China: Preferential VAT policies for certain industries

The Chinese government has taken concrete measures to implement their tax cut scheme in full this year, including lowering VAT rates starting from April 1, 2019. According to official data from the State Administration of Taxation (SAT), China’s new policy to cut VAT has saved 703.5 billion yuan (around EUR 90 billion) in the first three quarters of this year.

With the ongoing development of VAT reform, the Chinese government made three an­nouncements (Announcement [2019] No. 31, Announcement [2019] No. 84 and Announce­ment [2019] No. 87) in September to clarify more implementation measures to cut VAT.

Input VAT credit for domestic passenger transportation services The input VAT for domestic passenger transportation services may be credited. However, the scope is limited to services incurred by an enterprise’s own employees as well as those working on secondment.

Extra deduction of input VAT Qualified enterprises involved in livelihood services are allowed to enjoy a further 15% deduction of input VAT for the period from October 1, 2019 to December 31, 2021. Enterprises in which sales turnover obtained from providing livelihood services exceed 50% of its total sales turnover can enjoy this extra input VAT deduction.

Refund of VAT credits not utilised for certain manufacturing businesses Starting from April 1, 2019, the Chinese tax authority will allow a refund of VAT credit not utilised for qualifying enterprises. Announcement [2019] No. 84 has introduced a more preferential refund policy to certain manufacturing businesses, which allows qualified enterprises of certain manufacturing industries to obtain a bigger VAT refund and to obtain it earlier than others.

Other implementation measures on different industries, covering:

1) VAT exemption policy for small-scale taxpayers which operates in less than one tax period (quarter);

2) Requirements for small-scale taxpayers in the freight transportation industry to apply for special VAT invoices issued on their behalf;

3) Applicable tax items for transport vehicle cabin contracting and cabin exchange business;

4) Amount deducted for construction subcontracting payment;

5) Termination of record-keeping as an approach to simple tax computation for con­struction services;

6) Application of a simple tax computation for land reclamation and real estate devel­opment projects;

7) Determining the purchase price for restricted stock;

8) Input VAT deduction for insurance services;

9) Application of tax items on Food & Beverage services;

10) Issue of invoices which apply previous tax rates.

WTS Observation

In the context of a global economic slowdown and uncertain international relationships, the Chinese government is facing great pressure from a trickle-down economy. The ongoing reduction in VAT is helping to promote the development of the real economy, especially manufacturing business, and to reduce the tax burden on Chinese enterprises.

This largest VAT cut in recent years not only includes directly cutting VAT rates, but also covers some preferential VAT treatment and measures for certain special areas. Chinese enterprises need to update their tax knowledge promptly and determine whether they meet the conditions for applying preferential policies.