Understanding VAT Refunds & Reductions in China 2019

Published: 29.10.2019 Related countries:  China China

If you are a foreign company operating in China, handling your accounting and producing financial statements is a challenge. The Chinese financial management system differs from the system used in the rest of the world (China GAAP vs. Western GAAP) – but the biggest challenge is keeping up with the constant regulatory updates. Often, this can only be achieved with the deep familiarity and experience of a local professional. Read a brief review of VAT Reductions and VAT Refunds in China 2019.

If you are a foreign company operating in China, handling your accounting and producing financial statements is a challenge. The Chinese financial management system differs from the system used in the rest of the world (China GAAP vs. Western GAAP) – but the biggest challenge is keeping up with the constant regulatory updates. Often, this can only be achieved with the deep familiarity and experience of a local professional. Read a brief review of VAT Reductions and VAT Refunds in China 2019:

VAT Reforms

As of April 1, 2019, China’s VAT rates have decreased across the board. Companies previously paying VAT rates of 16% and 10% will now pay 13% and 9% respectively.

The previous rate of 10% on agricultural products will undergo a modest decrease to 9%. Furthermore, agricultural products bought for the use in production or commissioned processing will see a decrease in the VAT rates from 13% to 10%.

The changes in the VAT system demonstrate how the Chinese government is taking progressive steps to apply international best practice within their own VAT system. Particularly, in addition to formalizing the reduction in the VAT regulations, these new rules will also necessitate all businesses claim new credits or alter their compliance methods. For instance, this could include the following notable changes:

  • Potentially opening up VAT refunds for excess input VAT credits to all businesses
  • Offering certain industries will a 10% “super deduction”
  • Cashflow benefits from allowing full input VAT credits up-front for purchasers of real estate and projects under construction.
  • Allowing input VAT credits for transportation services, which consequently increases the need for changes to corporate reimbursement policy.
  • VAT refund rate changes, which will affect exporters and the input tax credit of purchasing agricultural products caused by changes to VAT rates.

Super Input VAT Credit

Beginning April 1, 2019 to December 31, 2021, taxpayers in any of the four qualifying service industries below will be eligible to an additional 10% super input VAT credit. The qualifying services are:

  • Postal Services
  • Telecommunications services
  • Modern services: including R&D, IT services, creative services, logistics and ancillary services, certification and consulting services, leasing, radio, film and television services, and business support services.
  • Lifestyle services: including cultural services, education, healthcare, travel, entertainment, accommodation, and daily services.

Financial Management in China

Foreign companies operating in China should optimize their local financial management system. In order to meet the requirements of Chinese authorities and reduce costs to a minimum, it is more important than ever to carefully control financial statements and meet deadlines to avoid fines. Local knowledge is therefore crucial to manage the constantly changing regulatory updates.