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Nationwide China VAT implementation to
begin today
On May 24 China's Ministry of Finance and State Administration of Taxation jointly released a "Notice concerning the nationwide adoption of value-added tax (VAT)
in lieu of business tax (BT) pilot tax collection policy in the transportation industry and certain modern service industries (Caishui) [2013]
(Circular No. 37)" which is to guide the implementation of the Nationwide VAT reform.
The pilot reform was first implemented in Shanghai at the beginning of last year before expanding to other cities and regions throughout China. Before the pilot reform program there was a situation whereby a VAT was levied on the sales and importation of goods
and the provision of processing, repair and replacement services but BT was levied on the provision of other services. This system was considered to be in need of reform because the system was said to result in double taxation and unfairness in some circumstances.
Circular 37 contains a series of measures and regulations for the implementation of the new VAT reform provisions. The taxable services covered in the VAT reform that are potentially relevant to the international transport and logistics sector are shown below
together with the corresponding tax rates to be applied from today.
Taxable Services Under China's VAT Reform
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Tax
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Tax Rate
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Land transportation service
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11%
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Water transportation service
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11%
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Aviation transportation service
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11%
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Logistics auxiliary service
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6%
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Circular 37 also abolishes the relevant regulations that applied before the pilot period so that these are effectively invalidated from today.
Liner operators engaged in Australian trade have provided notice to their customers that the effect of the circular 37 reforms will be the imposition of an additional 6% VAT that will be applied for the
ocean freight and the other charges that are payable within the PRC. The VAT however does not appear to apply to freight and other charges which are collected outside of China.
Circular 37 maintains some of the same definitions around services as per the VAT pilot scheme and relevantly these are as follows.
Transportation services are relevantly said to include:
dispatching cargos or passengers to the destination by means of transportation vehicles, including land, water, air and pipeline.
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Scope
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Definition
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Land transportation service
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The transportation of cargo or people by land (above or underground), including highway, cable car or cableway.
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Water transportation service
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The dispatching of cargo or people by rivers, lakes, streams and other natural and artificial water courses, as well as voyage charter (being a leasing arrangement
whereby an ocean freight company provides dispatching services for a particular voyage to a charterer in exchange for a rental fee), and time charter.
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Aviation
transportation service
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Dispatching cargo or passengers by air, as well as wet leasing of air transportation services.
(More relevantly in relation to the application of the 6% rate of VAT is the logistics and ancillary services).
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Ground and general aviation services
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Safety inspection, airport management services, cleaning, take-off and landing, flight communications, ground signal services, security, traffic control, air photography
and surveys.
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Freight and passenger station services
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Goods loading services, transportation management, transit services, fleet services, ticketing, parking services.
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Freight forwarding services
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Providing intermediary transportation organisation services as authorised by the consignee and consignor without actually dispatching the goods.
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Customs clearance services
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Performing customs clearance procedures upon the commission of consignee and consignor.
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Warehousing services
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Providing cargo custody service in the warehouse, yard or other storage place.
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Material handling services
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Dispatching services between transportation vehicles and/or handling sites using material handling tools, manual labour and animal power.
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There are some complex issues that arise under the circular 37 reforms, particularly in relation to the VAT implications for cross border services or the export of transportation
services. There are procedures in some circumstances for claiming zero rating for VAT on the export of services.
Although there is no particular means to prevent the imposition of these PRC Government tax reforms, it is always a good idea to make sure that your customers are kept informed and that there is within your relevant contract terms an appropriate provision to
ensure that VAT can be on-charged to your customer.
This outline of the VAT reform does not purport to substitute for any Chinese taxation law or accountancy advice and it may be that the implications of that reform will not be fully clear until it has been in effect for a period. Should anyone wish to obtain
Chinese taxation advice on specific queries relating to the implication of the new nationwide VAT implementation we would be happy to put you in contact with suitably qualified legal and accountancy services in China.
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For further information please contact:
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For information on our Shipping and Trade Group please click here.
Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 1 August 2013. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication
we recommend that you seek professional advice.
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