VAT Program expands in China from 1 August

05 Aug VAT Program expands in China from 1 August

The China Ministry of Finance (MOF) and State Administration of Taxation (SAT) issued a circular on May 24, 2013, announcing the expansion of the Value-Added Tax (VAT) Reform Pilot on a nationwide basis.  Certain revisions to the pilot regulations in this nationwide application of the VAT program will result in a 6% VAT charge assessed on transportation charges and freight forwarding services billed and paid in China.

The VAT reform pilot program for the transportation sectors started in Shanghai on January 1, 2012 and subsequently expanded to eight other cities/provinces during 2012.   The State Council determined in April, 2013 that the limited application of the VAT pilot distorted competition, and called for the nationwide application of the VAT program.   The guidelines for nationwide VAT implementation abolished certain policies existing under the VAT pilot.

Under the VAT pilot, forwarders and other transportation providers could effectively invoice international transportation and freight forwarding services as “VAT Inclusive” – without billing the VAT to client shippers.  This practice is now prohibited and effective from August 1, 2013, the 6% VAT will be collected from clients on Air and Ocean freight charges payable within the PRC.  The 6% VAT will be collected on behalf of and remitted to the government.

The 6% VAT affects all transportation costs, freight forwarding charges and related service and handling fees payable within the PRC on or after August 1, 2013

In summary:

The Chinese government will introduce a new tax for all shipments departing and arriving on or after the 1st of August 2013.

The Tax of 6% will apply to the Ocean and Air freight charges if the Ocean and Air freight is prepaid in China.

For Australian/New Zealand importers, the 6% surcharge will be paid by your supplier.

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