VAT refinement continues

China has recently launched certain measures to simplify VAT filing procedures, especially on VAT invoicing procedures.

For some time, taxpayers were required to conduct an online assessment for all input VAT invoices on a monthly basis and also within 180 days after the issuance date of VAT invoices. Failure to meet these requirements would lead to the loss of input VAT credits. The process was quite a hassle to taxpayers.

As a new practice, as of 1 March 2020, these requirements have been abolished for any VAT invoices dated after 1 January 2017. Instead, a simple online confirmation by the taxpayers will suffice. Furthermore, even VAT invoices issued before 31 December 2016 are also eligible as input VAT credit without the need for the aforementioned online assessment. This helps to shorten the lead time for VAT filing.

In addition, the new e-VAT invoicing practice has been intensively put on trial since 2019. It is expected that VAT paper invoices will soon be abolished, pending an official announcement. In relation to e-invoicing, the Ministry of Finance has also issued a circular allowing entities meeting certain IT requirements to maintain accounting records in electronic versions in lieu of their paper formats.

Another on-going change to the VAT regime will be the continual cut on VAT rates. VAT rates have been on a downward trend recently, as part of the fiscal stimulus to support the economic growth. On 22 May 2020, China’s Premier announced the plan to further cut the VAT rates. Businesses in general, especially small- and medium-sized enterprises, are expected to benefit the most from the next cut, in addition to current VAT reliefs implemented to overcome the difficulties caused by the COVID-19 epidemic.

With the founding of a new and the first-of-its-kind free trade port in Hainan Province, as announced on 1 June 2020 by the State Council, it is reported that the VAT practice will be implemented in Hainan in a rather special manner. For example, VAT filing will be further simplified by merging it with the filing of other transactional taxes and will be levied at the final consumption stage instead of all stages of the supply chain. Details will be announced later by the Hainan government.