Apr. 26 – Following the pilot value-added tax (VAT) reform and the issuance of the “Circular on the Application of Zero VAT Rate and VAT Exemption on VATable Services (caishui  No. 131, hereinafter referred to as ‘No. 131’),” China’s State Administration of Taxation (SAT) on April 5 issued the “Announcement on Promulgating the Administrative Measures on Applying Tax Exemption, Offset and Refund on Taxable Services of Zero Value-added Tax Rate in Pilot Areas for Value-Added Tax in Lieu of Business Tax (Interim) (SAT Announcement  No. 13, hereinafter referred to as ‘Announcement No. 13’).”
While No. 131 provides that the export of certain types of services can be treated as zero-rated or exempt for VAT purposes, Announcement No. 13 sets out the application procedures and documentation requirements for claiming zero-rated VAT exemption, offset and refund for taxable services under the VAT pilot program.
Zero-rated taxable services include:
These services are zero-rated, meaning that no output VAT is payable, but input VAT credits can be claimed for expenses incurred by the business in supplying these services.
Announcement No. 13 sets out the refund procedures where a business’s input VAT credits exceed its output VAT liability in any tax period.
Approval and documentation requirements for zero-rated tax exemption offset and refund
Before claiming zero-rated tax exemption, offset and refund, service providers must apply for the export tax refund (exemption) status with the competent tax authority. Once this status is granted, the zero-rated VAT service providers can start collecting the required documents for applying for zero-rated VAT refund, offset and exemption.
Below, we specify the documents required for the export tax refund (exemption) verification and the zero-rated VAT refund, offset and exemption application.
International transportation services
The documents required for zero-rated VAT refund and exemption for international transportation services are as follows:
Additionally, the following original vouchers are required:
A separate set of documents are required for verification of tax refund and exemption, however these vary within the international transportation service industry. The required documents for international waterway transportation, international aviation transportation and international road transportation are listed below.
1. International waterway transportation
2. International aviation transportation
3. International road transportation
Research and development and design services
The documents required for zero-rated VAT refund and exemption for research and development and design services are as follows:
A separate set of documents are required for verification of tax refund and exemption, these are as follows:
For new zero-rated VAT service providers
New zero-rated VAT service providers, i.e. service providers who have never supplied zero-rated VAT services before the pilot VAT reform, are required to submit the calculation of tax exemption, offset and refund separately on a monthly basis for the first six months of providing services for the tax authorities’ examination. If the tax authorities are satisfied with each month’s calculation, it will process the total accumulated refund on the seventh month. The new service provider should declare tax exemption, offset and refund on a monthly basis from the seventh month.
Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. The firm specializes in assisting foreign enterprises with their tax obligations. For further advice and specifics relating to these recent measures, please email firstname.lastname@example.org, visit www.dezshira.com, or download the firm’s brochure here.
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