China VAT reform and expatriates in China

VAT2-300x160

 

In March 2016, during the National People’s Congress, Li Keqiang, China’s Premier, announced that Value Added Tax (VAT) reforms will be fully implemented starting from May 1, 2016.  This decision aims at aligning China’s indirect tax policies with international practices, as well as to support the goal of transforming the country from a manufacturing based economy into a service industry oriented economy. 

In China, the tax system is rather complex as the government has not implemented a simple VAT rate approach for all sectors of the economy.  What’s happening in 2016 is major reform with the transition from BT (Business Tax) to VAT for construction, real estate, financial and consumer services industries. If you are living and working in China, this reform may have impact on your bills.

Tax rate change, from BT to VAT

DLA Piper article’s is a good source of information to understand the BEFORE / AFTER May 1st 2016 for the construction, real estate, financial and consumer services industries.

Industry Scope Current BT rate Applicable  VAT rate
Construction services
  • Construction, installation, repairs, decoration and other construction projects
3% 11%
Real estate
  • Sales of buildings and other structures built on land
  • Assignment of land-use rights and natural resources use rights
  • real property leasing
5% 11%
Financial & Insurance   5% 6%
Consumer services Culture and sports, education and medical care, tourism and entertainment, catering and accommodations, daily residential services, and other lifestyle services 5% (entertainment 5-20%) 6%

 

 

Practical implications for tenants

Practical implication: if you are renting a property (Office space, apartment, villa, courtyard…) in China, the applicable VAT rate is 11%. There is still an ongoing discussion to distinguish property leasing from short-term service apartment leasing

According to the new VAT regulation, landlords would be subjected to an 11% VAT on their rental revenues instead of the previous 5% business tax. HOWEVER, when calling the tax bureau we could not get the accurate information about the future tax amount (from 1.5% to 11%) although many sources tend to say it will be 11% for real property leasing. So we can only know when it is implemented from May 1 2016.

We can easily anticipate that in order to secure their revenue, landlords will try to pass this cost on to tenants by increasing rents. To be discussed with your preferred SCOUT Real Estate Consultant

 

Sources:

http://www.ccilc.pt/sites/default/files/china_vat_system_en.pdf

http://www.gide.com/sites/default/files/gide_china_clientalert_tax_lastrunprcvatreform_en_apr2016.pdf

http://www.ey.com/Publication/vwLUAssets/EY-china-vat-reform-are-you-ready-for-the-last-run/$FILE/EY-china-vat-reform-are-you-ready-for-the-last-run.pdf

http://www.colliers.com/en-gb/china/about/media/2016-04-06-china-expand-vat-real-estate

http://www.ecovis.com/focus-china/4848-2/

http://www.bloomberg.com/news/articles/2016-04-21/china-s-biggest-tax-reform-in-two-decades-aims-to-boost-growth

http://www.china-briefing.com/news/2016/04/08/china-life-services-industry-undergoes-vat-reform.html

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I am living in China since 2009 and in Beijing since 2011. I am sharing my experiences for other expatriates to make their stay in Beijing more enjoyable. As I am writing this blog for SCOUT Real Estate agency, I am also computing updates about the Real Estate market in Beijing, not only on residential properties, but as well on commercial locals and offices. Hope you enjoy your reading!