Trial Implementation), promulgated
by the State Administration of Taxation in September
2 Announcement on Record Filing of Value-Added Tax
Exemption for Cross-border Taxable Services in the Collection of
Value-Added Tax in Lieu of Business Tax and Tax Settlement Related
Issues at the Pilot Stage issued by the Shanghai Municipal Offices
of State Administration of Taxation in October 2013, and
Announcement on Issues Concerning the Administration of Exemption
of Value-Added Tax on Cross-Border Taxable Services in the
Collection of Value-Added Tax in Lieu of Business Tax issued by the
Beijing Municipal Office of the State Administration of Taxation in
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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