China: China Tax Regulation Update - April 2012

Circular Number

Issuance Date

Effective Date

Topic

What is new?

Decree of SAT

[2012] No. 13

2012-4-5

2012-1-1

Pilot VAT reform in Shanghai - zero VAT rate on services export

The previous Tax Circular Caishui [2011] No.131 provides that if a Chinese entity located in Shanghai renders international transportation services, R&D services and designing service to a foreign entity ("service export"), the Chinese entity will be entitled to a zero VAT rate. Zero VAT rate means no output VAT is levied on the revenue of the service and relevant input VAT may be refunded.

Decree [2012] No. 13 now provides further details.

(1) The VAT refund rate is the VAT levying rate. This means there will be no VAT cost for the service provider.

(2) The VAT refund for the services can be calculated together with the VAT refund for export of goods.

(3) The service provider shall make a prior registration with the competent Shanghai Tax Authority before it can apply for the VAT refund. For R&D and design services, the Registration Certificate for Technology Export Contract issued by the relevant authority of commerce is also required.

(4) The service provider should apply for VAT refund within 15 days of the month after the revenue for the services has been booked.

Circular Number

Issuance Date

Effective Date

Topic

What is new?

Decree of SAT [2012] No. 12

2012-4-6

2011-1-1 to 2020-12- 31

Reduced CIT rate in western China

According to the previous Tax Circular Caishui [2011] No. 58, encouraged enterprises located in western region of China are entitled to a reduced CIT rate of 15%. Not only foreign invested enterprises ("FIEs") but also domestic enterprises can enjoy this reduced CIT rate. Encouraged enterprises are those engaging in industries stipulated in the Catalogue of Encouraged Industries in Western Region. An updated version of this catalogue is expected to be promulgated soon.

The new Tax Circular has the following main content:

(1) Before the update of the Catalogue of Encouraged Industries in Western Region, the tax authority can refer to the Guideline Catalogue for Foreign Investment Industries to assess if an FIE falls in the encouraged industries.

(2) In case an enterprise located in western region has a branch located outside of western region, the profits of such branch may not enjoy the reduced CIT rate.

(3) In case an enterprise located outside of western region has a branch within western region, the profits of this branch can enjoy the reduced CIT rate.