electronicwww

www.
pkf-hk.
comNewPoliciesforDeepeningtheValue-addedTax("VAT")ReformPKFHONGKONG|TAXPKFHONGKONG|TAXBackgroundOn5March2019,PremierLiKeqiangproposedinthe"GovernmentWorkReport"thatthePRC'sGovernmentwillimplementlarger-scaletaxreductionpoliciesanddeepentheVATreform.
On20March2019,PremierLiKeqiangchairedtheExecutiveMeetingsoftheStateCouncilandclarifiedthesupportingmeasuresforVATtaxreduction.
On21March2019,theMinistryofFinance,theStateTaxationAdministrationandtheGeneralAdministrationofCustomsjointlyissuedthe"AnnouncementonPoliciesforDeepeningtheVATReform"(Announcement[2019]No.
39oftheMinistryofFinance,theStateTaxationAdministrationandtheGeneralAdministrationofCustoms)("AnnouncementNo.
39")andseveralguidelinesinordertoreducetheVATtaxburden.
AnnouncementNo.
39hascomeintoeffecton1April2019.
WesetoutbelowanoverviewandkeymeasuresofAnnouncementNo.
39.
OverviewofAnnouncementNo.
391.
ReductionofVATratesWhenVATgeneraltaxpayers("thetaxpayers")carryoutVATtaxableactivitiesorimportsgoods,theapplicableVATrateshavebeenreducedasfollows:theoriginalVATrate16%forrelevanttransactionsisadjustedto13%;theoriginalVAT10%forrelevanttransactionsisadjustedto9%;andtheoriginalVATrate6%forrelevanttransactionsremainsunchanged.
Wherethereisaneedtocorrectorissueaninvoiceforthetaxableactivitiesoccurredbefore1April2019,theinvoiceshallbeissuedaccordingtotheoriginalapplicableVATratesanditisprohibitedtoapplythenewVATrates.
2.
ReductionofexportrefundratesInlinewiththereductionofVATrates,thePRCenterpriseexportrefundrateandtheoverseasvisitorspurchaserefundrateupontheirdeparturehavebeenreducedaccordinglyasfollowing:-AdjustedrefundrateExportedgoodsandrelevantservicewhichareoriginallysubjectto16%VATrateand16%exportrefundrateExportrefundrateisadjustedto13%Exportedgoodsandcrossboardertaxableactivitieswhichareoriginallysubjectto10%VATrateand10%exportrefundrateExportrefundrateisadjustedto9%Thegoodspurchasedbyoverseasvisitorswhicharesubjecttoa13%refundrateRefundrateisadjustedto11%Thegoodspurchasedbyoverseasvisitorswhicharesubjecttoa9%refundrateRefundrateisadjustedto8%PleasenotethatifthetaxpayershadpaidtheVATbasedontheoriginalVATratebefore30June2019,theoriginalrefundrateshallapply;ifthetaxpayerspaidtheVATbasedonthenewVATrate,thenewrefundrateshallapply.
PKFHONGKONG|TAXOverviewofAnnouncementNo.
393.
Reductionofagriculturalproducts'deductionrateForagriculturalproductspurchasedbytaxpayers,thenewdeductionrateisadjustedto9%fromtheoriginalrate10%.
ForagriculturalproductspurchasedbytaxpayersforproductionoroutsourcedprocessingwhicharesubjecttoVATat13%,a10%deductionrateshallapplywhencalculatinginputVAT.
4.
One-offdeductionofinputVATarisingfromtheacquisitionofimmovablepropertyorprojectunderconstructionTaxpayersnolongerneedtoclaimtheirinputVATcreditforpurchasingimmovablepropertyorprojectunderconstructionover2years.
AllrelevantinputVATcannowbedeductedintherelevanttaxperiod.
BeforethecommencementofAnnouncementNo.
39,ifthereisanyinputVATnotyetfullydeducted,itcanbeusedtooffsettheoutputVATintherelevanttaxperiodstartingfromApril2019.
5.
InputVATforpurchaseofdomesticpassengertransportationservicesAnnouncementNo.
39hasrevisedtherelevantprovisionsinthepreviousVATregulationsfor"certaintypesofserviceswhoseinputVATcannotbeclaimed",andstipulatesthatifthetaxpayerspurchase"domesticpassengertransportationservices",theinputVATarisingfromsuchservicescanbeusedtooffsetthetaxpayers'outputVAT.
IfthetaxpayersobtainVATelectronicgeneralinvoicesorVATspecialinvoices,theinputVATshallbetheVATamountindicatedontheinvoices;iftaxpayersobtaindocumentswhichstatethepassenger'sidentityinformationincludingairtransporte-ticket,railwaytickets,roadorwaterwayticketandetc.
,theinputVATshallbecalculatedbytheVATinclusivepriceonsuchdocumentsandapplicableVATrates.
PKFHONGKONG|TAXOverviewofAnnouncementNo.
396.
SuperdeductionofinputVATforseveralindustriesFrom1April2019to31December2021,taxpayersengagedinproductionorlivelihoodrelatedserviceswillbegranteda10%superdeductionofinputVATtooffsettheirVATpayable("SuperDeductionPolicy").
Applicablescope:"taxpayersengagedinproductionorlivelihoodrelatedservices"referstoanytaxpayerswhichearnmorethan50%oftheirtotalsalesrevenuebyprovidingpostalservice,telecommunicationsservice,modernserviceorlifestyleservice.
Thespecificrulesareasfollows:-1.
Forthosetaxpayersincorporatedbefore31March2019,ifthesalesamountfromApril2018toMarch2019meetsrelevantrequirement(iftheoperationperiodislessthan12month,theactualsalesamountisregardedasthesalesamount),theSuperDeductionPolicyshallapplysince1April2019.
2.
Forthosetaxpayersincorporatedafter1April2019,ifthesalesamountsinceincorporationmeetsrelevantrequirement,theSuperDeductionPolicyshallapplyfromthedateofregistrationtobeageneralVATtaxpayer.
3.
Oncethetaxpayersconfirmtoapplythesuperdeduction,noadjustmentshallbemadeinthecurrentyear,andtheireligibilityforthesuperdeductioninthefollowingyearshouldbedeterminedbasedonitssalesamountoftheprecedingyear.
Ataxpayershouldmakethesuperdeductioninthecurrentperiodat10%ofthecurrentperiod'screditableinputVAT.
Nosupperdeductionshallbecalculatedfornon-deductibleinputVATaccordingtotheprevailingregulations.
IftheinputVATistransferredoutasrequired,thesuperdeductionrelatedtosuchamountofinputVATshouldalsobereducedaccordinglyinthecurrentperiod.
Theformulaofcalculatingthesuperdeductionisasbelow:Superdeductionprovisioninthecurrentperiod=creditableinputVATincurrentperiod*10%Superdeductionamountdeductibleinthecurrentperiod=balanceofsuperdeductionattheendofthepreviousperiod+superdeductionprovisioninthecurrentperiod–superdeductionamountreductioninthecurrentperiodPKFHONGKONG|TAXOverviewofAnnouncementNo.
397.
VATrefundsforexcessinputVATThepilotsystemforrefundingtheexcessinputVATcreditshastakeneffecton1April2019.
AtaxpayerwhomeetsallofthefollowingcriteriamayapplyfortherefundofitsincrementalexcessinputVAT:1.
FromthetaxperiodsinceApril2019,theincrementalexcessinputVATforeachofthesixconsecutivemonths(twoconsecutivequartersiftaxedquarterly)isapositiveamount,andtheincrementalexcessinputVATcreditsinthesixthmonthisnotlessthanRMB500,000;2.
Thetaxpayer'staxationcreditrankingisratedasGradeAorGradeB;3.
ThetaxpayerhasnotcommittedfraudforexcessinputVATrefund,exportrefundorfalselyissuedspecialVATinvoicesfor36monthsbeforeitsclaimfortheVATrefund;4.
Thetaxpayerhasnotbeenpenalizedbytaxauthoritiesfortaxevasionmattersfortwoormoretimeswithin36monthsbeforeitsclaimfortheVATrefund;and5.
IthasnotenjoyedthepolicyofVATrefundundertherefund-upon-levyorrefund-after-levysince1April2019.
TheformulaoftherefundableamountregardingincrementalexcessinputVATinthecurrentperiodisasfollows:RefundableincrementalexcessinputVAT=incrementalexcessinputVAT*theproportionofinputVAT*60%ProportionofinputVATreferstotheproportionofVATindicatedinthespecialVATinvoices(includingthemachine-printeduniforminvoicesformotorvehiclesales)thathavebeencredited,specialVATpaymentformsissuedbyCustomsforimportandtaxpaymentreceiptsfromApril2019untiltheprecedingtaxperiodoftheclaimforVATrefund,overallinputVATthathasbeencreditedinthesameperiods.
Fortheexportofgoodsandlaborservicesorcross-bordertaxableactivitiescarriedoutbyataxpayer,towhichthemeasuresforVAT"exemption,creditandrefund"areapplicable,thetaxpayercouldapplyfortherefundoftheexcessinputVATcreditsgiventhatitstillmeetsthecriteriaspecifiedinAnnouncementNo.
39aftercompletingtheformalitiesforVAT"exemption,creditorrefund";ifthemeasuresforVAT"exemptionandrefund"areapplicable,therelevantinputVATshouldnotbeusedfortherefundofexcessinputVAT.
PKFHONGKONG|TAXPKFCommentsTaxreductionisthekeyreformdirectionofthePRC'sfinancialdepartmentinrecentyears.
ThedeepeningVATreformpolicythistimefocusesonreducingtheVATratesofcertainindustriessuchasmanufacturing,transportation,constructionandbasictelecommunicationsservices,butitdoesnotreducethe6%VATrateapplicabletotheserviceindustry.
WeviewthatitispossibleforthePRCgovernmenttosimplifythethree-levelVATratesinthefutureinordertoachievethesimplificationoftaxationsystem.
Itisunlikelythatthe6%VATratewillbereducedinthefollowingyears,butthereisstillroomforsimplificationofthethree-levelVATratesafterthisreform.
Thereductionofthetaxratewouldsignificantlyreducethetaxburdenofintermediateflowsofgoodsorservices,andwouldlaythefoundationforthegovernment'smacroscopicpolicyofreducingtaxburden.
TaxpayersshouldfocusontheeffectivedateoftheVATreformpolicy.
SincethetimingwhentheVATobligationarisesmaynotbeconsistentwiththetimingofrevenuerecognition,ifthetaxpayerscandeterminethetimingofVATobligationandtheapplicableVATratesmoreaccuratelyinadvance,theyshouldbeabletomitigaterelevanttaxrisksinareasonablemanner.
TheVATreductionpolicies(includingthepilotsystemofVATrefundsforexcessinputVAT)underAnnouncementNo.
39caneffectivelyincreasetaxpayers'cashflow,reducetaxpayers'operatingcostsandcreatelargerprofitmarginsfortaxpayers.
Taxpayersshouldmakeproperpreparationsfortheabovepreferentialpoliciestoensurethattheycanfullyenjoythepreferentialtaxpoliciesbyevaluatingtheirsituation,improvingtheinternalcontrolsystemandperformingreasonabletaxplanning.
Moreover,theVATreductionpoliciesthistimearealsoinlinewiththeinternaltrendofreducingtaxburden.
Fromthedomesticperspective,weviewthatthetaxreductionpolicieswouldbebeneficialtothedevelopmentofPRC'seconomyandcross-bordertrading,andwouldbeabletoattractmoreforeigninvestmentinthePRC.
PKFHONGKONG|TAX2019PKFHongKongLimited|AllRightsReservedPKFHongKongLimitedisamemberfirmofthePKFInternationalLimitedfamilyoflegallyindependentfirmsanddoesnotacceptanyresponsibilityorliabilityfortheactionsorinactionsofanyindividualmemberorcorrespondentfirmorfirms.
JeffreyLauTaxManagerjeffreylau@pkf-hk.
comHenryFungTaxPartnerhenryfung@pkf-hk.
comlinkedin.
com/company/pkf-hong-kong/https://www.
facebook.
com/PKFhkIMPORTANTNOTE:Theinformationcontainedinthisdocumentisonlyforgeneralinformationandisnotintendedtoaddressthecircumstancesofanyparticularentitiesorindividuals.
Accordingly,thisdocumentdoesnotconstituteaccounting,tax,legal,investment,consulting,orotherprofessionaladviceorservices.
Noactionshouldbetakensolelyonthebasisofthecontentsofthisdocumentwhichonlycontainabriefoutlineoftherelevantlaws.
Beforetakinganyaction,pleaseensurethatyouobtainadvicespecifictoyourcircumstancesfromyourusualPKFtaxpartnersorothertaxadvisersorliaisewiththerelevanttaxauthorities.
Weacceptnoresponsibilityorliabilitytoanypersonschoosingtotakeactionorimplementbusinessplansoractivitiessolelyorpartiallybasedonthisdocument.
PKFHongKongLimited26/F,CiticorpCentre,18WhitfieldRoad,CausewayBay,HongKongPKFconsistsofover400offices,operatingin150countriesacrossfiveregions.
Wespecialiseinprovidinghighqualityaudit,accounting,tax,andbusinessadvisorysolutionstointernationalanddomesticorganisationsinallourmarkets.
PKFTaxandBusinessAdvisoryprovidescomprehensivetaxandbusinessadvisoryservicesinrespectoftheInternational,HongKongandChinataxmatters.
OurprofessionalteamatPKFHongKongisexperiencedinprovidingcross-borderindividualincometaxadviceinvolvingHongKongandChina.
Ifyourequireassistanceinthisregard,pleasefeelfreetocontactus.
Contactus:FollowusonWeChatScantheQRcodeandgetthelatestPKFHongTel:+85228063822Email:enquiry@pkf-hk.
comWebsite:www.
pkf-hk.
com