China Tax/Business News Flash

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Jan 2012, Issue 1

Clarification of the value added tax treatment for export of services under the indirect tax reform Pilot Program in Shanghai

In the Jul 2011 Issue 16, Oct 2011 Issue 28 and Nov 2011 Issue 29 of our China Tax and Business News Flash, we reported respectively the background and the basic regulatory framework of the pilot program of the transformation from Business Tax ("BT") to Value Added Tax ("VAT) (hereinafter referred to as "the Pilot Program") to be launched in Shanghai effective from 1 January 2012.

The principles, long-term vision and basic regulatory framework of the Pilot Program were set out in two important policy documents, i.e., Circular Caishui [2011] No. 110 ("Circular 110") and Circular Caishui [2011] No. 111 ("Circular 111"), jointly released by the Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT") on 16 November 2011.  However, there are still various unclear issues which have not been specified in these two policy documents, among which is the VAT treatment for the export of Pilot Services (whether they should be zero-rated or exempted) by Pilot Enterprises and Individuals in Shanghai (hereinafter referred to as "Pilot Enterprises and Individuals").

On 29 December 2011, the MOF and the SAT jointly released Circular Caishui [2011] No.131 ("Circular 131"), clarifying the scope of exported Pilot Services which are zero-rated or exempted.

In this Issue of News Flash, we would like to highlight the salient points of Circular 131 and share our observations. 
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