VAT Reform to be Completed in May 2016

During the annual National People’s Congress meeting on March 5, Premier Li Ke Qiang announced in his speech of the government report that the VAT reform will cover the last few industries as of May 1st, 2016.  The main points taken out of his speech are as follows:-

• As of May 1st, 2016, the VAT reform will cover the construction and real estate industry, the financial service industry, and the consumer service sector.
• Premier Li emphasized that the taxpayer’s tax burden will remain the same or even decline due to transfers from the Business Tax system to the VAT system.
• For immovable assets newly purchased by the taxpayers in these industries, the input credit shall be utilized for future deductions.

This is long-awaited news for companies in the mentioned industries, as the schedule for the full roll-out of the original VAT pilot program has been waited but never materialized before this announcement.

The Ministry of Finance and the State Administration of Taxation will soon publish detailed rules on the implementation. The exact guidelines will appear most likely at the end of March or early April.

What does the VAT Reform mean for Foreign Businesses in China

The Premier guarantees that the tax burden will not increase, which is good news for companies in these industries.  For the current preferential treatments under the BT system, it is foreseeable that there will be some grandmother rule to ensure a smooth move to the new system.

As the VAT system is quite different from the BT system. We, therefore, recommend that companies in these industries consult tax professionals in order to adapt to the new requirements.

What can our ECOVIS Beijing Tax Consultants do for you?

Ecovis Beijing may help in the following:

• Training of understanding the VAT system
• Assess and review the current tax status of the company, and recommend improve areas under the VAT system
• Help apply for VAT preferential treatments where applicable

ECOVIS Beijing is a consultancy focusing on accounting, audit, legal and tax advisory for foreign SMEs and startups in China. If you have any further questions on VAT and tax incentives in China, please visit our website or contact: service@ecovis-beijing.com