The beginning of China’s pilot value-added tax (VAT) reform has aimed to make transport services and a list of modern services in pilot areas subject to VAT, instead of business tax. Recently, as a new update to the implementation details of the ongoing VAT reform, China’s Ministry of Finance (MoF) and State Administration of Taxation (SAT) clarified that some of these VATable services can enjoy zero VAT rate and VAT exemption.
Zero VAT rate
According to the “Circular on the Application of Zero VAT Rate and VAT Exemption on VATable Services (caishui  No. 131)” issued on December 20, 2011, the following VATable services provided by taxpayers in pilot areas are subject to the zero VAT rate:
In order to be able to enjoy the zero VAT rate, international transport service providers in pilot areas shall obtain operation licenses as specified in Circular No. 131.
The zero VAT rate is applied on different types of taxpayers by different means.
For taxpayers which employ the general VAT calculation method (which allows the deduction of input VAT from output VAT), the zero VAT rate is implemented through the “exemption, deduction and refund” method, with the tax rebate rate standing at the same applicable VAT rates stipulated in the “Implementation Details of VAT Reform in Transport Services and Certain Modern Services (caishui  No. 111).”
For taxpayers which employ the simplified VAT calculation method (which does not allow the deduction of input VAT from output VAT), the zero VAT rate is simply implemented by means of VAT exemption.
Both types of taxpayers mentioned above shall conduct the required tax exemption, deduction and refund procedures with the tax authorities in charge of tax rebates on a monthly basis. The related declaration and filing details will be announced by the SAT and MoF at a later date.
The following VATable services provided by taxpayers in pilot areas are exempt from VAT:
The Circular took effect on January 1, 2012.
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