Notice on the Applicability of Zero Rate or Exemption for VAT-able services (Caishui `2011` No. 131)

Thursday, 26 July 2012 11:46

On the last day of 2011, the Ministry of Finance and State Administration of Taxation jointly issued circulars to provide further guidance for the China VAT Reform’s Shanghai pilot program (“Pilot Program”):Notice on the Applicability of Zero Rate or Exemption for VAT-able services (Caishui `2011` No. 131)

One of the hottest issues being addressed in Circular 131 is that, in general, all VAT-able services (whose scope has been specified in appendix I to Caishui `2011` No. 111) provided to overseas organizations can enjoy VAT exemption treatment. Further restrictions may be imposed in some situations to determine the eligibility for the exemption treatment. For instance, attestation services with respect to domestic goods or real properties cannot be exempt from VAT. On the other hand, certain services will be exempt from VAT as long as the relevant activities are conducted overseas. One of the examples is the conference/exhibition services, which may be exempt from VAT if the conference or exhibition is held overseas. Therefore, it is advisable for taxpayers to read the circular carefully to determine the proper treatment. Confirmation with the tax authority may also be necessary under certain circumstances.

In addition, general VAT-payers in the Pilot Program may be exempt from VAT and claim for refund (i.e. “zero-rate treatment”) regarding the following services:

  • International transportation service (provided by qualified service providers);
  • R&D service provided to overseas organizations; and
  • Design service provided to overseas organizations (but excluding those with respect to real properties located in the PRC).

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