On Aug. 27, 2014, the State Administration of Taxation re-issued the Announcement of Administrative Regulations (Trial) on Exemption of Value-Added Tax for Taxable Cross-border Service under Business Tax Transforming to Value-Added Tax Pilot Program (the Regulations), which came into effect Oct. 1, 2014.
The Regulations provide the policies and procedures for claiming exemption from value-added tax (VAT) for exported services outside of China. Also the Regulations repeal its 2013 version (the 2013 Version) and expand the VAT exemptions to more service categories.
Categories of VAT Exemptions
Primarily, there are three types of exported services that are entitled to VAT exemptions:
- Services provided to overseas entities, including, among others, telecommunication services, cultural and creative services and IT services;
- Services the subject matter of which takes place outside of China, including, among others, postal services, leasing of tangible movable property, R&D (e.g., engineering and exploration service for project or mineral resources located outside of China); and
- Transportation services
In addition, the Regulations carve out the following from the scope of services eligible for VAT exemptions:
- Certification, verification and consulting services provided in relation to goods or immovable property located in China; and
- Energy management services where the object of energy management contract is located in China Other than the above two items, other certification, verification and consulting services, and energy management services are eligible for VAT exemption.
Comparison with 2013 Version
Compared to the 2013 Version, the key changes of the Regulations are summarized as follows:
- The VAT exemptions are made available to postal and courier services in connection to commodities exported out of China;
- The Regulations clarify that where the taxpayer is eligible for both zero rate treatment and VAT exemption for R&D, design and international transportation services, such taxpayer may choose VAT exemptions and waive the zero rate treatment; and
- As background knowledge, both the 2013 Version and the Regulations provide that the VAT exemptions are not applicable to any income for exported services that is not paid from outside of China. The Regulations add that if the service recipient’s China affiliate pays the price through its treasury centers or cash pool to the domestic service provider, the VAT exemptions are available.
Lastly, please note the Regulations also apply to exported services provided prior to Oct. 1, 2014.
- Announcement of Administrative Regulations (Trial) on Exemption of Value-added Tax for Taxable Cross-border Service under Business Tax Transforming to Value-added Tax Pilot Program
- Issuing authority: the State Administration of Taxation
- Date of issuance: Aug. 27, 2014 / Effective date: Oct. 1, 2014