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TGS Nortex Chinese Tax Update Webinar

The State Administration of Taxation (“SAT”) promulgated the circulars for applying the VAT reform, effective from January 1st 2012, which means VAT would be applicable to some industries instead of Business Tax (“BT”). Shanghai launched the VAT reform on January 1st  2012.  Currently, this policy is being used all over China. The service scope involved in the VAT reform includes:

  • Transportation service (11% VAT rate)
  • Postal service (11% VAT rate)
  • Part of the modern service [6% VAT rate (except tangible movable property leasing services that apply to 17% VAT rate)]
  • Telecommunications service (basic telecommunications services apply to 11% VAT rate, and value-added telecom services apply to 6% VAT rate)
  • Some of above prescribed services apply a 0% VAT rate or are VAT exempted

Step One Cai Shui[2011] No. 111, Cai Shui [2011] No. 131 Cai Shui[2011] No. 133 and Cai Shui[2012] No. 71 etc. Have all been abolished since August 1st 2013

  • The  Collection of Value-Added Tax in Lieu of Business Tax  has carried out in parts of industries and regions. Shanghai began this policy on January 1st 2012, as the first pilot city. Beijing and other 8 cities have also been adopting this policy since August 1st 2012.

Step Two Cai Shui[2013] No. 37 Has been abolished since January 1st 2013. Plus the announcement of the State Administration of Taxation [2013] No. 52 etc.

  • Parts of industries have been chosen as experimental units. The transport industry and certain modern services industries have started the VAT reform since August 1st 2013.

Step Three Cai Shui[2013] No. 106 has come into operation since January 1st 2014

  • The railway transport and postal industries have been brought in as well as pilot industries and perfectly fitted with related policies.

Step Four Cai Shui[2014] No. 43 has come into operation since June 1st 2014 Eventually, the Business Tax will be canceled. Part 2: Updated bilateral tax treaty and protocols In recent years, China has signed a new bilateral tax treaty with multiple countries:

  • On November 26 2013, China and France signed the new bilateral tax agreement and the protocol to restate the lower rate of Withholding tax (“WHT”) for dividend special WHT treatment of Sovereign Wealth Funds (SWF) abolishing the previous tax sparing relief etc.
  • On December 13 2013, China and Britain signed the new bilateral tax agreement and the protocol to restate the lower rate of WHT for dividend and royalty.
  • On March 28 2014, China and German signed the new bilateral tax agreement and the protocol to restate the lower rate of WHT for dividend and royalty New anti-avoidance clauses etc.

Part 3: The preferential tax area in China China (Shanghai) Pilot Free Trade Zone The state council approved the establishment of the China (Shanghai) Pilot Free-Trade Area in Shanghai in 2013, which is advantageous to the development of trading, shipping, finance and the related industries in China. The Zone covers an area of 29 km, integrating four existing bonded zones:

  • Pudong Waigaoqiao Free Trade Zone
  • Waigaoqiao Free Trade Logistics Park
  • Yangshan Free Trade Port Area
  • Pudong Airport Comprehensive Free Trade Zone

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