China VAT reforms

China has proposed an update to its Value Added Tax Law. This has now gone out to public consultation by the Ministry of Finance and State Taxation Administration. This aim is to implement the proposed measures sometime during 2020.

These amendments build on the overhaul of the Chinese VAT regime, completed in 2016. They include:

• Withdrawal of 5% VAT rate
• Reform of the 3% flat rate scheme for businesses below the VAT registration threshold
• Simplifications around the mixed goods and services rules
• Introduction of a VAT credit refund pilot. At present, taxpayers cannot apply for refunds of surplus VAT payments
• Clarifying that VAT is only due where a non-resident service provider is involved when the service is actually consumed in China by a resident. Currently, the service may be consumed offshore and be liable. 
• Simplifying the VAT deadlines to just monthly or quarterly filings. At present, many taxpayers must submit returns on a stagger
• Introduction of limited-use VAT groups
• A new definition for ‘deemed supply’ VAT liability for self-supply and goods provided free of charge 
• Clarification of financial services provided by resident providers as being subject to VAT