Nov. 12 – China’s Ministry of Finance and the State Administration of Taxation jointly released the revised “Interim Measures on the Calculation and Payment of Value-Added Tax (VAT) for Head Offices and their Branches under the Business Tax to VAT Pilot Conversion (caishui  No. 74, hereinafter referred to as “Measures”)” on October 24, which specify the VAT calculation and payment measures for head offices and their branches under the nationwide tax reform. Detailed information can be found below.
The head office shall calculate the VAT payable for the businesses listed in the Annotations of Taxable Services Scope conducted by the head office and its branches on a consolidated basis, and pay such taxes to the competent tax authority at its domicile after deducting the amount of VAT already paid by its branches for the businesses listed in the Annotations of Taxable Services Scope.
The head office shall declare and pay the VAT for sales of goods and provision of processing and repairing services with the local tax authorities according to the VAT interim measures and relevant provisions.
VAT Taxable Sales Revenue
According to the Measures, the VAT taxable sales revenue consolidated by a head office refers to the VAT taxable sales revenue obtained by the head office and its branches from the businesses listed in the Annotations of Taxable Services Scope.
Output tax consolidated by the head office shall be calculated based on the VAT taxable sales revenue and the applicable VAT rate.
Input tax consolidated by the head office refers to the VAT paid or borne by the head office and its branches for goods purchased or processing, repairing and replacement services and taxable services received for conducting the businesses listed in the Annotations of Taxable Services Scope. Input tax of businesses other than those listed in the Annotations of Taxable Services Scope conducted by the head office and its branches shall not be consolidated.
The VAT payable for businesses listed in the Annotations of Taxable Services Scope conducted by branches shall be calculated as following:
- VAT payable = VAT taxable sales revenue × pre-levy rate
The pre-levy rate shall be stipulated by the Ministry of Finance and the State Administration of Taxation, and may be adjusted accordingly.
Branches shall declare and pay the VAT for sales of goods and provision of processing and repairing services with the local tax authorities according to the VAT interim measures and relevant provisions.
Moreover, VAT paid in the current period for businesses listed in the Annotations of Taxable Services Scope by branches may be offset against the VAT payable in the current period by the head offices. Any remaining balance after the offset may be carried forward to the next period for offsetting.
The Measures also provide that the consolidation of tax payments by head offices and their branches for the last year shall be settled after the first tax declaration period of each year. The head offices and their branches shall calculate the annual VAT payable based on the percentage of respective sales revenue and the VAT payable for the last year consolidated by head offices.
Where the VAT prepaid by a branch exceeds its annual VAT payable after the settlement, the pre-paid VAT for the coming tax declaration period shall be suspended. Where the VAT prepaid by a branch is less than its annual VAT payable after the settlement, the difference shall be recovered and handed over to the treasury in the coming tax declaration period by the branch.
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