China Regulatory Brief: Consumption Tax Reform, VAT on Financial Services, Support for Cultural Enterprises

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China Cancels Four Consumption Taxes Starting December 1

On November 25, the Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly released the “Announcement on Adjusting Consumption Tax Policies (Cai Shui [2014] No.93),” which took effect on December 1, 2014. According to the Announcement, consumption tax has been removed for the below items:

  • Alcohol;
  • Automobile tires;
  • Automobile leaded gasoline; and
  • Small displacement motorcycles with a cylinder capacity of less than 250 ml.

 Meanwhile, consumption tax of three and 10 percent will continue to be levied on motorcycles with a cylinder capacity of 250 ml and 250+ ml, respectively.

China to Launch VAT on Financial Services

China’s Ministry of Finance recently announced that the country is looking to expand its current value-added tax (VAT) reform to include financial services from early next year. It is widely expected that a VAT rate of either 6 or 11 percent will be levied on insurance premiums, but reportedly the rate could go as high as 16 percent. It has been confirmed that the VAT pilot scheme will fully extend to the financial sector by January 2016, which may also mark the end of several years of VAT reform for China. At the start of 2012, China launched a massive reform to replace its business tax (BT) with VAT, two of the country’s now three major indirect taxes. China has yet to confirm more details regarding the VAT rate on financial services, as well as the inclusion of the construction, real estate and “lifestyle services” sectors in the VAT reform.

Related Link IconChina’s VAT Reform to be Extended to Telecom Sector

China Encourages Foreign Investors to Provide Elderly Care Services

On December 2, the Ministry of Commerce (MOFCOM) and Ministry of Civil Affairs (MCA) jointly released Circular No. 81, which encourages foreign investors to set up for-profit, wholly foreign-owned nursing homes or operate cooperative joint ventures with a Chinese partner. Investors are also encouraged to develop high-quality chain institutes and help deepen the reform of state-owned elderly care institutions. Those seeking to set up for-profit elderly care institutions are required to submit application materials such as an application form and Articles of Association to the provincial administrative authorities. The Circular stipulates that foreign nursing homes are entitled to the same preferential taxation policies as those owned by domestic investors.

Related Link IconGolden Years: The Coming Investment Boom in China’s Elderly Care Industry

China Further Supports Cultural Enterprises with Preferential Tax Policies

The MOF recently released the “Announcement on Continuing to Implement Tax Policies in Support of the Development of Cultural Enterprises,” which clarifies that income derived by film companies through the sale of films, transfer of film rights, distribution of films and projection in rural areas shall be exempt from VAT; companies engaging in encouraged cultural industry projects and importing equipment (for personal use only) that cannot be produced domestically in China shall be exempt from import tariffs; eligible cultural enterprises recognized as new high-tech enterprises shall receive a reduced corporate income tax (CIT) rate of 15 percent; and R&D expenses for developing new working methods and new products can enjoy additional pre-tax deductions. The Announcement will last until December 31, 2018.


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