Indirect Tax AnalysisChina — VAT Reform: Shanghai pilot |
24. January 2011
China’s Ministry of Finance and the State Administration of Taxation provided detailed implementation rules for the VAT pilot. In the past, China taxed the supply of goods under the VAT regime, whereas most of the services were taxed under the Business Tax regime. The VAT pilot reform aims to transition certain services (e.g. R&D, IT services, logistic, leasing and consulting services) from being subject to Business Tax to being subject to VAT and to eliminate disparities between the two systems. So far, the pilot program only applies to companies domiciled in Shanghai but may be extended to other regions in the future.
The pilot will affect many companies and, especially for service providers, the compliance burden is likely to increase. However, the pilot is actually positive for many businesses as, under the VAT system, input VAT can be recovered (no recovery under the Business Tax regime) and services provided to recipients abroad are zero rated or exempted from VAT.
Further planning allows for additional opportunities.
Deloitte can assist businesses to:
- review whether business transactions in China or the Chinese entities themselves are affected by the reform;
- review the VAT treatment of services;
- analyze new compliance requirements (VAT registration, ERP system, invoicing);
- train staff;
- analyze planning opportunities.
Indirect Tax Analysis
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