China considers levying VAT on insurance premiums
- 13 September 2013 | Richard Asquith
China is actively considering replacing Business Tax on insurance premium with Value Added Tax by 2016.
Like most of Europe, and many other countries, financial services, including Insurance, is exempt from VAT in China. This is historically because of the challenge of determining the value creation points in the chain between insurer, broker, insured and reinsurer.
Chinese VAT reform
However, as the China VAT reform pilot extends across the whole country from August this year, the country’s Finance Ministry and Insurance Regulatory Authority is looking to simplify the current Insurance tax regime. Presently this includes levying Chinese Business Tax on many non-Life / Property & Casualty premiums at 5%. This is like European Insurance Premium Tax, a tax on turnover. In addition, each province and many city municipalities levy various other levies and parafiscal charges on insurance.
China is keen to simplify this, and encourage the relatively immature insurance industry to grow as a key element to support the ballooning economy. It is expected that Life Insurance will be exempt as it is often used by individuals as a savings tool.