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Five Key Changes to China’s VAT in 2019

Chinese VAT | The Ministry of Finance, State Taxation Administration, and General Administration of Customs have jointly issued a number of new policies on value-added tax in China. Whilst numerous changes have been rolled out since the beginning of the year, the five biggest and impactful changes are detailed below:

Reducing VAT rate | Chinese VAT

As previously stated in our related news article, Chinese taxpayers who were originally subject to VAT rates of 16% and 10% import/export VAT will now enjoy a reduced rate of 13% and 9% respectively.

Further reductions also include a deduction on agricultural products (10% to 9%) and for goods purchased by overseas visitors, the departure tax refund rate has been increased to 13%. For an in-depth review of these changes click here.

Changing redemption of input VAT

From April 1st, a business registered as a general VAT taxpayer is able to claim the full available input VAT credit at once for purchases of real estate and construction services in the country. Previously, the old legislation stated that the input VAT credits for applicable purchases had to be claimed over a two-year period.

Allowing input VAT credits for transport companies

Registered VAT taxpayers can now claim input VAT credits for domestic transport services and businesses can credit this input tax against their output tax.

For taxpayers who are unable to claim a special VAT invoice, but can obtain an electronic general VAT invoice, the input VAT credit is the amount indicated on the electronic general invoice.

VAT additional deductions allowed across certain industries

Up until December 31st, 2021, business taxpayers in the specified industries are eligible for a 10% additional VAT deduction based on deductible input VAT:

  • Postal and telecommunications services;
  • R&D, technical & IT services;
  • Cultural, sporting and creative services;
  • Logistics;
  • Accommodation services;
  • Education and healthcare;
  • Travel and entertainment services.

Taxpayers shall set up separate accounts to track the movement of the additional deduction and its balance.

VAT refunds for excess input VAT credits

In the past, when a company’s input VAT exceeded their output VAT, the excess VAT credit could be carried forward to offset the output VAT incurred in the following tax period. However, businesses are now able to enjoy a refund on their excess input VAT (meaning additional cash flow for the company), if they are able to satisfy the following criteria:

  • If the accumulative overpaid VAT for each of the six consecutive months is a positive number, and the incremental overpaid VAT is not less than RMB 500,000 (£57,000);
  • The taxation credit is rated as A or B;
  • There has been no proven VAT fraud in the last 36 months;
  • There have been no penalties by tax authorities in the last 36 months;
  • They have not received refunds on their levy.
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