China’s Additional VAT Deductions for the Life Services Industry

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  • A five percent increase in VAT deductions is in effect for taxpayers in the life services industry in China for the period between October 1, 2019 and December 31, 2021.
  • The tax cut is part of comprehensive efforts to reduce the financial burden on small businesses in the country and boost job creation.
  • China considers life services to be a strategic industry, which covers a wide range of segments, including catering and accommodation, culture, tourism, and sports activities.

On September 30, 2019, the Ministry of Finance and State Administration of Taxation announced that it will increase the VAT deductions available for taxpayers in the life services industry.

Additional deductions in the life services industry will increase from 10 percent to 15 percent – from October 1, 2019 to December 31, 2021 – based on the current-period of deductible input VAT.

According to Hannah Feng, Partner and Head of Dezan Shira & Associates’ Corporate Accounting Services and Tax Team, “these increased deductions are designed to further reduce the tax burden for taxpayers in the life services industry – an important and strategic industry for the Chinese government.”

Indeed, the life services industry plays an important part in China’s rapidly growing service economy, which is dominated by small business owners providing basic consumer services like catering and accommodation and organizing cultural and sports activities.

“Therefore, this tax preferential policy is consistent with the Chinese government’s basic policy to further mitigate the tax burden for small businesses and to promote jobs and growth in China,” Feng explained.


To be eligible for these additional deductions, the taxpayer’s business must fall within the scope of the ‘life services industry’ and must meet a requisite percentage of sales activity.

1) Meeting the 50 percent sales requirement

As a general rule, the enterprise’ sales in the life services industry should account for more than 50 percent of the total sales.

For those entities established before October 1, 2019, this will be calculated based on the total sales during the period between October 2018 to September 2019.

The sales for businesses established after October 1, 2019 will be calculated based on the first three months from the date of establishment.

2) Scope of business in the life services industry

According to Cai Shui [2016] No. 36, life services in China refers to service activities provided to meet the daily needs of urban and rural residents.

To be eligible for the additional VAT deductions, taxpayers must be engaged in services falling within six broad categories:

  • Cultural and sport services;
  • Educational and medical services;
  • Tourism and entertainment services;
  • Catering and accommodation services;
  • Daily residents’ services, or;
  • Other services considered to be within the life services industry.

Calculating the additional VAT deductions

The new deductions will affect the input VAT credits calculated in the current period so:


The additional input VAT credit accrued for the current period is:


Note: Whether the 10 or 15 percent additional deduction applies, depends on the timing and type of service the taxpayer is engaged in. 

Previously, it was announced that between April 1, 2019, and December 31, 2021, taxpayers in the postal, telecommunications, modern, and life services industries would be eligible for a 10 percent additional VAT deduction based on deductible input VAT in the current period.

The following table explains how the services are defined.


In light of the latest September 30 announcement, the additional deductions for the life services industry has increased from 10 percent to 15 percent based on the current-period of deductible input VAT. As mentioned previously, this will be in effect from October 1, 2019 to December 31, 2021.

The calculation of VAT payable will otherwise be in accordance with the Notice on Deepening the Policy on Value-Added Tax Reform (Announcement No. 39 of the State Administration of Taxation, 2019).

To prepare for these changes, taxpayers should set up a separate account to track the changes in provisions, deduction, decrease, and balance of the additional deduction amount.

Businesses are advised to seek local professional assistance to comply with the new norms and benefit from greater tax reductions.

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