China Clarifies Tax Collection Issues Under Nationwide Tax Reform

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Jul. 22 – China’s State Administration of Taxation (SAT) released the “Announcement on Issues Concerning the Administration of Tax Collection under the Nationwide Business Tax (BT) to Value-added Tax (VAT) Pilot Conversion (Announcement of SAT [2013] No.39, hereinafter referred to as ‘Announcement’)” on July 10, which clarifies several tax collection issues under the nationwide VAT reform. Detailed information can be found below.

Use of Invoices
From the date of the implementation of the pilot project, VAT taxpayers shall not issue uniform invoices for road/inland water freight transportation services. Specifically:

  • VAT general taxpayers (hereinafter referred to as ‘general taxpayer’) providing freight transportation services shall use special VAT invoices for freight transportation and ordinary VAT invoices, while general taxpayers engaged in other taxable activities shall use special VAT invoices and ordinary VAT invoices.
  • Small-scale taxpayers providing freight transportation services may apply to the competent tax authorities for issuance of special invoices if the service recipients request such invoices.

General taxpayers providing port and dock services, freight and passenger terminal services, loading/unloading and handling services, and passenger transport services may choose to use ordinary invoices with a fixed amount.

General taxpayers engaged in the international freight forwarding agency business shall use six-copy special VAT invoices or five-copy ordinary VAT invoices. Small-scale VAT taxpayers engaged in the international freight forwarding agency business shall use ordinary invoices.

Where a taxpayer has provided taxable services for which VAT is to be levied in place of BT, and where they have already issued the BT invoices prior to the implementation of the pilot project, the taxpayer shall apply to the original competent tax authority for the issuance of the red-letter BT invoices before March 31, 2014, if:

  • Its services are terminated, a discount is made on its services, or there is any error in the invoices; and
  • The BT invoices are disqualified for becoming invalid.

Use of Tax Control System
From August 1, 2013, general taxpayers providing freight transportation services shall use the tax control system for issuance of special VAT invoices.

From September 1, 2013, small-scale taxpayers in Beijing shall use golden tax disks or tax control disks for issuing ordinary invoices, and tax declaration disks for purchasing and collecting invoices and filing tax returns.

Maximum Amount of a Special VAT Invoice

The maximum amount of a special VAT invoice shall be approved by the tax authority at the county or district level. When applying for the maximum amount of a special VAT invoice, the general taxpayer shall fill in the relevant application forms with the competent tax authority who will then conduct on-site inspections to decide whether to approve the amount or not (based on the actual business operation and sales amount of the taxpayer).

Issuance of Special Invoices for Freight Transportation

General taxpayers shall use special invoices for their taxable freight transportation services, and shall not use such invoices for other taxable services, tax exempted services, or other taxable services not subject to VAT.

The Announcement is scheduled to take effect on August 1, 2013.

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