Circular on Carrying out the Pilot Collection of Value-Added Tax in Lieu of Business Tax to be imposed on Transportation Industry and Part of Modern Services Industry in Shanghai
Circular on Carrying out the Pilot Collection of Value-Added Tax in Lieu of Business Tax to be imposed on Transportation Industry and Part of Modern Services Industry in Shanghai
Circular on Carrying out the Pilot Collection of Value-Added Tax in Lieu of Business Tax to be imposed on Transportation Industry and Part of Modern Services Industry in Shanghai
Cai Shui [2011] No.111
November 16, 2011
The financial departments (bureaus), offices of the State Administration of Taxation and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and cities under separate state planning, and the financial bureau of Xinjiang Production and Construction Corps,
The pilot collection of value-added tax ("VAT") in lieu of business tax in the transportation industry and part of modern services industry will be implemented in Shanghai subject to the approval of the State Council. Therefore, the Measures for the Implementation of the Pilot Collection of Value-Added Tax in Lieu of Business Tax to be imposed on the Transportation industry and Part of Modern Services Industry, the Provisions on Issues Concerning the Pilot Collection of Value-Added Tax in Lieu of Business Tax to be imposed on the Transportation industry and Part of Modern Services Industry and the Provisions on Transitional Policies Concerning the Pilot Collection of Value-Added Tax in Lieu of Business Tax to be imposed on the Transportation industry and Part of Modern Services Industry have been formulated in accordance with the Pilot Proposals for the Collection of Value-Added Tax in Lieu of Business Tax . These documents are hereby printed and distributed and shall be implemented as from January 1, 2012.
All relevant governmental agencies in Shanghai shall, in accordance with the requirements of the Pilot Proposals, organize works in connection therewith earnestly to ensure smooth proceeding of the Pilot Proposals. Any problem arising from work shall be timely reported to the Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT").
Appendix 1: Measures for the Implementation of the Pilot Collection of Value-Added Tax in Lieu of Business Tax to be imposed on the Transportation Industry and Part of Modern Services Industry
Chapter I Taxpayer and Withholding Agent
Article 1 All entities and individuals which provide transportation services and part of modern services (hereinafter, the "taxable services") within the territory of the People's Republic of China (hereinafter, "domestic", or "domestically" as applicable) are VAT payers. In connection with their taxable services, such taxpayers shall stop paying business tax and instead pay VAT in accordance with these Measures.
"Entities" shall include enterprises, administrative agencies, public institutions, military agencies, social bodies and organizations of any other nature.
"Individuals" shall include individually-owned businesses and any other individuals.
Article 2 Where an entity does business by way of contracting, leasing or otherwise through affiliating to others, the contract letting party, lessor or the affiliated party (each referred to as an "employer") shall be the taxpayer provided that the contractor, lessee or affiliate (each referred to as a "contractor") does business with others in the name of the employer with all legal responsibilities in connection therewith borne by the employer. Otherwise, the contractor shall be the taxpayer.
Article 3 Taxpayers include general taxpayers and small-scale taxpayers.
A taxpayer whose annual VAT taxable sales amount of taxable services (hereinafter, the "taxable annual sales value amount of taxable services") exceeds the threshold prescribed by the MOF and the SAT shall be deemed a general taxpayer, otherwise shall be deemed a small-sized taxpayer.
Any person other than a taxpayer whose annual sales amount of taxable services exceeds the prescribed threshold shall not be deemed a general taxpayer. Any non-corporate entity or any enterprise or individually-owned business which does not provide taxable services on a recurring basis may choose to pay taxes as a small-scale taxpayer.
Article 4 A small-scale taxpayer may request the competent taxation authority to recognize it as a general taxpayer provided that it has optimized accounting system which enables it to provide accurate tax information.
By "optimized accounting system", it means that the taxpayer can arrange account books in accordance with the uniform accounting rules of the state and conducts accounting against lawful and valid vouchers.
Article 5 A taxpayer who meets the conditions required for a general taxpayer shall request the competent taxation authority to recognize it as a general taxpayer. The measures for recognition shall be formulated by the SAT.
Unless otherwise stipulated by the SAT, any person who is recognized as a general taxpayer may not change its identity to a small-scale taxpayer subsequently.
Article 6 Where an entity or an individual from outside the territory of the People's Republic of China (hereinafter, "overseas") provided taxable services domestically, its agent shall act as the VAT withholding agent if the entity or individual does not have domestic business office, or the service receiver shall act as the VAT withholding agent in the absence of such an agent.
Article 7 Subject to the approval of the MOF and the SAT, two or more taxpayers can be deemed a single taxpayer which pays taxes on a consolidated basis. The specific measures related thereto shall be formulated by the MOF and the SAT.
Chapter II Taxable Services
Article 8 Taxable services shall include land, water, air and pipeline transmission, as well as services of or in connection with research, development and technology, information technology, cultural innovation, logistics supports, lease of corporeal movables, attestation and consulting.
The scope of taxable services shall be subject to the Notes to the Scope of Taxable Services attached hereto.
Article 9 Providing taxable services means providing such services for value.
By "for value", it means the acquisition of cash, goods or any other economic benefits.
Transportation and certain modern services provided as part of non-profit making activities shall not be deemed taxable services.
Non-profit making activities shall mean:
1. The practices of non-corporate entities to collect or levy governmental fund or administrative charges for public undertakings in accordance with the applicable laws or regulations for the purpose of enabling national administration and public service functions;
2. Transportation and certain modern services provided by an employee, who is retained by an entity or individually-owned business, for such entity or his/her employer;
3. Transportation and certain modern services provided by an entity or individually-owned business to its employees; and
4. Any other activities defined by the MOF or the SAT.
Article 10 By "providing taxable services domestically", it means that either the provider or receiver of taxable services locates domestically.
The taxable services shall not be deemed provided domestically in the case where:
1. An overseas entity or individual provides to any domestic entity or individual the taxable services which are entirely consumed overseas;
2. An overseas entity or individual leases to any domestic entity or individual the corporeal movables which are entirely used overseas; or
3. The activity falls within any other circumstances defined by the MOF or the SAT.
Article 11 An entity or individually-owned business shall be deemed providing taxable services when it:
1. Provides transportation or certain modern services free of charge to any other entity or individual, unless the services are intended for public welfare or offered to the general public; or
2. Engages in any other activities which fall within the circumstances defined by the MOF or the SAT.
Chapter III Applicable and Assessable Tax Rates
Article 12 The VAT rate shall be:
1. 17% in relation to lease of corporeal movables;
2. 11% in relation to provision of transportation services;
3. 6% in relation to provision of modern services (other than lease of corporeal movables)
4. Zero in relation to any other taxable services defined by the MOF and the SAT.
Article 13 The VAT rate is implemented at 3% in practices.
Chapter IV Computation of Tax Payable
Section 1 General Provisions
Article 14 The approaches of VAT computation include general and simple tax computation approaches.
Article 15 In connection with taxable services provided by general taxpayers, the general tax computation approach shall apply.
A general taxpayer may choose to apply the simple tax computation approach to the specific taxable services thereof which fall within the scope stipulated by the MOF and the SAT, but the choice shall remain unchanged for 36 months once it is made.
Article 16 In connection with taxable services provided by small-scale taxpayers, the simple tax computation approach shall apply.
Article 17 In connection with taxable services provided domestically by an overseas entity or individual who does not have domestic business office, the withholding agent shall compute tax payable in accordance with the following formula:
Tax payable = price paid by the service receiver ÷ (1+tax rate) ×tax rate
Section 2 General Tax Computation Approach
Article 18 The tax payable computed with the general tax computation approach shall mean the balance after crediting the input tax for the current period against the output tax for the current period. Tax payable shall be computed according to the following formula:
Tax payable= output tax for the current period-input tax for the current period
Where the output tax for the current period is less than and insufficient to credit all input tax for the current period, the amount which has not been credited can be carried forward to the next period.
Article 19 Output tax shall mean the amount of VAT payable in connection with the taxable services provided by the taxpayer, computed based on the sales amount and VAT rate.
Output tax shall be computed according to the following formula:
Output tax =sales amount × tax rate
Article 20 The sales amount involved in the general tax computation approach shall not include the output tax. Where the taxpayer prices the services based both on the sales amount and the output tax, the sales amount shall be computed according to the following formula:
Sales amount= tax-inclusive sales amount ÷(1+tax rate)
Article 21 Input tax shall mean the amount of VAT paid or payable by a taxpayer in connection with purchase of goods or receipt of taxable services or processing, repair and fitting services.
Article 22 Input tax incurred in the following circumstances is allowed to be credited against output tax:
1. The VAT amount indicated in the VAT invoice from the seller or provider.
2. The VAT amount indicated in Customs Form of Import VAT Payment issued by the customs.
3. In the case of purchase of agricultural products, the amount of input tax computed based on the creditable rate of 13% and the purchase price of the agricultural products indicated in the purchase or sales invoice of such products, in addition to the amount indicated in the VAT invoice or Customs Form of Import VAT Payment. The input tax is computed according to the following formula:
Input tax = purchase price × creditable rate
"Purchase price" refers to the price indicated in the purchase or sales invoice of the agricultural products purchased by the taxpayer plus the amount of tobacco tax payable by the taxpayer pursuant to relevant stipulations.
4. In the case of receiving transportation services, the amount of input tax computed based on the creditable rate of 7% and the freight indicated in the freight settlement documents, in addition to the amount specified in the VAT invoice. The input tax is computed according to the following formula:
Input tax =Freight × creditable rate
"Freight" refers to the cost of transportation (including costs of transportation through temporary lines or special lines of railway) and the construction fund indicated in the freight settlement documents, excluding sundry charges such as handling charge and insurance premium.
5. In the case of receiving taxable services provided by an overseas entity or individual, the VAT amount indicated in the PRC general tax payment voucher (hereinafter, the "general payment voucher") acquired from the competent taxation authority or the domestic agent in connection with tax payment.
Article 23 In the event that the VAT credit voucher acquired by the taxpayer does not comply with the applicable laws or regulations or the relevant stipulations of the SAT, input tax indicated therein may not be credited against output tax.
VAT credit vouchers include VAT invoice, Customs Form of Import VAT Payment, purchase or sales invoice of agricultural products, freight settlement document and general payment voucher.
Where a taxpayer credits input tax against the general payment voucher, the written contract, certification of payment and account statement or invoice provided by the overseas entity shall be in place. The input tax may not be credited against the output tax if the documents and materials are incomplete.
Article 24 Input tax incurred on the following items may not be credited against output tax:
1. Taxable items subject to the simple tax computation approach, non-VAT taxable items, VAT-exempt items, goods purchased as employee benefits or for personal consumption, receipt of processing, repair and fitting services or taxable services. The lease or licensing of fixed assets, patented technologies, non-patent technologies, goodwill, trademarks, copyrights or corporeal movables involved therein, if any, shall exclusively include lease or licensing of such properties for the aforesaid items;
2. Purchased goods which incur abnormal losses, as well as the processing, repair and fitting services or transportation services received in relation to such goods;
3. Goods (other than fixed assets) purchased and used for products in process or finished products which incur abnormal losses, as well as the processing, repair and fitting services and transportation services received in relation to such goods;
4. Any passenger transportation services received; and
5. Motorcycles, cars and yachts for the taxpayer's own use in connection with which consumption tax is payable, other than means of transportation used for providing transportation services and subject matters of leasing services.
Article 25 Non-VAT taxable items shall include non-VAT taxable labor services, transfers of intangible assets (other than patented technologies, non-patent technologies, goodwill, trademarks and copyrights), sales of immovable properties and immovable properties under construction.
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