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China Confirms Schedule For VAT On Financial Services

by Mary Swire,, Hong Kong

08 December 2014

China's Ministry of Finance has announced that it will launch plans early next year to pilot the introduction of value-added tax on financial services.

China hopes to have VAT in place on the sector fully by January 2016. The nation is expected to announce that a rate of either 6 or 11 percent will be levied on insurance premiums, but the rate could reportedly be as high as 16 percent.

Although an announcement is still expected on introducing VAT on the "living services sector," this newly announced date will likely mark the end of several years of reform for China, replacing its business tax regime with a VAT, to remove the distortions caused by businesses' inability to recover input tax under the business tax regime.

China has yet to roll out VAT on the construction and real estate sectors, but is expected to do so from January 1 of next year, with an 11 percent rate, which would be substantially higher than the 3 and 5 percent business tax rates the two sectors respectively face currently.

China is yet to confirm the introduction of VAT on the "living services" sector, which includes those involved in the provision of basic essentials, such as food, catering, and accommodation, as well as services such as hairdressing, but the Government said earlier this year that it hoped to be able to flesh out these plans by the end of this year also.

The announcement follows the expansion of the nation's VAT regime to telecoms providers from June 1, 2014, and rail transportation and postal services from January 1, 2014. Earlier, in August 2013, VAT was extended nationwide for the first time, covering the transportation industry and six modern services sectors (research and development, information technology, cultural and creative industries, logistics, and authentication and consulting services).

Small businesses are currently exempt from VAT and business tax, under Circular No. 71 (Cai Shui [2014] No. 71). This circular provided a temporary exemption for small businesses from business tax and VAT from October 1, 2014, to December 31, 2015, for those businesses with monthly sales of between CNY20,000 (USD3,250) and CNY30,000 (USD4,880). Businesses with monthly sales of no more than CNY20,000 were already temporarily exempt.

TAGS: Finance | VAT rates | VAT tax authority guidance | tax | small business | business | value added tax (VAT) | VAT legislation | financial services | insurance | insurance tax | China | tax authority | legislation | tax rates | construction | telecoms | services | research and development | VAT goods & services classification | Tax

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