VAT Reform in China Reaches a Critical Turning Point

13 Pages Posted: 25 Apr 2016 Last revised: 24 Jun 2016

See all articles by Na Li

Na Li

Institute for Austrian and International Tax Law, Vienna University of Economics and Business (WU)

Jonathan Teoh

affiliation not provided to SSRN

Richard Krever

University of Western Australia Law School

Date Written: April 24, 2016

Abstract

In May 2016, China's indirect turnover tax on services and transfers of real property, the Business Tax, was terminated and with supplies formerly subject to the tax shifted into the VAT. This paper explains the background to the transition from the Business Tax to the VAT and the new rules that apply to the types of supplies that were transferred. A number of new rates were added to the VAT for various types of transferred supplies. Most transferred supplies are subject to ordinary VAT rules, including input tax credits for acquisitions of taxable supplies. However, more complicated rules apply to financial supplies, particularly loans. Gross interest payments are subject to VAT but borrowers are not entitled to input tax credits. Loans structured as alternative transactions such as finance leases may be treated as ordinary taxable supplies that give rise to input tax credits. Transitional rules were adopted for supplies of immovable property but not for other types of supplies.

Suggested Citation

Li, Na and Teoh, Jonathan and Krever, Richard, VAT Reform in China Reaches a Critical Turning Point (April 24, 2016). Tax Notes International, 82(4), pp. 387-398 (April 25, 2016), Available at SSRN: https://ssrn.com/abstract=2769490

Na Li

Institute for Austrian and International Tax Law, Vienna University of Economics and Business (WU) ( email )

Althanstrasse 39-45
A-1090 Wien
Austria

Jonathan Teoh

affiliation not provided to SSRN

Richard Krever (Contact Author)

University of Western Australia Law School ( email )

M253
35 Stirling Highway
Crawley, Western Australia 6009
Australia

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