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China VAT on foreign digital services update

New draft law indicates foreign providers will face digital services VAT responsibilities

In January, Chinese draft VAT law was issued. Aside from consolidating many existing laws, it includes a shift towards imposing VAT compliance obligations on non-resident providers of digital services.

It talks of VAT “for the sale of services and intangible assets, where the services and intangible assets are consumed within China, or the sellers are domestic entities or individuals”.

The bill is likely to pass into law in 2023.

Foreign digital digital service providers escape Chinese VAT net

Mainland China places the Value Added Tax responsibilities for non-resident sourced digital or electronic onto the Chinese resident customer. This applies to both B2C and B2B. There is no facility for non-residents to register for VAT. Non-resident providers of digital services should consider the likelihood that their customer will impose Withholding VAT on the payment, and may wish to charge a VAT inclusive price even though they are not VAT registered.

The current VAT rate in China is 13%. However, there is extensive use of the reduced rates: 9%; 6%; 3%. Follow VAT Calc’s global VAT and GST on digital services tracker for live updates on worldwide reforms.

VAT on foreign goods is therefore collected as import VAT – rather than it being assessed by the provider at the point-of-sale. Chinese recipients for such services must self-assess the VAT due via declarations to the XXXX. In reality, this does not happen often.

Chinese Withholding VAT

Chinese marketplaces and intermediaries will typically act as a VAT withholding agent. There is no reverse charge / zero-rating operation on foreign digital services to businesses or consumers.

China does impose a range of Withholding VAT requirements on resident purchasers for foreign supplies. Non-residents should therefore be wary of losing part of their revenues as irrecoverable tax since they cannot VAT register in China.

VAT Calc’s in real-time VAT Calculator and Auditor  services produce instant and accurate Chinese of other country VAT calculations into your ERP, billing, e-commerce or e-invoicing systems.

Asia Pacific VAT on digital services

Comments (click for details) Rate Date Threshold Comments
Australia 10% Jul 2017 AUD $75,000
Azerbaijan 12% Jan 2017
Armenia 20% Jan 2022 AMD 115million
Bangladesh 5% - 15% Jul 2019 B2B and B2C
Bhutan 7% Jul 2021 Nu 5million
Cambodia 10% Mar 2022 KHR 250m
China 6%-13% N/a Nil Withholding VAT; B2B and B2C
Fiji 9% TBC FJD 300,000
India 18% Jul 2017 -
Indonesia 11% Aug 2020 IDR600m or 12k customers
Japan 10% Oct 2015 JPY 10 million
Kazakhstan 12% Jan 2022 Nil
Kyrgyzstan 12% Jan 2022 Nil
Laos 10% Feb 2022 LAK 400m
Malaysia 6% Jan 2020 RM500,000
Nepal 13% Jul 2022 Rupees 2m Also 2% DST
New Zealand 15% Oct 2016 NZD 60,000
Pakistan 2% Sep 2021 Nil Marketplace Withholding VAT
Palau 10% Jan 2023 $300,000
Philippines 12% Jan 2024 ? P 3million
Singapore 9% Jan 2020 S$ 100,000
South Korea 10% Jul 2015 Nil
Sri Lanka 18% 2025? LKR 60m Proposals only
Taiwan 5% May 2017 NTD 480,000
Tajikistan 14% Jan 2021
Thailand 7% Sep 2021 1.8m Baht
Uzbekistan 12% Jan 2020 Nil
Vietnam 10% Dec 2020

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