August 17th, 2016
China has aligned its tax system with international policies and has joined with over 140 countries by implementing it’s VAT Reform and replacing all business tax with value added tax (VAT) As of May 1, 2016, China fully extended it’s VAT policy to now cover the construction, real estate, finance and consumer services sectors.
China has operated a dual system of indirect taxes for years, with VAT applying to the sale and importation of goods, typically at the rates of 13 or 17 percent. In contrast, most services were subject to a either 3 or 5 percent business tax (BT). By introducing the VAT which taxes only the value added at each link in the production chain, the new reform avoids the double taxation of the BT by completely removing it.
The single system, VAT, will apply to all goods and services and is replacing the dual system of indirect taxes. The transition of business-tax-to-VAT combined with other tax reforms is expected to revitalize China’s economy.
In addition to the VAT reform, China plans on reforming the resource tax and environmental protection tax in order to promote the country’s economic transformation and support sustainable development. The Chinese Government’s goal with modernizing taxation is to transform the nation from a production- based economy into a more service oriented economy. Lastly, a foreign company, will not only need to align its business plan with the new VAT tax system but also will have to determine whether the new taxation and economic direction will be profitable.
Tiger-Consulting has been doing business in Asia for 25+ years. The firm provides HR, payroll and business support to 300+ businesses. For questions regarding the firm’s International HR, Payroll, PEO, and other Business Consulting Services, email sales@Tiger-Consulting.net
Founder & CEO, Tiger-Consulting