China Tax Center. China Tax & Investment Express. Tax circulars

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1 Issue No January 2015 China Tax Center China Tax & Investment Express (CTIE) * brings you the latest tax and business announcements on a weekly basis. CTIE provides a synopsis of each announcement including a weblink that leads you to the full content of the announcement (in Chinese). Please feel free to contact your Ernst & Young client service professionals for further assistance if you find the announcements have an impact on your business operations. This CTIE does not replace our China Tax & Investment News* which will continue to be prepared and distributed to provide more in-depth analyses of tax and business developments in China. * If you wish to access these previous issues of CTIE and China Tax & Investment News, please contact us. Tax circulars Notice regarding the Scheme on Gradually Expanding the Current Innovative Measures of the China (Shanghai) Pilot Free Trade Zone (SHPFTZ) on Tax Services to All Other Tax Authorities Nationwide (Shuizonghan [2014] No. 545) Synopsis To accelerate the transformation of government functions, explore an innovative model for tax services and promote tax modernization, the State Administration of Taxation (SAT) released Shuizonghan [2014] No. 545 ( Circular 545 ) on 17 November 2014 to announce a scheme to gradually expand the application of innovative tax-related measures in the SHPFTZ to the entire nation.

2 Key features of Circular 545 are as follows: No. Measures Description of the measures Measures to be applied in regions and application timeline 1 Allotting tax registration number ( 赋码 ) online Through an automatic allotment of tax registration number online, taxpayers subject to joint approval are no longer required to submit various tax related documents when applying for registration for starting operations. Application for tax registrations initiated by taxpayers would be changed to automatic allotment of tax registration numbers through the tax system based on enterprises information provided by industry and commerce authorities and quality inspection authorities. When taxpayers initially handle tax matters, tax authorities shall collect information based on basic information and documents presented by the taxpayers; completion of relevant forms would not be required. Tax authorities shall also provide one-stop services for taxpayers, such as notification of general tax matters, tax type and invoice assessment and tax implementation guidance. Applied to the entire Shanghai and the Suzhou Industrial Park (SIP) from January 2015 Will be gradually applied to zones with appropriate conditions including high-and-new technological zones, economic technological zones, economic development zones and industrial parks (hereinafter collectively referred to as zones with appropriate conditions ) from July 2015, subject to recognition of the SAT Taxpayers can inquire about tax registration information via the tax registration inquiry platform online. 2 Use of electronic invoices online Promoting the use of electronic invoices by e-commerce enterprises and other enterprises with appropriate conditions The scope of electronic invoice recipients would be expanded from individual consumers to enterprises Subject to inspections or stress tests in Pudong New Area, Shanghai step by step and item by item from January 2015 Would be implemented in qualifying areas (e.g., SIP) in 2015 depending on the results of inspections and tests, subject to recognition of the SAT 3 Handling tax matters online To gradually accomplish handling general tax-related matters of taxpayers through the online tax platforms such as the online tax service hall and online filing system Has been implemented in Shanghai from October 2014 Implemented in the SIP from January Handling tax matters at any tax service office of the tax authority in charge ( 区域通办 ) Taxpayers can handle their tax-related matters at any tax service office of their tax authorities in charge. Will be gradually applied to statelevel zones with appropriate conditions and the cities above the provincial capital level from July 2015 Has been gradually applied nationwide; scope of tax-related items and the coverage for each area can be expanded according to local conditions 2

3 No. Measures Description of the measures Measures to be applied in regions and application timeline 5 Online direct recognition Removing the supervision period for newly established enterprises, directly accepting the application and implementing the recognition of general Value-Added Tax (VAT) taxpayer status, and issuing relevant certificates through the online tax service platforms Will be gradually applied nationwide according to the status of adjustments to the management system for general VAT taxpayer recognition by the SAT in Online tax administration of non-residents, i.e., online administration of non-trade items The time allowed for handing the above matters would be shortened from 20 working days to not exceeding 5 working days. For non-trade items less than USD50,000, tax authorities shall perform record filings of non-residents contracts based on their previous record filing status and credibility; no duplicate review would be required. Relevant documents shall be retained by taxpayers for tax authorities future verification. Same as that for use of electronic invoices online Establishing a tax system for administration of non-trade items to realize tax services for non-resident enterprises such as online record filings, online filings and online tax withholding 7 Online quarterly filings For taxpayers in the Yangshan Bonded Port Area eligible for VAT Same Time Levy and Rebate policy for provision of domestic cargo transportation, storage, loading and unloading services, the filing mode would be changed from monthly filings to online quarterly filings for VAT reporting; preferential tax refund policies would be applicable after the filings. Same as that for use of electronic invoices online Relaxing the restrictions on the quantity of VAT invoices that taxpayers can get from tax authorities per application and allowing general VAT taxpayers with a high credit rating to get VAT invoices up to a quantity for three-month use each time 8 Online approval and record filing ( 备案 ) for taxrelated items Tax authorities shall publish the lists of taxrelated items subject to approval/record filings. After taxpayers submit online applications for tax-related matters included in the aforesaid lists, tax authorities shall handle them online according to relevant rules and provide taxpayers with progress inquiry services. Implemented in the SIP from January 2015 Will be gradually expanded to state-level zones with appropriate conditions and provincial capitals or above from July

4 No. Measures Description of the measures Measures to be applied in regions and application timeline 9 Online tax credit assessment Tax authorities shall collect, process and assess tax credit information to generate tax credit assessment results through the credit information platform. Tax authorities would implement classified services and administration according to the results. Applied nationwide from January 2015 Taxpayers can inquire about their own tax credit rating online. Tax authorities in the areas with appropriate conditions can connect their tax credit platform with credit platforms of local governments and other units to realize the sharing of taxpayers credit information among various departments. 10 Innovative online services for taxrelated matters Tax authorities shall gather information on taxpayers and their needs online. Tax authorities shall deliver tax-related information and send reminders online. Tax authorities shall provide services such as online inquiry service about tax handlings. Has been gradually applied nationwide and will be expanded in terms of scope of tax-related items subject to online services according to local conditions Our observations On 25 June 2014, the SAT introduced ten innovative tax-related measures in the SHPFTZ on a pilot basis through Shuizonghan [2014] No. 298 ( Circular 298 ). After a prudent assessment, the ten measures have been included in the Standardizations of Tax Services for All Tax Authorities at the County Level, of which, two measures have been replicated and applied nationwide; five measures are considered appropriate to be replicated and applied nationwide; while the other three can be replicated and expanded in certain areas on a pilot basis. (Please refer to CTIE for details of Circular 298.) To accelerate the transformation of government functions, promote tax modernization and better serve taxpayers, the SAT decided to gradually replicate and apply the ten tax-related measures in the SHPFTZ nationwide according to the following requirements: Replicated and applied to specific areas with conditions similar to the SHPFTZ Gradually expanded to the entire Shanghai Extended to other locations in China step by step and item by item Taxpayers should study and observe Circular 545 as well as implementation circulars/notices to be released by tax authorities at the local level. Taxpayers are also suggested to get familiar with these new tax-related measures and apply them once they are introduced by the tax authorities in charge. If in doubt, consultations with tax professionals are always recommended. You may click this link to access full content of Circular 545: You may click this link to access full content of Circular 298: 4

5 Notice regarding Consumption Tax (CT) collection on battery and paint (Caishui [2015] No. 16) Synopsis To promote energy conservation and environmental protection, on 26 January 2015, the Ministry of Finance (MOF) and SAT jointly released Caishui [2015] No. 16 ( Circular 16 ) regarding CT collection on battery and paint. Pursuant to Circular 16, the State Council has approved that CT shall be imposed on battery and paint from 1 February The details are as follows: CT policies on battery and paint The battery and paint shall be included in the CT taxable scope and subject to CT at 4% on VAT-exclusive sales amounts during the process of manufacturing, entrusted processing and importation. CT exemption The mercury-free primary battery, metal hydride nickel storage battery, lithium primary battery, lithiumion storage battery, solar battery, fuel battery and vanadium redox battery shall be exempt from CT. CT collection on lead storage battery shall be postponed until CT shall be collected on lead storage battery at 4% of its VAT-exclusive sales amount from 1 January The paint with emissions of volatile organic compounds during the construction stage not exceeding 420g/L shall be exempt from CT. Other provisions In addition to the above provisions, other matters related to CT collection and administration on battery and paint shall be implemented according to the Provisional Regulations of the People s Republic of China (PRC) on CT and its Implementation Rules. Circular 16 also includes explanatory notes to the scope of CT taxable battery and paint. Our observations In November 2013, the Third Plenary Session of the Eighteenth Central Committee of the Communist Party of China decided to strengthen the reform of financial and tax system (hereinafter referred to as the Decision ). CT-related issues covered in the Decision include expanding the CT scope to cover high energy-consuming products, products causing heavy pollution and certain high-end consumables. To implement the Decision, the MOF and SAT jointly issued Circular 16 to include the battery and paint (causing high energy consumption and heavy pollution) in the CT taxable scope from 1 February (Please refer to CTIE for details of the Decision.) It is expected that enterprises engaging in the manufacturing, entrusted processing and importation of battery and paint may suffer a heavy tax burden if the newly-added CT cost cannot be passed on immediately to their clients. Enterprises affected by Circular 16 should assess the impacts on their business operations carefully and negotiate with their clients on the price adjustments, if possible. If in doubt, it is advisable to seek assistance from tax professionals. You may click this link to access full content of Circular 16: You may click this link to access full content of the Decision: 5

6 Notice regarding the implementation of VAT refund on goods purchased by foreign tourists (MOF Announcement [2015] No. 3) Synopsis Pursuant to Guofa [2014] No. 31 ( Circular 31, i.e., Opinions for promoting reform and development of tourism), on 6 January 2015, the MOF released MOF Announcement [2015] No. 3 ( Announcement 3 ) to launch the tourist VAT refund scheme in China. Key features of Announcement 3 are as follows: Items General rule of the tourist VAT refund scheme Goods eligible for VAT refund Provisions Foreign tourists as well as visitors from Hong Kong, Macau and Taiwan who have stayed in Mainland China for no more than 183 consecutive days will be eligible for an 11% VAT refund on goods purchased at designated stores 1 when they depart from Mainland China at the point of departure under the tourist VAT refund scheme (i.e., international airports, seaports or land borders). Goods eligible for VAT refund refer to qualifying goods purchased in designated stores by the tourists themselves, except for the following: Prohibited/restricted goods for import and export purposes as listed in the GAC Order [1993] No. 43 ( Order 43, i.e., List of Prohibited/Restricted Goods for Import and Export Purposes) VAT exempt goods in designated stores Qualifying purchases for a VAT refund Other goods not eligible for VAT refund as prescribed by the MOF, SAT and General Administration of Customs (GAC) A purchase should meet all of the following criteria to be qualified for a VAT refund: Goods purchased by one tourist/visitor in a single designated store on the same day which cost RMB500 or more The goods eligible for a VAT refund have not been consumed or opened The goods were purchased within 90 days before the departure Calculation of a VAT refund Procedures for a VAT refund claim The goods are carried or check-in by the tourist/visitor VAT refundable = Price of goods indicated in VAT invoices (VAT included) x 11% Obtain proper documents When a purchase is made, the tourist/visitor should obtain an application form for the VAT refund claim and a proper VAT invoice from the designated store. Verification by the Customs When departure, the tourist/visitor should present the relevant goods eligible for the VAT refund, the application form and proper VAT invoice to the Customs at the port of departure for verification. Tax refund claims handled by designated agency 2 Upon verification, tax refunds shall be paid to the tourist/visitor by the designated agency on behalf of the tax authority. Settlements of tax refunds The designated agency shall apply for settlements with tax authority in charge at the provincial level for VAT refunds paid to tourists/visitors. Provincial tax authorities shall report statuses of VAT refund payments to finance bureaus at the provincial level. 6

7 Items Payments of VAT refunds Effectiveness Provisions Payments of VAT refunds can be either made in Renminbi (RMB) to a bank account or in cash if the amount of a VAT refund does not exceed RMB10,000. For the amount of a VAT refund exceeding RMB10,000, the payment must be made to a bank account. The MOF, SAT and GAC started to accept record filings from the provincial people s governments that plan to participate in the tourist VAT refund scheme from the promulgation date of Announcement 3, i.e., 6 January Scope of locations participating in the tourist VAT refund scheme as well as the respective implementation dates shall be further announced by the MOF, SAT and GAC. Our observations The tourist tax refund scheme is a common practice widely adopted by many countries. In 2011, the MOF released MOF Announcement [2011] No. 14 ( Announcement 14, i.e., Notice regarding the launch of pilot tourist VAT refund scheme in Hainan) which introduced the tourist VAT refund scheme in Hainan on a pilot basis. After four years of pilot run in Hainan, the MOF released Announcement 3 to expand the tourist VAT refund scheme to the entire nation. Compared to the pilot run in Hainan, Announcement 3 further improves the tourist VAT refund scheme in the following aspects: Expands the ports of departure beyond international airports. The VAT refund can also be claimed when the tourist/visitor departs from seaport or via land border The scope of goods eligible for tax refunds is expanded to cover all goods except for prohibited/restricted goods for import/export purposes and VAT exempt goods. Goods purchased by one tourist/visitor in a single designated store on the same day with the price exceeding RMB500 (decreased from RMB800) shall be eligible for VAT refunds. Further details regarding the tourist VAT refund scheme are expected to be released by the relevant government authorities soon. 1 Stores intended to participate in the tourist VAT refund scheme need to file to tax authorities in charge at the provincial level for record. Detailed criteria for designated stores are to be stipulated by the SAT and MOF in due course. 2 Designated agencies that handle tax refund claims shall be appointed by tax authorities at the provincial level together with finance bureaus and Customs at the same level. Detailed criteria for designated agencies shall be further stipulated by the SAT, MOF and GAC. You may click this link to access full content of Announcement 3: You may click this link to access full content of the Interpretation of Announcement 3 from the MOF: You may click this link to access full content of Circular 31: You may click this link to access full content of Order 43: You may click this link to access full content of Announcement 14: 7

8 Business circular Notice regarding the public opinion consultation on the Foreign Investment Law of the PRC (Discussion Draft) Synopsis Pursuant to the Legislation Program by the 12th National People s Congress Standing Committee and the 2014 Legislation Plan by the State Council, the Ministry of Commerce (MOFCOM) started the modifications of Law of the PRC on Foreign Investment Enterprises ( FIEs ), Law of the PRC on Chinese-Foreign Equity Joint Ventures ( EJVs ) and Law of the PRC on Chinese-Foreign Cooperative Joint Ventures ( CJVs ) (hereinafter collectively referred to as the Three FIE Laws ) and announced a discussion draft of the Foreign Investment Law of the PRC (hereinafter referred to as the Discussion Draft ) to seek public comments on 19 January The official version of the Foreign Investment Law of the PRC, once releases and becomes effective, shall replace the existing three FIEs Laws. The consultation period will be closed on 17 February The public can submit their comments through the website of the MOFCOM ( or sending s to the MOFCOM (investmentlaw@mofcom.gov.cn). We will release a new issue of China Tax & Investment News to discuss the Discussion Draft and the relevant implications in greater details. Please stay tuned. You may click this link to access full content of the Discussion Draft: You may click this link to access full content of the Three FIEs Laws: Other tax related circulars recently announced by central government authorities: Notice regarding the adjustment of tax preferential policies related to the importation of natural gas (Caiguanshui [2014] No. 67) Notice regarding opinions on reinforcing the implementation of work (Shuizongfa [2015] No. 7) Notice regarding Vehicle Purchase Tax (VPT) exemption for the medical vehicles of the "Healthy Mother Expresses" project in 2014 (Caishui [2014] No. 113) Notice regarding VPT exemption for flood prevention emergency vehicles in 2014 (Caishui [2014] No. 111) Notice regarding VPT exemption for forest fire control vehicles in 2014 (Caishui [2014] No. 112) Notice regarding certain issues related to provisional Corporate Income Tax filing of the China National Petroleum Corp. (Shuizonghan [2015] No. 21) 8

9 Contact us For more information, please contact your usual EY contact or one of the following of EY s China tax leaders. Office Tax Leaders Henry Chan (Beijing) henry.chan@cn.ey.com Alan Lan (Tianjin) alan.lan@cn.ey.com Samuel Yan (Dalian/Shenyang) samuel.yan@cn.ey.com Lucy Wang (Qingdao) lucy-c.wang@cn.ey.com Vickie Tan (Shanghai/Wuhan) vickie.tan@cn.ey.com Patricia Xia (Hangzhou) patricia.xia@cn.ey.com Chuan Shi (Chengdu) chuan.shi@cn.ey.com Rio Chan (Guangzhou/Xiamen) rio.chan@cn.ey.com Lawrence Cheung (Shenzhen) lawrence-f.cheung@cn.ey.com Clement Yuen (China South) clement.yuen@cn.ey.com Audrie Xia (Suzhou) audrie.xia@cn.ey.com Service Line Tax Leaders Andrew Choy (International Tax & Transfer Pricing) andrew.choy@cn.ey.com Paul Wen (Human Capital) paul.wen@hk.ey.com Becky Lai (Tax Policy) becky.lai@hk.ey.com David Chan (Transaction Tax) david.chan@hk.ey.com Robert Smith (Indirect Tax) robert.smith@cn.ey.com Greater China Tax Leader Walter Tong walter.tong@cn.ey.com Author China Tax Center Jane Hui jane.hui@hk.ey.com 9

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