Page 26 - Doing Business in China

TAXATION

f) Rulings
Advance ruling procedures are not widely used in China� Taxpayers usually approach their local tax officials on
an unofficial basis when problems arise� In special cases, tax authorities may issue post-transaction rulings�
China does allow for advance pricing arrangements (APAs)� Advance ruling procedures have been tested in
certain large businesses�

TYPES OF TAXES

VALUE ADDED TAX (VAT)
This section is updated as of 31 December 2022� Businesses should note that China has started a massive VAT
reform in 2019 in areas such as VAT rate and VAT calculation, and keep track of the latest VAT updates�

VAT is a national tax, with a single rate imposed regardless of the location of the VAT taxpayer� China’s VAT is
generally levied on any person engaged in the sale of goods or the provision of processing, repair or replacement
services within China, as well as on imports of goods into China�

The VAT reform pilot programme was launched in Shanghai on 1 January 2012, following the Chinese State Council’s
decision on 26 October 2011� The VAT reform (which initially applied to the non-railway transportation and modern
services sectors) was rolled out nationwide, and new sectors were included in the scope of the reform (i�e� railway
transportation and postal services have been included in the scope of the VAT reform since 1 January 2014;
telecommunication services have been included since 1 June 2014)�

At the opening ceremony of the National People’s Congress on 5 March 2016, Premier Li Keqiang announced that
effective from 1 May 2016, VAT will replace the Business Tax (BT) in all sectors, including real estate & construction,
financial services and insurance, and lifestyle services (including hospitality, food and beverage, healthcare and
entertainment)�

According to the announcement on the VAT Reform implemented from 1 April 2019, the VAT rate applicable to
general VAT payers for sales of goods/import of goods has been reduced from 16% to 13% , and the VAT rate from
10% to 9%�

The VAT reform aims to solve the double taxation issues arising from the indirect tax system (since the BT system
does not allow for a VAT-like credit mechanism, the BT paid by buyers cannot be recovered against their own BT
liability, and VAT cannot be recovered by purchasers who are only liable to BT), and to promote the development of
modern service industries by gradually transitioning these industries from BT liability to VAT liability�

a) Scope of VAT
Sales and imports of goods, provision of processing, replacement and repair services, and other services

b) Types of VAT taxpayers
General taxpayers
General taxpayers are those whose taxable turnover exceeds the threshold for small-scale taxpayers�
General taxpayers can deduct the input VAT from the output VAT, which can result in significant cost savings�
In addition, registration as a general VAT taxpayer can increase the amount of potential output VAT, as general
taxpayers are allowed to issue VAT receipts�

Doing Business in China 2023 | 25