China Clarifies Scope of Taxable Services Subject to Zero-Rated Value-Added Tax

August 27, 2013 Posted by China Briefing Reading Time: 4 minutes

Aug. 27 – China’s State Administration of Taxation released the “Administrative Measures on Tax Exemptions and Deductions for Taxable Services Subject to the Zero Value-Added Tax Rate (SAT Announcement [2013] No. 37, hereinafter referred to as the ‘Measures’)” on August 7, which clarify the scope of taxable services subject to zero-rated value-added tax (VAT). Detailed information can be found below.

According to the Measures, tax exemption, reduction and rebate measures shall apply to the taxable services provided by entities or individuals satisfying the following conditions:

The entities or individuals are engaged in the provision of taxable services subject to zero VAT rate within China;
The entities or individuals have been identified as general VAT taxpayers; and
The taxable services provided by the entities and individuals are subject to the general VAT calculation method.

However, such entities or individuals shall not issue VAT invoices for the taxable services they provide.

Applicable Scope

International transportation services

Passenger or cargo transportation from home to abroad;
Passenger or cargo transportation from abroad to home; and
Passenger or cargo transportation services provided abroad.

However, transporting passengers or cargo in the following ways shall not be regarded as international transportation services:

Transporting passengers or cargo from any place in China to domestic zones and places under special customs supervision; and
Transporting passengers or cargo from domestic zones and places under special customs supervision to other areas of China or other domestic zones under special customs supervision.

Hong Kong, Macau and Taiwan Transportation Service

Transportation services to and from Hong Kong, Macau and Taiwan
Transportation services provided in Hong Kong, Macau and Taiwan

Provision of R&D and design services to overseas entities

R&D services refer to the business activities involving the research and experimental development of new technologies, new products, new processes or new materials and the related systems.

Design services refer to business activities that convey plans, schemes and ideas in visual or textual forms. Specifically:

Industrial design
Style design
Costume design
Environmental design
Graphic design
Package design
Animation and cartoon design
Exhibition design
Web design
Machinery design
Engineering design
Creative planning

However, such tax exemption, deduction and rebate measures are not applicable to the activities of providing R&D and design services to entities in domestic zones under special customs supervision.

Calculation Method

Current tax exemption, deduction or rebate amounts for taxable services subject to zero VAT rate shall be calculated as following:

Current tax exemption, deduction or rebate amounts for taxable services subject to zero VAT rate = current taxable value of tax exemption, deduction or rebate for zero-rate taxable services x RMB exchange rates x rebate rates of taxable services subject to zero VAT rate

The Measures are retroactively effective from August 1, 2013.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across China by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

Related Reading

The China Tax Guide: Tax, Accounting and Audit (Sixth Edition)
This edition of the China Tax Guide, updated for 2013, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China operations.

Value-Added Tax Reform
VAT reform is a confusing transition for many and introduces a number of additional questions, such as exactly what types of input VAT are now deductible. Confusion about the new laws may also allow opportunistic companies to charge higher prices and blame the increase on the tax reform. To add some clarity to the issue – and VAT in general – this issue of China Briefing takes a look at a number of VAT-related questions.