Sale of Food Not for Immediate Consumption Now Subject to VAT

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Dec. 5 – Starting next year, the sale of food not for immediate consumption from hotels and food & beverage (F&B) businesses will no longer be subject to business tax (BT), according to China’s State Administration of Taxation (SAT).

The “Announcement on Tax Issues Related to Food Sale by Taxpayers Engaging in Hotel and F&B Businesses (SAT Announcement [2011] No.62)” was released on November 24. It clarified that, where taxpayers engaging in hotel and F&B businesses sell food that cannot be consumed on the spot, such food sales shall be subject to value-added tax (VAT), instead of BT.

Individuals and non-enterprise entities that engage in the aforementioned VATable food sale activities – as well as enterprises that do not frequently conduct the aforementioned VATable food sale activities – may pay VAT at the rate of 3 percent (e.g. the VAT rate for small-scale taxpayers).

The new Announcement will replace the “Circular on Issues Related to Turnover Tax Imposition from F&B Businesses (guoshuifa [1996] No.202),” which stipulated that, where F&B businesses and hotels conduct F&B BTable activities and sell goods at the same time, the sale of goods shall also be calculated as BTable revenue, regardless of whether the goods can be consumed on the spot or not.

Announcement No.62 will take effect on January 1, 2012.

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, visit, or download the firm’s brochure here.

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