China Regulatory Brief: VAT Invoices Simplified & Online Trademark System Implemented

May 5, 2014 Posted by China Briefing Reading Time: 3 minutes

China Clarifies Income Tax Policy for Individually-Owned Enterprises

On April 23, the State Administration of Taxation (SAT) released the “Announcement Concerning Individual Income Tax (IIT) for Individually-Owned Enterprises, Sole Proprietorships and Partnership Enterprises (SAT [2014] No.25). According to the Announcement, individually-owned businesses whose operating period is less than one year owing to a startup, merger or cancellation should pay IIT for a whole year. The expenditure deduction standard for investors shall be RMB 3,500/month based on the actual operating period.

China-Switzerland FTA to Become Effective July 1

The Free Trade Agreement (FTA) signed between Switzerland and China last year has been approved by the State Council and is due to come into effect on July 1. According to the FTA, 84.2 percent of Swiss exports to China will receive reduced or zero tariffs, including fine machinery, power plants, chemicals and watches. Meanwhile, Switzerland has agreed to implement zero tariffs on 99.7 percent of Chinese exports, including all industrial products and most agricultural products.

China to Launch Telecommunications Industry Reform from June 1

On April 29, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly released the “Announcement on Including the Telecommunications Industry in Pilot BT-VAT Reforms” (Cai Shui [2014] No.43). According to the Announcement, the telecommunications industry will be included in pilot reforms, replacing the current business tax with a value-added tax from June 1. The VAT rates for basic telecommunications services and value-added services will be 11 percent and 6 percent, respectively. Telecommunications services for offshore organizations will be exempt from VAT.

Online Trademark Application System Implemented

On May 1, the Trademark Office of the Sate Administration for Industry & Commerce (SAIC) released the “Circular on Beginning the Use of an Online Trademark Application System.” The online trademark application system was adopted in accordance with the new trademark law. Approved by the Standing Committee of the National People’s Congress (NPCSC), the new trademark law came into effect on May 1. Efficiency, protection and punishment were three key words emphasized in the new law. The online application system can be found here.

Beijing Simplifies VAT Special Invoice Recipients

On April 30, the Beijing Municipal Office of SAT released the “Announcement on Simplifying the VAT Special Invoice Recipient System and Special VAT Invoices for Freight Transportation” (Beijing SAT[2014] No.12). The Announcement, which took effect on May 1, 2014, stipulates that prior local inspection will no longer be required for eligible tax payers. For a taxpayer to enjoy these benefits, the following conditions apply:

He/she must be classified as an A-Class taxpayer by the Tax-paying Credit Grade
The Maximum Invoicing Amount of the Special VAT Invoice must not exceed RMB 100,000

The Announcement greatly simplifies the VAT Special Invoice Recipient system and clarifies the classification of special invoices.

China Strengthens Centralized Management of Foreign Exchange Funds

The State Administration of Foreign Exchange (SAFE) recently revised rules concerning enterprises’ forex management by issuing the “Circular on the Regulations on Centralized Operation of Foreign Exchange Funds in Multinational Corporations” (Trial, Hui Fa [2014] No.23).

The Circular stipulates that eligible multinational corporations may centrally manage domestic or foreign-invested enterprises’ (FIEs) forex funds. They may also carry out centralized foreign exchange collection and payment settlements under current accounts by setting up primary accounts for domestic and international forex funds, either together or separately. Under the changes, funds can be freely transferred between international foreign exchange fund primary accounts and overseas accounts.

Enterprises wishing to simultaneously set up primary accounts for domestic and international forex funds must report to their local SAFE. The Circular shall take effect on June 1, 2014.

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Revisiting China’s Value-Added Tax Reform
In this issue of China Briefing Magazine, we review recent steps taken by the Chinese government to reform its value-added tax policy. Specifically, we examine the sectors covered by the new Pilot Reform program with a focus on tax rates, taxpayer status and the calculation of VAT. We also include a VAT Pilot Reform Rates Chart, which overviews each affected industry’s tax rate and VAT exempted services.