China VAT e-services
China has not yet adapted its Value Added Tax regime for the business model of foreign providers of electronic services. There is no scope for foreign VAT registrations
Goods and services are generally only able to be provided by resident businesses, which must VAT register at the branch level. Therefore, foreign providers of e-service may not register for Chinese VAT.
Chinese consumers and businesses are generally required to self-assess VAT on any purchases they make. This voluntary tax regime is largely ineffective and has been largely abandoned by other countries.
Non-resident providers may therefore suffer unexpected withholding VAT charges against their contracted net price. This is irrecoverable. In addition, there may be income withholding tax charges.
Taxable supplies may include: advertising; data analysis; and various digitised services.
Challenges to foreign e-services VAT
Whilst China may open up to foreign VAT registrations to prevent tax leakage, there remains several challenges to solve first:
- The Chinese VAT regime is linked to business incorporation and product licensing systems;
- The currency is not free floating; and
- VAT is largely collected and paid on a local level, and it is not clear where non-residents would register or to where they would remit their taxes.
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