INFO. January/ February Tax and Accounting News. Latest Regulations on the Transformation from Business Tax to Value-Added Tax in Shanghai

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1 January/ February 2012 Contents: Latest Regulations on the Transformation from Tax Headlines Business Tax to Value-Added Tax in Tax and Accounting News Latest Regulations on the Transformation from Business Tax to Value-Added Tax in No.65). The recognition of general VAT taxpayer is detailed stipulated as follows: On 16 November 2011, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly issued Caishui (2011) No.110 (Hereinafter refers to Circular 110 ) and Caishui (2011) No.111 ((Hereinafter refers to Circular 111 ) which set forth the Implementation Measures on Pilot Program for the Transformation from Business Tax ( BT ) to Value-Added Tax ( VAT ) in (Pilot VAT Measurement). Circular 110 contains the basic framework of the Pilot VAT Measurement, while Circular 111 provides the detailed implementation measures and guidelines applicable to. On 2 December 2011, the SAT issued the Announcement on Issues related to the Recognition of VAT General Taxpayer Status in Pilot Program for the Transformation from BT to VAT in (SAT Announcement (2011) 1. The following enterprises are obligated to apply for the qualification of general VAT taxpayer: a) Taxpayers with an annual sales value exceeding RMB 5 million earned from engaging in the taxable services under the pilot program; b) Taxpayers with an annual sales value below RMB 5 million, but newly established their businesses, can apply to be recognized as general taxpayers when satisfying certain requirements of competent tax authority. 2. The following enterprises could be regarded as general VAT taxpayer by competent tax authorities directly without any reapplication procedure: a) Taxpayers that have already obtained general taxpayer status and provide VATable services under the pilot program;

2 b) Taxpayers engaged in land or inland water transportation of cargo, at the same time as an invoice issuing taxpayer, and passed the 2011 annual audit. Finance Bureau and Administration of Taxation made further explanation on some detailed points related to the Pilot VAT Measurement, we may draw your attention to the followings: 1. Specifying the scope of pilot program in : Pilot industries do not include architecture industry, post and telecommunication industry, sales of immovable properties as well as restaurants and entertainment industry etc. 2. For the small scale VAT taxpayer in provides transportation services to the pilot VAT taxpayers or original general VAT taxpayer, the input VAT could be calculated by the formula: Input VAT = Deduction rate (7%) x (Original price + tax total stated in special VAT invoices issued by the pilot VAT taxpayer or the general VAT taxpayer). Based on all the regulations and latest tax laws above mentioned related to the transformation from BT to VAT, the VAT payables for general VAT taxpayer and small scale VAT taxpayer could be summarized as follows: 2

3 Pilot VAT taxpayer Output VAT (1) Input VAT(2) VAT amount The original Business Tax ("BT") taxpayer by full revenue income Revenue income (excluding VAT) * applicable VAT Rate (1) -(2) Pilot VAT taxpayer (providing VAT pilot service) Suppliers of Pilot VAT taxpayer (1) (2) In deducted in the sales revenue. Non pilot VAT taxpayers Other enterprises providing VAT pilot services outside General VAT taxpayer in deducted in the sales revenue. Small scale VAT taxpayers in invoices issued by tax authorities on behalf of small scale VAT taxpayer (Thereof the input VAT of special transportation invoices is 7% of the total services charges) The original business taxpayer by net revenue (the purchase service cost could be deducted before Business tax) Transportation services enterprises Non pilot VAT taxpayers outside General VAT taxpayer in Small scale VAT taxpayers in The purchased transportation services cost in the proper transportation invoices could be 7% of the total service charges in the special VAT invoices issued by tax authorities Non pilot VAT taxpayers In outside ordinary transportation invoices could be ordinary transportation invoices could be Input VAT calculated based on services charges in special transportation invoices International forwarding agent service enterprises General VAT taxpayer in ordinary transportation invoices (including international transportation invoices) could be deducted in the service income. Small scale VAT taxpayers in ordinary transportation invoices (including international transportation invoices) could be deducted in the service income. invoices issued by tax authorities on behalf of small scale VAT taxpayer (Thereof the input VAT of special transportation invoices is 7% of the total services charges) 3

4 VAT Tax payer Revenue Income(1) VAT tax rate(2) VAT amount The original Business Tax ("BT") payer by full revenue income Revenue Income (excluding VAT) 3% (1) (2) VAT taxpayer (providing VAT pilot service) Suppliers of VAT taxpayer The original business tax payer by net revenue (the purchase service cost could be deducted in the revenue income) Other enterprises providing VAT pilot services Transportation services enterprises International forwarding agent service enterprises Non pilot VAT taxpayers Non pilot VAT taxpayers Non pilot VAT taxpayers In Outside General VAT taxpayer in Small scale VAT taxpayers in Outside General VAT taxpayer in Small scale VAT taxpayers in In Outside General VAT taxpayer in Small scale VAT taxpayers in The purchased service cost could not be deducted in the service income. The purchased service cost could not be deducted in the service income. 4

5 Announcement of State Administration of Taxation regarding Issues related to Special Invoice Chop (SAT Announcement (2011) No.7) Size and Form of Special Invoice Chop: - Oval figure: 40mm x 30mm ( mm refers to millimeter); - Margin width: 1mm; - Tax registration number in the middle, combined with 18 Arabic numbers (Arial Font); each number is 3.7mm in height and 1.3 mm in width; total width of 18 Arabic numbers is 26mm; - The Chinese characters(imitation Song type) over the tax code are 4.2mm in height; distance between characters and margin is 0.5mm; - The Chinese characters with corresponding meaning of Special Invoice Chop are below the tax code; each character is 4.6mm in height and 3 mm in width; - Number (Arial Font) below the Chinese characters with corresponding meaning of Special Invoice Chop is 2.2mm in height and 1.7mm in width, which can be omitted when there is no need to be numbered. Sample of Special Invoice Chop 5

6 Tax News Headlines Catalogue of some important tax regulations und laws for the release period: 16 October 15 December 2011 Release Date: Circular: Title: Effective Date: Huifa (2011) No. 40 Notice regarding the Procedure Guidelines for Pilot Run of Foreign Exchange Administration of Commodity Trade (Bank/ Enterprise Version) and certain Issues related to the Pilot Reform from December 1, Caikuai (2011) No. 20 Guiding Opinion of Ministry of Finance, Ministry of Industry and Information Technology of People s Republic of China, State Administration of Taxation, State Administration for Industry & Commerce of the People s Republic of China and China Banking Regulatory Commission regarding Implementation of Accounting Standard for Small Scale Business Enterprises This Regulation takes effect from January 1, 2013 in the scope of domestic small scale business enterprise Caishui (2011) No. 110 Notice issued by Ministry of Finance and State Administration of Taxation regarding Pilot Arrangement Scheme of Transformation from Business Tax to Value- Added Tax from January 1, Caishui (2011) No. 111 Notice regarding the Value-Added Tax Pilot Program for Transportation and certain Modern Services Industries in This Regulation takes effect from January 1, Caishui (2011) No. 117 Notice issued by the Ministry of Finance and State Administration of Taxation regarding the Issues related to Tax Incentive for Small Low Profit Enterprise from January 1, 2012 to December 31, SAT Announcement (2011) No. 65 Announcement regarding the Recognition of General VAT Taxpayer Status in Pilot Program of Transformation from VAT to BT in This Announcement takes effect from January 1, State Council Order (2011) No. 611 Regulations for the Implementation of the Law of the People's Republic of China on Vehicle and Vessel Tax This Regulation takes effect from January 1, SAT Announcement (2011) No. 71 Announcement of State Administration of Taxation Concerning Issues relating to Value-Added Tax of Transfer of General VAT Payer This Announcement takes effect from January 1, SAT Announcement (2011) No. 73 Announcement issued by State Administration of Taxation concerning Administrative Measures on Tax Refund of Equipment Domestically Manufactured and Purchased by Research & Development Institute from January 1, 2011 to December 31, SAT Announcement (2011) No. 74 Announcement of State Administration of Taxation concerning the Use of Special VAT Invoice in Transportation Industry This Announcement takes effect from January 1,

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