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China VAT pilot progresses

A pilot program to modernise the Chinese Value Added Tax regime is being extended to 13 new states.

The pilot is being monitored in Shanghai, where it was initially launched.  In July a further launch will take place in Beijing, as the second province.  It is intended to be introduced to further provinces in the next 2 years, as part of the 2015 objective to overhaul the entire national fiscal regime.

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On 5 April 2012 SAT (State Administration of Taxation) and the Ministry of Finance issued Announcement No. 13.  It sets out the processes to allow businesses to apply VAT zero-rating or VAT exempt on exports of particular types of services.  It applies to international transport, R&D, and design services. The announcement details the VAT refund procedure in the case of businesses supplying zero-rated services, which puts them in a VAT credit situation.

Only those companies approved  as tax-free Exporters can take advantage of the facility, and application for this status has to be submitted in the first instance.  A considerable amount of support documentation is required, and those companies who intend to sign up for the zero-VAT supplies scheme will be subjected to additional monthly reporting requirements for the first six months.

The zero-vat export of services and vat refund process is based on the goods template.

It is yet another step forward in the Shanghai pilot and clearly it will be monitored closely for eventual inclusion in the next provincial introductions.

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