VAT PILOT REFORM IN CHINA

Transcription

1 VAT PILOT REFORM IN CHINA Presentation by Peter Law Tuesday 9 th October

2 OUTLINE 1. Introduction to the VAT pilot reform in Guangdong 2. Key considerations 3. Case study 4. Q&A 2 Date

3 01 Introduction to the VAT pilot reform in Guangdong 3 Date

4 RELEVANT CIRCULARS Rule base Caishui ( 财税 ) [2012] No.71 issued on 31 st July, Geographic extension to 8 sites Guangdong Province (including Shenzhen), Beijing, Tianjin, For Guangdong Province: will finish the transformation from previous tax system to the new one by November 1 st, Applicable regulations Caishui ( 财税 ) [2011] No.111 Caishui ( 财税 ) [2011] No.131 Caishui ( 财税 ) [2011] No.132 Caishui ( 财税 ) [2011] No.133 Caishui ( 财税 ) [2012] No.53 4

5 SCOPE OF REFORM Scope of charge taxpayers should be entities or individuals transportation services and selected modern services ( VAT-able services ); and provision of such services in the PRC - Note: Providing services in the PRC means that either the provider or recipient of taxable services is located in the PRC. Excludes An overseas entity or individual who provides to any domestic entity or individual the taxable services which are entirely consumed overseas; An overseas entity or individual who leases to any domestic entity or individual the tangible movable assets which are entirely used overseas; or Other circumstances defined by the SAT ( State Administrative of Taxation ). 5

6 VAT-ABLE SERVICES Transportation ( 1 ) Land transportation (excluding railway transportation) Water transportation Air transportation Pipeline transportation Selected modern services ( 6 ) R&D and technology services Information technology services Cultural and creative services Logistics auxiliary services Leasing of tangible and movable assets Certification and consulting services 6

7 COMPARISON Before pilot reform After pilot reform Gross income / net income * rate Taxation methods General VAT payer: Output VAT Input VAT Small-scale VAT payer: Service revenue * 3% Leasing of tangible and movable assets: 5% Transportation services: 3% Cultural and sports services: 3% Tax rates Leasing of tangible and movable assets: 17% Transportation services: 11% Certain specified services: 6% Other stipulated services: 0 Small-scale VAT payer: 3% Service invoices Invoices Special VAT invoices 7

8 GENERAL CALCULATION MECHANISM General VAT payer VAT payable = Output VAT Input VAT Note: Output VAT = Gross revenue / (1+VAT rate) x VAT rate Small-scale VAT payer VAT payable = Service revenue / (1+3%) * 3% 8

9 VAT CREDIT CONDITIONS For VAT general taxpayers, differences between pilot region and non-pilot region in VAT credit. Receive service Receive services from pilot region Receive services from overseas (service import) Receive processing & repairing services Pilot region (can be deducted or not?) Yes Yes Yes Non-pilot region (can be deducted or not?) Yes No Yes 9

10 EXCEPTIONS Conditions that in-put VAT is not creditable: Non-VAT taxable items, VAT-exempt items, goods purchased, receipt of processing, repair and fitting services or taxable services for staff benefits or for personal consumption Purchased goods which incur abnormal losses, as well as the processing, repair and fitting services or transportation services received in relation to such goods Goods (other than fixed assets) purchased and used for products in processing or finished products which incur abnormal losses, and the processing, repair and fitting services and transportation services received in relation to such goods Any passenger transportation services received; and Motorcycles, cars and yachts (which consumption tax is payable) for the taxpayer's own use, except used for providing transportation services or as subject matters of leasing services 10

11 DEDUCTION DOCUMENTATION REQUIREMENTS 1. Special VAT invoices 2. Import VAT invoices issued by the Customs 3. Purchase or sales invoice of agricultural products 4. Receiving transportation services: Input VAT = Freight indicated in the freight invoice (general invoice)* Creditable rate of 7%; Transportation services received by a pilot taxpayer from a small-scale pilot taxpayer, input VAT = Price including tax indicated in the special VAT invoice * Creditable rate of 7%; Freight invoices (other than railway transportation invoice) obtained by a pilot taxpayer from the pilot areas after transformation date CANNOT be treated as VAT credit certificates. 5. General tax payment voucher when receiving overseas services 11

12 VAT TREATMENTS ON SERVICE EXPORT Zero-rating Exempt Output VAT: 0 Output VAT: 0 Input VAT: Creditable Input VAT: Non-creditable 12

13 VAT TREATMENT ON SERVICE EXPORT Transportation service export Circular 111 Circular 131 Service scope Zero-rate VAT exemption 1) Land transportation (excluding railway transportation); 2) Water transportation; 3) Air transportation; 4) Pipeline transportation. Qualified international transportation services (Note 1) Non-qualified international transportation services (Note 2) Transportation of passengers or goods from special customs monitoring zone to other parties of China or vice versa is NOT considered as international transportation services. Note 1: Refers to the following services which are provided by licensed entities and individuals: Transportation of passengers or goods out of China Transportation of passengers or goods into China Transportation of passengers or goods outside China Note 2: For the international transportation services provided by non-licensed units and individuals, they should be subject to VAT exemption treatment. 13

14 VAT TREATMENTS ON SERVICE EXPORT R&D and technology service export Circular 111 Circular 131 Service scope Zero-rate (Note 1) VAT exemption R&D services Technology transfer services Technology consulting services R&D services to overseas recipients N.A. N.A. Technology transfer services to overseas recipients Technology consulting services to overseas recipients Contract energy management services Project survey and exploration services N.A. N.A. Contract energy management services to overseas recipients (excluding the services that the concerned objects are inside China) Project survey and exploration services that the concerned projects or mineral resources are outside of China Note 1: The stipulated services should be subject to general VAT computation method. Otherwise, VAT exemption treatment should be applied. 14

15 VAT TREATMENTS ON SERVICE EXPORT Information technology services export Circular 111 Circular 131 Service scope Zero-rate VAT exemption Software services Circuit design and testing services N.A. N.A. Software services to overseas recipients Circuit design and testing services to overseas recipients Information system services N.A. Information system services to overseas recipients Business process management services N.A. Business process management services to overseas recipients 15

16 VAT TREATMENTS ON SERVICE EXPORT Cultural and creative services export Circular 111 Circular 131 Service scope Zero-rate (Note 1) VAT exemption Design services Trademark and copyright transfer services Design services to overseas recipients (excluding design services related to immovable properties located in China) Trademark and copyright transfer services to overseas recipients IP services Advertising services Conference and exhibition services IP services to overseas recipients Advertisements that are released outside of China Venues of conferences and exhibitions that are held outside of China Note 1: The stipulated services should be subject to general VAT computation methods. Otherwise, VAT exemption treatment should be applied. 16

17 VAT TREATMENTS ON SERVICE EXPORT Logistics auxiliary services export Circular 111 Circular 131 Service scope Zero-rate VAT exemption 1) Aviation services; 2) Port services; 3) Transport terminal services; 4) Salvage assistance services; 5) Cargo transport agent services; 6) Customs brokerage services; 7) Load-unloading services. N.A. Logistics auxiliary services to overseas recipients (excluding storage services). Storage services N.A. Storage services that the storage places are located outside of China. 17

18 VAT TREATMENTS ON SERVICE EXPORT Leasing of tangible movable assets /Certification & consulting services export Circular 111 Circular 131 Service scope Zero-rate VAT exemption Leasing of tangible movable assets: 1)Operating leasing; 2)Finance leasing. N.A. Leasing of tangible moveable assets that are used outside of China Certification and consulting services: 1)Verification services; 2)Certification services; 3)Consulting services. N.A. Verification, certification and consulting services to overseas recipients (excluding services in relation to domestic goods or immovable properties). 18

19 02 Key considerations 19 Date

20 IMPACTS AND KEY CONSIDERATIONS 1. Applicable VAT rate under the pilot reform vs. current BT rate Example 1: a small-scale company leasing of tangible and movable services - Before VAT pilot reform, BT rate is 5% - After VAT pilot reform, when the company is a small-scale VAT payer, VAT rate is 3% Example 2: a consulting service provider with large business scale - Before VAT pilot reform, BT rate is 5% - After VAT pilot reform, when the company is qualified as a general VAT payer, VAT rate is 6% which may cause additional tax burden to customers / clients. 2. Tax compliance update under the VAT pilot reform Preparation of VAT monthly return - Note: In Shanghai, it also need to complete zero declaration for BT in E-tax system after VAT pilot reform. Identification of input VAT invoice before crediting from output VAT 20 Date

21 IMPACTS AND KEY CONSIDERATIONS (CONT D) 3. The nature of clients and vendors: BT or VAT taxpayers If the client becomes a VAT payer under the reform: the company can consider to quote a higher price, since the VAT invoice may be credited. If the vendor becomes a VAT payer, the company will obtain special VAT invoices which may credit from output VAT. 4. Whether the vouchers obtained from vendors can be deductible or not Freight invoices (other than railway transportation invoice) instead of special VAT invoice, obtained by a pilot taxpayer from the pilot areas, cannot be treated as VAT credit certificates. 5. Transportation companies shall consider to delay the purchase time of vehicles after transformation date, then the input VAT can be creditable. The companies who purchased fixed assets before transformation date, and based on which provide services, their input VAT will be hard to be credited against output VAT. 21 Date

22 IMPACTS AND KEY CONSIDERATIONS (CONT D) 6. Some industries (like consulting firm): only minimal input VAT can be credited The company may charge the client additional fee to cover VAT and related local surcharges. For example: - service fee is RMB 10,000-6% VAT plus 0.78% surcharges on the above service fee: RMB 10,000*6.78% - In such a case, the VAT burden has been transferred to the client. However, it should be clearly stated in the engagement letter. 7. If there are related party transaction, change in TP policy may be considered. 22 Date

23 TRANSITION Transition of preferential policy Technology transfer and technology development, as well as related technical consulting and technical services: exempt for VAT (exempt for BT before reform) Offshore outsourcing services (ITO/BPO/KPO): exempt for VAT from January 1 st, 2012 to December 31 st, 2013 (exempt for BT before reform) A pilot taxpayer provides taxable services subject to BT in the light of margin, the sales amount of such services can be the balance of total price and other charges deducting the price paid to non-pilot taxpayers Transition between different business An original general VAT payer in the pilot areas who concurrently provides taxable services, its input VAT credit balance by the transformation date may not be deducted from the output VAT of taxable services. 23 Date

24 YEARLY TAX TREATMENT 1. Yearly lease: for outstanding lease contracts signed before transformation date, BT shall continue to be paid until expiration date of the contract 2. If a pilot taxpayer paid BT in the light of margin, the part which were not sufficient to credit the deductible items before transformation date, shall not be deducted from the sales amount after transformation date, it shall apply for the refund of BT 3. If a pilot taxpayer has paid BT before transformation date and its turnover is reduced for sales refund after transformation date, it shall apply for the refund of paid BT 4. For taxable services before transformation date, if any additional tax related to taxation inspection or other reasons, it shall pay additional BT. 24 Date

25 SPECIAL FUND APPLICATION Impact in Shanghai: The first half-year prosperity survey conducted by Shanghai International Shipping Study Centre shows that: - 28% of shipping entrepreneurs believe that the VAT reform substantially aggravates the tax burden, and only 6% of them think tax burden are significantly reduced; - in the port industry, up to 51.61% of port entrepreneurs believe the VAT reform will aggravate the tax burden, and 39% of them think the reform impact a little on the tax burden. Source: [Information Newspaper] Corresponding policy in Shanghai: Per Shanghai Caishui ( 财税 ) [2012]No.5, starting from January 1 st, 2012, the pilot enterprises in Shanghai whose tax burden increase due to the transition between old and new taxation system during the VAT pilot reform, can be applicable to the transitional financial supporting policy under the pattern of application on actual basis by enterprises, classified financial support, timely fund allocation. 25 Date

26 03 Case study 26 Date

27 FINANCIAL IMPACT ASSESSMENTS ON LOGISTICS COMPANY Situation: P&L 1. Pilot general VAT payer engaged in logistics auxiliary services 2. Applicable BT rate and VAT rate are 5% and 6% respectively 3. Purchase services inclusive tax is Before Oct 31, 2012 After Nov 1, 2012 VAT passed on VAT absorbed Sales revenue BT 5 N.A. N.A. - Cost of service Expenses Profit EIT Net profit Turnover tax burden - Input VAT Output VAT VAT payable BT payable Date

28 04 Q&A 28 Date

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