Changes to Chinese Input VAT Credits on Fixed Assets

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Sept. 17 – The Ministry of Commerce and State Administration of Taxation jointly issued Circular Caishui (2009) 113 on Sept. 9, providing further clarification on the applicable methods of evaluating input VAT credits on fixed assets.

The circular provides definitions for VAT purposes on buildings, structures, and attachments to land as well as the VAT treatment of ancillary equipment and supporting facilities.

Definitions of buildings and structures
According to the Circular, buildings shall refer to buildings or places in where people may produce, live or carry on other activities, while structures refer to constructions not intended for habitation or production. The Circular also provides a list of detailed fixed asset classifications and the corresponding codes for buildings and structures.

VAT treatment of ancillary equipment and supporting facilities
The Circular defines Ancillary equipment and support facilities to include water supply and drainage, heating, hygiene, ventilation, communications, coal gas, fire prevention, central air conditioning, elevator, electricity supply, intelligent building equipment and supporting facilities. The Circular further defines that such, if attached to a building or structure shall be treated as part of the building or structure. Accordingly the input VAT of ancillary equipment and supporting facilities of buildings or structures are not creditable regardless of the accounting treatment.

Interested parties should note that the sale of immovable assets or construction in progress will not be subject to VAT (BT will apply instead), and that corresponding input VAT will not be creditable. The treatment of ancillary equipment and supporting facilities is for VAT purposes only. There should be no change to the current classification of fixed assets for depreciation purposes.

For further information on tax issues email Sabrina Zhang, national tax partner for Dezan Shira & Associates in China, at