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China Continue to Cut Tax Rates

Significant reductions to VAT announced:

VAT rates

The 16% VAT rate currently applicable to general VAT taxpayers will be reduced to 13%, whilst the 13% VAT will be reduced to 9%. Correspondingly, the VAT export refund rates will be respectively reduced from 16% to 13% and from 13% to 9%.

Input tax credit

Input tax credit for VAT taxpayers purchasing agricultural products will be reduced from 10% to 9%, and for those purchasing agricultural products for production or contract processing will be 10%.

Input VAT on purchases made by real estate companies, including any remaining input VAT from the previous period, may be offset against output VAT in the current period, as opposed to the current rule that input VAT deduction must be spread over two years.

Input tax on domestic passenger transport services purchased by VAT taxpayers may also be offset against output VAT.

VAT super deduction

From April 2019 to December 2021, the allowable input VAT in the current period may be increased by 10% for VAT taxpayers engaged in manufacturing or lifestyle services.

Any ‘increased’ input VAT that cannot be offset due to insufficient output VAT can be carried over to the following periods. Once the taxpayer elects to apply VAT super deduction, the choice may not be changed within the first year. The VAT super deduction does not apply to the export of goods or services and cross-border taxable events.

VAT refund

The VAT refund for foreign passengers leaving China will be reduced from 13% to 11%. In certain situations, the current refund rate is 9%, and this rate will be reduced to 8% where applicable.

From April 2019, the tax authority will introduce refunds of non-offset input VAT that has been increased after March 2019. Currently, input VAT can in principle only be offset against output VAT. Non-offset input VAT can only be refunded at the request of VAT taxpayers if certain conditions are met. Some of these conditions are as follows; that the increased non-offset VAT within six months exceeds CNY 500,000 and the VAT taxpayer applying for the refund is rated as an A or B taxpayer.

Learn more about Chinese VAT here.

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