China VAT update

Fri 18th Sep 2015

Whilst China pauses on its VAT reform, businesses continue to update their accounting and ERP’s to the already processed changes. These include switching sectors such as transport,

Many of the changes have impacted the service sector, with improved recover of Chinese VAT for importers and exporters of services. This includes: software; outsourced business process services; royalties on IP; and inter-group service charges.

Key VAT changes for foreign companies

Below is a summary of some of the major changes to the existing VAT and Business Tax regime that affect international companies:

  • The export of services from China to foreign companies are rated at nil or exempt. Previously, such services would be subject to 5% Business Tax
  • Importers can now recover import VAT (credits) on the purchase of services
  • Service companies may reclaim input VAT on the purchases such as services, tangible assets or other related goods
  • Imported services are liable to VAT via a withholding regime, which the customer may recover as input VAT