China Issues Announcement on Value-added Tax Declaration

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May 24 – China’s State Administration of Taxation (SAT) released the “Announcement on Issues Concerning the Declaration of Value-Added Tax by Head offices and Branches under Pilot Collection of Value-Added Tax in Lieu of Business Tax (Announcement [2013] No.22, hereinafter referred to as ‘Announcement’)” on May 7, which is scheduled to take effect on June 1, 2013. Detailed information can be found below.

According to the Announcement, head offices that calculate and pay value-added tax (VAT) in accordance with the “Interim Measures for the Computation and Payment of VAT for Head Offices and Branches as Pilot Taxpayers (hereinafter referred to as ‘Measures’),” and their branches in the pilot areas, shall carry out VAT declarations in accordance with the Announcement.

The Measures
The Measures provide that the VAT taxable sales revenue consolidated by a head office shall consist of the following two parts:

(1) VAT taxable sales revenue obtained by the head office and its branches in pilot regions from the businesses listed in the Notes on the Scope of Taxable Services.

(2) Sales revenue obtained by its branches in non-pilot areas from the businesses listed in the Notes on the Scope of Taxable Services. The calculation formula is:

  • Sales revenue = Turnover of taxable services ÷ (1 + applicable VAT rate)

“Turnover of taxable services” refers to the turnover generated by branches in non-pilot regions from the businesses listed in the Notes on the Scope of Taxable Services. The “applicable VAT rate” shall refer to the applicable VAT rate prescribed by the Pilot Implementing Measures.

Moreover, head offices shall calculate the consolidated VAT taxable sales revenue pursuant to the prevailing provisions on VAT.

For branches in pilot regions that carry out businesses listed in the Notes on the Scope of Taxable Services, they shall calculate and pay VAT according to the VAT taxable sales revenue and the applicable pre-payment rate, file for VAT returns with the competent tax authorities on a monthly basis, and shall not deduct the input tax thereof.

The calculation formula is:

  • Amount of VAT payable = VAT taxable sales revenue × Applicable pre-payment rate

The Announcement
The Announcement has addressed several issues relating to VAT declarations by head offices and their branches.

Matters relating to tax declarations by head offices

  • Sales revenues of a head office and its branches which is calculated by the head office on a consolidated basis and subject to value-added tax, output tax and input tax shall be entered in the corresponding columns of the Value-added Tax Declaration Form (for general VAT taxpayers, hereinafter referred to as the ‘Form’) and the Annexes thereof.
  • The VAT and business tax paid by branches – which can be deducted from the amount of VAT payable calculated by the head office on a consolidated basis – should be collected and reported in Column 28 of the Form. Where the amount cannot be sufficiently deducted in a given period, the remaining portion may continue to be deducted in the following period.
  • Head offices shall maintain appropriate accounts where tax deductions can be recorded for reference.

Matters relating to tax declarations by branches in pilot regions

  • Branches in pilot areas shall report the sales revenues of which the VAT is calculated at the pre-collection rate in Column 5 of the Form and VAT calculated at the pre-collection rate in Column 21 of the Form.
  • For the sale of goods and supply of processing, repair and replacement services by branches in pilot regions, the sales revenue subject to VAT and the output tax shall be declared with local tax authorities according to the Interim Regulations on Value-added Tax and relevant provisions, and shall be entered in the corresponding columns of the Form according to the original provisions.
  • Branches in pilot regions shall handle matters such as tax copying, filing and certification according to the current provisions.

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