China Regulatory Brief: Reduced VAT Levy Rate & Xinjiang’s First Bonded Zone
China to Reduce VAT Levy Rate Starting July 1
On June 13, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly released the “Announcement on Policy for Simplifying and Unifying Value-added Tax (VAT) Levy Rate (Cai Shui  No.57).” According to the Announcement, a uniform VAT Levy rate of three percent will be implemented from July 1, 2014, for enterprises engaged in industries such as construction materials and small hydro power (currently subject to a VAT levy rate of six percent) and enterprises engaged in pawn broking or consignment (currently subject to a VAT levy rate of four percent). The VAT levy rate applies generally to small-scale VAT taxpayers and, in some exceptional cases, to general taxpayers.
Xinjiang’s First Bonded Zone Opens to Trade
On June 14, the Xinjiang Alashankou comprehensive bonded zone (CBZ) officially commenced operations. Approved in 2011 by the State Council, the Xinjiang Alashankou CBZ is the first bonded zone in Xinjiang and the 16th in China. As a major traffic corridor to central Asian countries, the Alashankou CBZ is expected to boost foreign investment in China’s western regions and promote the export of Chinese products to Central Asia. Enterprises established in the Alashankou CBZ are eligible to enjoy preferential policies such as value-added tax (VAT) refund and import duty exemption.
China Clarifies Tax Policies in Hengqin and Pingtan Zone
The Ministry of Finance (MOF) and two other relevant departments jointly released the “Circular on the Value-added Tax (VAT) and Consumption Tax (CT) Policies for the Development of Hengqin and Pingtan Zones (Cai Shui  No.51).” According to the Circular, selling eligible goods to either the Hengqin or Pingtan zones will be treated as exports, and thus entitled to VAT and CT refund. Meanwhile, goods traded between enterprises in the Hengqin and Pingtan zones shall be exempt from VAT and CT. However, goods purchased for the development of commercial real estate (e.g., hotels, restaurants and department stores), such as wooden flooring, are not covered by the tax refund policy.
China Releases Preferential Policies for Supporting Film Development
The Ministry of Finance (MOF), National Development and Reform Commission (NDRC) and five other relevant departments jointly released the “Circular on Preferential Policies for Supporting Film Development (Cai Jiao  No.56).” According to the Circular, value-added tax (VAT) exemption shall apply to:
- Income obtained from the sale of film copies (including digital copies);
- Copyright transfer income;
- Film distribution income; and
- Income obtained from showing films in rural areas.
The VAT exemption began January 1, 2014, and will last until December 31, 2018.
China and the UK Sign New Trade Deals
China and the UK signed 26 trade deals on June 17, the second day of Chinese Premier Li Keqiang’s three-day visit to the UK. One of the trade deals is the Memorandum of Understanding (MOU) on Cooperation in Nuclear Fuel Cycle Full Industry Chain in London. According to the MOU, the two sides will carry out cooperation in industrial sectors including nuclear power, solar power, general environmental engineering, telecommunications and financial services through technical R&D centers and personnel training. The trade deals, worth approximately US$24 billion, are expected to boost economic growth in both China and the UK.
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Revisiting China’s Value-Added Tax Reform
In this issue of China Briefing Magazine, we review recent steps taken by the Chinese government to reform its value-added tax policy. Specifically, we examine the sectors covered by the new Pilot Reform program with a focus on tax rates, taxpayer status and the calculation of VAT. We also include a VAT Pilot Reform Rates Chart, which overviews each affected industry’s tax rate and VAT exempted services.
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