China VAT Reform - Avalara

Since the start of 2012, China has been undergoing a vast reform of its indirect tax regime. The includes replacing the antiquated sales tax, Business Tax, with a modern Value Added Tax regime based on OECD principles. You can read about the existing Chinese VAT and Chinese Business Tax systems here.

The reforms are a major change to the Chinese tax regime since both taxes account for 42% of the total Chinese tax receipts (VAT 27%; Business Tax 15%).

The underlying aim of the reform is a shift away of the Business Tax fiscal burden on corporates (5% to 3% rates) to VAT on consumers (3% to 17% rates). This will help boost the economy’s growth, and give Chinese business a better global competition tax structure.

Below is a frequently updated summary of the major reform changes:

Date	Reform changes
May 2016	6% financial services and insurance in Spring 2016, including a decision on VAT on interest income.New regime for entertainment, restaurants and hotel accommodation.11% VAT on real estate and construction sectors.Completion of reform by May 2016.
Jun 2014	Introduction of VAT on telephony. 11% on calls and handsets; 6% on data-related services
Jan 2014	Postal services and railway transport latest services to be introduced into pilot.
Aug 2013	VAT pilot extended to whole of China.
July 2013	Non-resident companies excluded from pilot. Extends pilot to further 12 new provinces, including: Hebei; Jiangxi; and Xinjiang.
Jan 2012	New services introduced into pilot, including: architecture, environment, conferences and live events.
Sep 2012	10 new provinces to be included in Shanghai pilot: starting with Beijing; and then Tianjin; Shenzhen; Xiamen; Guangdong; Jiangsu; Zhejiang; Anhui; Fujian; and Hubei.