The new VAT law introduces several key changes:
- Scope of Taxable Transactions: The law clarifies that the destination principle shall be applied in determining "taxable transactions within China", aligning with international standards.
- Clarification of "Deemed Sales": The law simplifies rules on deemed taxable transactions, excluding many previously taxable activities, aiming to improve the efficiency of tax administration.
- Non-Taxable Items: The law sets out four types of non-taxable transactions.
- Tax Rates: The existing three-tier tax rate structure is preserved, with a unified 3% levy rate for transactions applying simplified taxation method.
- Handling of Mixed Sale Transactions: The applicable tax rate for a transaction involving different tax rates or levy rate shall be determined by the main transaction, evidenced by contractual structure.
- Calculation of Taxable Income: A clearer definition of sales revenue is provided.
- Non-Creditable Input VAT: The law adjusted the scope of non-creditable VAT.
- Excessive Input VAT: Taxpayers can carry forward or seek refund of excessive input VAT, enhancing cash flow.
- Tax Incentives: Exemptions for sectors like agriculture and welfare are included, with provisions for expanding these incentives.
Collaboration Across Departments: Enhanced information-sharing systems between tax authorities and other government bodies are mandated.
Key takeaway
Businesses should:
- familiarise with the specifics of the new law;
- provide training for finance and accounting teams to ensure they understand the new regulations and can implement it correctly;
- engage with tax advisors or consultants to get tailored advice and ensure compliance with the new law;
- assess existing contracts and pricing strategies to ensure they align with the new requirements; and
- establish internal controls and monitoring systems to ensure ongoing compliance with the new law.
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