About two years ago, the SAT clarified that the entire or partial transfer of a going concern’s assets is exempt from VAT4. Under the new SAT Bulletin [2012] No. 55 (“Bulletin 55”), effective from 1 January 2013, the SAT addresses the carryover of the remaining input VAT credits from the seller to the buyer.

Bulletin 55 provides that the remaining input VAT credits of the seller can be transferred to the buyer with approval from the in-charge tax authority if: (i) the seller transfers all of its assets, liabilities and workforce to the buyer; and (ii) the seller is to be liquidated and deregistered as a taxpayer after the asset transfer.

Under Bulletin 55, there is no invoice requirement to transfer the input VAT from the seller to the buyer. This can make the asset transfer of a going concern potentially more desirable for companies looking to acquire a business in China.

Companies interested in pursuing the VAT credit carryover should consult the in-charge tax authorities to understand the approval procedures, which are not yet provided in any written guidance. In addition, the buyer should negotiate with the seller early in the process regarding the conditions that must be satisfied to obtain the VAT carryover, e.g., the seller must be liquidated and the seller should be obligated to assist with any documentation or information requirements imposed by the tax authorities in connection with the application.