Rates and rules for implementing VAT in the last group of
Chinese sectors including construction, real estate, finance, and
life service have been announced by the country's Ministry of
Finance and National Taxation Bureau.
On 23 March 2016 China's Ministry of Finance and the
National Taxation Bureau jointly issued a Circular CAISHUI 
No.36, in which rates and rules for implementing VAT in the
remaining group of sectors; including construction, real estate,
finance, and life service industry were announced, with effect from
1 May 2016.
Methods of calculation are provided in the rules, with
provisions stipulating items that may be considered as a deductible
input tax value. However, measures and policies that are specific
to the insurance industry are still to come, as the rules
didn't provide indications to address the following
1. The insurance industry is generally confronting the problem
of insufficient input-tax items for offsetting the output tax
value. In addition, the change from business tax to VAT will see a
change of the calculation of tax from a deduction from premium to
an addition to premium. Such a change is abrupt and it will require
guidance for grossing the tax to the price of insurance premium,
especially for a market that has long been controlled by the
2. Under the business tax system, other parafiscal charges such
as urban construction tax, educational surtax and local educational
surtax are rates that were linked to the business tax rate. Now
that business tax will be removed, what these taxes are to be fixed
to, have not been specified.
3. Whether the parafiscal charges named above are included in
the tax base of VAT is not clearly specified in the Rules.
In IPT Quote, TMF Group's online tax calculation tool, the
5% business tax in China will soon be relegated to the history
books, with an end date of 30 April 2016. In replacement, VAT as an
addition to insurance premium will be in force for any policies
incepting from 1 May 2016 onwards. At this point in time, the tax
base for the calculation of VAT in IPT Quote won't include
other parafiscal charges, but this may change when the authorities
issue clear instructions on how this will be handled.
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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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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