This means that BT is generally not recoverable while VAT is. Over the past year, the BT/VAT reform has been gradually extended to more regions such as Beijing, Tianjin, Anhui Province, Zhejiang Province, Fujian Province, Hubei Province and Guangdong Province.
reform to all over the country starting from 1 August
2013. This Tax Circular incorporates and replaces the
past circulars issued for the purpose of the pilot
[Para 6] In practice, it is not unusual that disputes arise between tax payers and tax authorities regarding the applicability of BT/VAT to specific services. E.g. in some cases, it is unclear whether certain services qualify as “consulting services” for BT/VAT purposes, If the services are indeed “consulting services”, VAT shall apply, otherwise BT will apply. To avoid uncertainties and risks, it is advisable for tax payers to discuss in advance with the competent Chinese tax authority on whether BT or VAT will apply to specific services.
reform and also brings some additional amendments.
Scope of services shifted from BT to VAT Under the original pilot BT/VAT reform, VAT taxable
services included transportation services, R&D and technology services, IT services, design services, transfer of trademark, goodwill and copy rights, intellectual property related services, advertisement, conference and exhibition services, logistics-related services, lease of movable tangible assets as well as certification, authentication and consulting services (“Taxable Services”).
[Para 5] Starting from 1 August 2013, all Taxable Services provided by or provided to tax payers located in China shall be subject to VAT and n2] On 27 May 2013, the PRC Ministry of Finance (“MoF”) and the State Administration of Taxation (“SAT”) issued the Tax Circular Caishui
[2013] No. 37 (“Circular 37”) to extend the BT/VAT
Unit 4 BT to VAT Reform to China
China announces extension of the BT/VAT reform to all over the country
[Para 1] Starting from 1 January 2012, China has launched a pilot business tax (“BT”) / value added tax (“VAT”) reform with Shanghai as the first pilot area. The purpose of such reform is to shift certain types of services from the BT system to the VAT system. The main difference between the two tax systems is that the VAT system has an input-output credit mechanism while the BT system does not.
[Para 4]Circular 37 further added “radio, film and television services” to the above scope of Taxable Services. Such services include producing, releasing and broadcasting of radio, film and television programs or works.