China VAT reform

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:

  • 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.

Unraveling the mysteries of Chinese VAT

Webinar: Unraveling the mysteries of Chinese VAT

Join Avalara and KPMG as we review China’s VAT system and how it differs to common VAT systems around the world. 

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