China Tax/Business News Flash

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Sep 2013, Issue 24

Clearer picture of VAT exemption on cross-border services under the B2V regime

Currently, the Business Tax (BT) to Value Added Tax (VAT) Transformation Pilot Programme (B2V Pilot Programme) in China provides zero-rated treatment or exemption from VAT to certain cross-border services . However, while the procedure for zero-rated treatment is clear , it is not so for an exemption. This led to different practices among the tax bureaus and increased the tax uncertainty for VAT taxpayers who provide cross-border services and wish to receive VAT exemption for their qualifying services.

The State Administration of Taxation (SAT) has just issued a new Circular SAT Public Notice [2013] No.52 (Public Notice 52) clarifying the qualifying criteria and procedure (a record-filing procedure instead of an application and approval procedure) for cross-border services eligible for VAT exemption. While the record-filing procedure sounds more liberal, taxpayers should pay the same level of attention, if not more, as if it is an application and approval procedure. Tax authorities will review the record-filing package and disallow any unwarranted VAT exemption benefits in their follow-up inspection and may also impose surcharges and penalties.

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