New Rules Issued on the Administration of VAT Exemption for Cross-border Taxable Activities
Tax Analysis:June 2016/China
China’s State Administration of Taxation (SAT) issued guidance (Bulletin  No. 29 (Bulletin 29)) on 11 May 2016 that clarifies the administration of the VAT exemption for cross-border taxable activities. VAT exemption could be beneficial to taxpayers because no VAT will be charged on such activities. However, unlike zero-rated treatment, input VAT attributable to VAT exempt activities cannot be credited or refunded. (Tax Analysis:June 2016/China)
China’s VAT fully replaced the business tax on 1 May 2016, with the inclusion of the last four sectors (i.e. construction, real estate, financial services and lifestyle services) within the scope of VAT; VAT now applies across the country to all sectors of the economy. The main guideline for the VAT pilot reform, Circular Caishui  No. 36 (Circular 36), contains general guidance on the VAT exemption for cross-border services. Bulletin 29 now provides detailed administration rules on the exemption, as well as guidance on the registration process and the responsibilities of both taxpayers and the tax authorities in relation to the VAT exemption. Like Circular 36, Bulletin 29 is effective from 1 May 2016, and it supersedes the previous VAT exemption administration rule found in Bulletin  No. 49, which is repealed from the same date.
This newsletter explains Highlights of Bulletin 29.
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