Circular of the Ministry of Finance and the State Administration of Taxation on Tax Policies in the Nationwide Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries

Circular of the Ministry of Finance and the State Administration of Taxation on Tax Policies in the Nationwide Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries

Cai Shui [2013] No. 37

May 24, 2013

Finance departments, the state administrations of taxation, local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government, and cities directly under State planning, finance bureau of Xinjiang Production and Construction Corps:

According to the requirements of the State Council to further expand the pilot collection of value added tax in lieu of business tax (hereinafter referred to as BT to VAT) in the transportation industry and certain modern services industries, the relevant issues are hereby circularized as follows:
　
Article 1 The nationwide pilot BT to VAT in the transportation industry and certain modern services industries has been approved by the State Council, and will be carried out on August 1, 2013.The relevant regulations are hereby issued to you, and please comply with them.
　
Article 2 To carry out the nationwide pilot BT to VAT in the transportation industry and certain modern services industries, the involved works has wide range and the time is limited, but the task is heavy, which requires all the above mentioned departments to attach great importance to and effectively enforce the organization and leadership of the pilot with well organization, thorough arrangement, clear and definite duty allocation. Various effective measures shall be taken to make well all the preparations before the pilot and the monitoring and analysis, propaganda and interpretation during the pilot, so to ensure a steady, orderly and smooth reform. In case of any problem, please report to the Ministry of Finance and the State Administration of Taxation in time.
　
Article 3 The Circular of the Ministry of Finance and the State Administration of Taxation on Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries at Shanghai (Cai Shui [2011] No. 111), Circular of the Ministry of Finance and the State Administration of Taxation on Zero Value Added Tax Rate and Tax Exemption Policies Applied to Taxable Services (Cai Shui [2011] No. 131), Circular of the Ministry of Finance and the State Administration of Taxation on Several Tax Policies for Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries (Cai Shui [2011] No.133), Supplementary Circular of the Ministry of Finance and the State Administration of Taxation on Several Tax Policies for Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries (Cai Shui [2012] No. 53), Circular of the Ministry of Finance and the State Administration of Taxation on Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries at 8 Provinces and Cities such as Beijing etc. (Cai Shui [2012] No. 71), Supplementary Circular of the Ministry of Finance and the State Administration of Taxation on Several Tax Policies for Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries and the Scope of Taxable Services (Cai Shui [2012] No. 86), Item 16 and Item 18 of Article 3 of the Circular of the Ministry of Finance and the State Administration of Taxation on Several Policies for Business Tax (Cai Shui [2003] No. 16) shall be abolished since August 1, 2013.

Appendix I Implementing Measures for Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries

Chapter I Taxpayers and Withholding Agents
　
Article 1 Entities and individuals providing services of transportation and certain modern service industries (hereinafter referred to as the "taxable services") within the territory of the People's Republic of China (hereinafter referred to as "within the territory") are VAT taxpayers. Taxpayers providing taxable services shall pay VAT according to these Measures, and will no longer pay BT.
Entities refer to enterprises, administrative entities, institutions, military entities, social organizations and other entities.
Individuals refer to individual industrial and commercial households and other individuals.
　
Article 2 Where an entity conducts business in way of contracting, leasing, being subordinate to another entity, and the contractor, lessee or subordinate person (hereinafter referred to as the "contractor") conducts the external business in name of the employer, the lesser or the be-subordinated person (hereinafter referred to as the "employer"), and the employer shall bear the relevant legal liability, the employer shall be the taxpayer. Otherwise, the contractor shall be the taxpayer.
　
Article 3 Taxpayers are divided into general taxpayers and small-scale taxpayers.
Taxpayers with annual sales tax amount payable services that VAT shall be levied on (hereinafter referred to as "annual sales tax amount payable services") exceeding the standards provided by the Ministry of Finance and the State Administration of Taxation are general taxpayers, and those with annual sales tax amount payable services not exceeding the prescribed standards are small-scale taxpayers.
Other individuals with annual sales tax amount payable services exceeding the provided standards are not general taxpayers; non-enterprise entities, enterprises, individual industrial and commercial households not constantly providing taxable services may choose to pay the tax as small-scale taxpayers.
　
Article 4 Where a small-scale taxpayer has sound accounting and is capable of providing accurate tax information, it may apply to the competent tax authority for qualification recognition as a general taxpayer and become a general taxpayer.
Sound accounting refers to the accounting conducted according to legal and effective vouchers and the account books are set in accordance with the State uniform accounting system.
　
Article 5 Taxpayers meeting the conditions set for general taxpayers shall apply to the competent tax authority for qualification recognition as general taxpayers. The specific recognizing measures shall be provided by the State Administration of Taxation.
Except as otherwise regulated by the Administration of Taxation, once a taxpayer has been identified as a general taxpayer, it may not be re-identified as a small-scale taxpayer.
　
Article 6 Where an entity or an individual located outside the territory of the People's Republic of China (hereinafter referred to as "overseas") provides taxable services within the territory without establishing operating agency within the territory, their agent shall be the withholding agent for value-added tax; where there is no agent within the territory, the receiving party shall be the VAT withholding agent.
　
Article 7 Two or more taxpayers may be regarded as one taxpayer with approval from the Ministry of Finance and the State Administration of Taxation and pay consolidated taxes. The specific measures shall be separately formulated by the Ministry of Finance and State Administration of Taxation.

Chapter II Taxable Services
　
Article 8 Taxable services refer to services of land transportation, marine transportation, air transport, pipeline transportation, R&D and technical services, information technology services, culture creativity services, logistics supporting services, tangible personal property leasing services, identification and consulting services, radio, television and film services.
The specific scope of taxable services shall be carried out according to the Annotations of Taxable Services Scope enclosed in these Measures.
　
Article 9 Providing taxable services refer to the providing of paid taxable services, excluding the taxable services provided in non-operating activities.
Paid refers to acquisition of money, goods or other economic interests.
Non-operating activities refer to:
1. Activities of receiving government funds or the administrative and institutional fees by non-enterprise entities for the performance of state administration and public service functions in accordance with the laws and administrative regulations.
2. Taxable services provided by employees hired by entities or individual industrial and commercial households to the entities or the households.
3. Taxable services provided by entities or individual industrial and commercial households to their employees.
4. Other situations regulated by the Ministry of Finance and State Administration of Taxation.
　
Article 10 Providing taxable services within the territory refers to the conditions that the provider or the receiving party of the taxable services is located within the territory.
The following conditions are not providing taxable services within the territory:
1. Overseas entities or individuals provide taxable services to entities or individuals within the territory that are completely consumed overseas.
2. Overseas entities or individuals lease tangible personal property to entities or individuals within the territory that are completely used overseas.
3. Other situations regulated by the Ministry of Finance and State Administration of Taxation.
　
Article 11 The following activities conducted by entities or individual industrial and commercial households are regarded as providing taxable services.
1. Providing free services in the transportation industry and certain modern services industries to other entities or individuals, excluding those provided for public benefit or provided to the public.
2. Other situations regulated by the Ministry of Finance and State Administration of Taxation.

Chapter III Tax Rates and Percentage Charges
　
Article 12 VAT Rate
1. To provide leasing services of tangible personal property, the tax rate shall be 17%.
2. To provide transportation services, the tax rate shall be 11%.
3. To provide services in modern services industry (with the exception of leasing services of tangible personal property), the tax rate shall be 6%.
4. For the taxable services specified by the Ministry of Finance and State Administration of Taxation, the tax rate is zero.
　
Article 13 The percentage charges of VAT is 3%.

Chapter IV The Calculation of the Tax Amount Payable

Section 1 General Provisions
　
Article 14 Tax methods of VAT include general tax methods and simple tax methods.
　
Article 15 General tax methods shall be adopted for the taxation on taxable services provided by general taxpayers.
Simple tax methods may be adopted for the taxation on particular taxable services prescribed by the Ministry of Finance and State Administration of Taxation and provided by general taxpayers, and once the methods have been chosen, they may not be changed within 36 months.
　
Article 16 Simple tax methods shall be adopted for the taxation on taxable services provided by small-scale taxpayers.
　
Article 17 Overseas entities or individuals provide taxable services within the territory without setting up operating agent within the territory, the withholding agents shall calculate the tax withheld in accordance with the following formula:
Withheld tax amount = amount paid by the receiving party /(1 + tax rate) × tax rate

Section 2 General Tax Methods
　
Article 18 The tax amount payable calculated in accordance with general tax methods is the balance between the output VAT for the current period and the input VAT for the current period. Formula for the calculation of tax amount payable:
Tax amount payable = output VAT for the current period - input VAT for the current period
Where the output VAT for the current period is less than the input VAT for the current period and cannot be deducted, the insufficient part may be carried forward to the next taxation period to continue the deduction.
　
Article 19 The output VAT refers to the VAT amount calculated with the sales amount and the VAT rate of the taxable services provided by the taxpayers.
Formula for the calculation of output VAT:
Output VAT = sales amount × tax rate
　
Article 20 The sales amount used for the calculation of tax in accordance with general tax methods does not include the output VAT. Where a taxpayer make the pricing with consolidation of the sales amount and the output VAT, the sales amount shall be calculated in accordance with the following formula:
Sales amount = sale amount with tax included /(1+ rate)
　
Article 21 Input VAT refers to the VAT paid or borne by the taxpayers when they purchase goods or receive processing, repairs and replacement taxable services.
　
Article 22 The following input VAT are allowed to be deducted from the output VAT:
1. The VAT amount indicated on the VAT special invoice (including VAT special invoices for freight transportation, tax-control uniform invoice for the sales of motor vehicles, the same below) obtained from the sellers or the providers.
2. The VAT amount indicated on the special payment letter for custom import VAT obtained from the Customs.
3. The input VAT calculated with the purchasing price indicated on the purchase invoice or sales invoice of agricultural products and the deduction rate of 13% when the agricultural products are imported, unless VAT special invoice or the special payment letter for custom import VAT is obtained.
The formula for calculation is:
Input VAT = purchase price × deduction rate
Purchase price refers to the price indicated on the purchase invoice or sales invoice of agricultural products obtain by the taxpayers when purchasing agricultural products and the Tobacco Leaf Tax paid according the regulations.
4. The input VAT calculated with the amount of fees for the transportation indicated on the settlement voucher of transportation costs and the deduction rate of 7% where railway transport services are received.
Formula for the calculation of input VAT:
Input VAT = amount of transportation costs × deduction rate
Amount of transportation costs refers to the transportation costs (including transportation costs of railway near to pipeline and special railway), construction funds, excluding the handling charges, premium or other incidental expenses indicated on the settlement documents of railway transportation costs.
5. The VAT indicated on the tax payment voucher of the People's Republic of China (hereinafter referred to as the tax payment voucher) for the tax payment obtained from the tax authority or the agent within the territory where taxable services are received from overseas entities or individuals.
　
Article 23 Where the VAT credit documents obtained by the taxpayers do not comply with the laws, administrative regulations or the relevant provisions of the State Administration of Taxation, the input tax may not be deducted from the output tax.
The VAT credit documents refer to the VAT special invoice, special payment letter of custom import VAT, purchase invoice of agriculture products, sales invoice of agriculture products, settlement documents of railway transportation costs and tax payment certificate.
Where a taxpayer is to deduct the input VAT on the bases of tax payment voucher, it shall has written contract, proof of payment, account statement from overseas entities or invoice.
Where the documents are not completed, the input VAT may not be deducted from the output VAT.
　
Article 24 The input VAT of the following items may not be deducted from the output VAT:
1. The items with tax calculated in accordance with simple tax methods, non-VAT taxable items, VAT exempt items, goods purchasing and the receiving of processing, repairing services or the taxable services dedicated to the collective welfare or personal consumption.
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