China-Business-Advisory-rgb

Client Industry: Manufacturing

Client Overview: The client is a company incorporated in Shanghai’s Jiading district. Its parent company in Germany designs and manufactures packaging and special machines worldwide for the pharmaceutical, life science, F&B, cosmetics, chemical and paper hygiene industries. With a presence in China since 2008, the company has a headcount of about 40 staff.


Client Brief

The Chinese Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly released two import circulars (Caisui Circular 110 and Caisui Circular 111) on 16 November 2011, announcing the implementation of a Value Added Tax (“VAT”) Transformation Pilot Programme. This programme, implemented in phases, aimed to cover all sectors by 1 May 2016.

The first phase of the VAT Transformation Pilot Programme focused on the transportation industry and certain modern service sectors, including the client, which provides its parent company with after-sales services. As a result, the client is now subject to a VAT rate of 6%, replacing the previous business tax rate of 5%. Seeking to maximise profit under the new tax regime, the client approached SBA Stone Forest (SBASF) for assistance.

How we helped
  • Analysed the financial and tax burden impact on the client’s business due to the transition from a business tax to a VAT regime
  • Reviewed the tax terms in purchase and sales agreements
  • Analysed the client’s pricing strategy in existing sales and purchase transactions and identified ways to renegotiate the pricing structure to be favourable under the new tax regime
  • Identified opportunities to maximise the company’s profit based on insights gained from the activities above
  • Determined the appropriate tax category for VAT
  • Purchased tax and scan devices from the tax authority on the client’s behalf to compute VAT payable
  • Purchased blank VAT invoices
  • Conducted monthly VAT filings, including calculation of tax burden

Our Value

  • The client successfully maximised profits under the new tax regime
  • Provided peace of mind for the client regarding compliance with the new tax regime