China: Expansion of the Value Added Tax (VAT) Reform and Further Clarified Rules on VAT Exemption

Contact: LehmanBrown International Accountants (Beijing & Shanghai, China)


Following up with the VAT reform launched in 1 August 2013 nationwide, to further include more industries into the Business Tax (BT) to Value Added Tax (VAT) transformation pilot program (VAT pilot program), in year 2014, the Ministry of Finance and the State Administration of Taxation have jointly announced a series of circulars to promulgate that postal services, railway transportation as well as the telecommunication services are covered in the VAT pilot program.

  • Postal Services
    Postal services provided by the China Post Group are subject to VAT at 11% starting from 1 January 2014. Similar to other sectors under the current VAT program, certain postal services prescribed by the relevant measures are also eligible for VAT exemption, for instance, the postal service rendered for the goods export may be exempted from VAT.
  • Railway Transportation Sector
    Pursuant to the initially released VAT reform policy on transportation industry since year 2012, the railway transportation was excluded in the scope of reform. With coverage of railway transportation which is liable for 11% VAT rate effectively from 1 January 2014, the whole transportation industry is now under the pilot VAT program.
  • Telecommunication Services
    Subsequent to the postal service and transportation industry, as anticipated, effective from 1 June 2014, telecommunication services are also subject to VAT. Based on the new measures, there are two types of services applicable to the different VAT rate, e.g., 11% for basic services and 6% for value-added services).

The basic services refer to the activities for rendering voice communication services via telecommunication infrastructure such as fixed network, internet, etc., and the transfer of the right to use bandwidth, wavelength or network. The Value added services include supply of short message or multimedia message service via telecommunication infrastructure, the transmission and application of the digital data and information, access to internet, satellite television signal switch services.

While the telecommunication services rendered to overseas entities are exempted from VAT, it is uncertain whether the overseas service suppliers can be eligible for the same preferential VAT treatment.

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