Announcement No. 39 of the Ministry of Finance, State Taxation Administration and General Administration of Customs, 2019
It is hereby announced that the relevant issues concerning VAT reform in 2019 are notified as follows to implement the decisions and arrangements made by the Central Committee of the Communist Party of China and State Council and promote the substantial reduction of VAT:
I. In the case of VAT taxable sales or goods import by ordinary VAT payer (the “taxpayer”), the original tax rates of 16% and 10% shall be adjusted to 13% and 9% respectively.
II. In the case of purchase of agricultural products by taxpayer, the original deduction rate of 10% shall be adjusted to 9%. The VAT on purchase shall be calculated at the deduction rate of 10% if the taxpayer purchases the agricultural products for production or consigned processing of goods with a tax rate of 13%.
III. For goods and labor service exported with original tax rate of 16% and export rebate rate of 16%, the export rebate rate shall be adjusted to 13%; for export goods and cross-border taxable behaviors with original tax rate of 10% and export rebate rate of 10%, the export rebate rate shall be adjusted to 9%.
Before June 30, 2019 (including the time before April 1, 2019), in case of goods import or cross-border taxable behaviors in the preceding paragraph made by taxpayers, where the VAT rebate and exemption is applicable, the export rebate rates before and after adjustment shall be applied for VAT collected on the tax rate before and after adjustment respectively; where the exemption and offset VAT rebate is applicable, the export rebate rate before adjustment shall be applied; when calculating the exemption and offset VAT rebate, if the applicable tax rate is lower than the export rebate rate, the difference between the applicable tax rate and the export rebate rate shall be regarded as zero participation in the calculation of exemption and offset VAT rebate.
The execution time of export rebate rate and the time of goods and service export or cross-border taxable behaviors shall be subject to the following provisions: the goods and labor service for export declaration exported (except the bonded area and goods exported via the bonded area) shall be subject to the export date indicated in the customs declaration form; the goods and labor service and cross-border taxable behaviors not for export declaration shall be subject to the issuance time of export invoice or plain invoice; the goods in the bonded area and goods exported via the bonded area shall be subject to the export date indicated in the record list of outbound goods issued by China Customs at the time of departure.
IV. For departure tax rebate items of overseas passengers subject to the tax rate of 13% and 9%, the tax rebate rate shall be 11% and 8% respectively.
Before June 30, 2019, the tax rebate rate before and after adjustment shall be executed for VAT levied at the tax rate before and after adjustment respectively.
The execution time of tax rebate rate shall be subject to issuance date of ordinary VAT invoice for rebate items.
V. From April 1, 2019, Item 1 of Article 1 (4) and Item 1 of Article 2 (1) of the Regulations on Matters Related to the Pilot of Replacing Business Tax with VAT (CS No. 36-2016 issued) will no longer be executed, and the VAT on purchase on immovable property or immovable property under construction of the taxpayers shall not be deducted in 2 years. The VAT on purchase to be deducted, which has not been fully deducted as per the above provisions, may be deducted from the VAT on sales from April 2019.
VI. The VAT on purchase of taxpayers purchasing domestic passenger transport service may be deducted from the VAT on sales.
(1) For taxpayers not obtaining the VAT special invoice, the VAT on purchase shall be temporarily determined in accordance with the following provisions:
1. For those obtaining the electronic ordinary VAT invoice, it is the tax amount indicated on the invoice;
2. For those obtaining the itinerary of e-ticket of air transport with passenger information, the VAT on purchase shall be calculated according to the following formula:
VAT on purchase for air passenger transport = (ticket price + fuel surcharge) ÷ (1+9%) ×9%
3. For those obtaining the railway ticket with passenger information, the VAT on purchase shall be calculated according to the following formula:
VAT on purchase for railway passenger transport = face amount ÷ (1+9%) ×9%
4. For those obtaining the highway, waterway and other passenger tickets with passenger information, the VAT on purchase shall be calculated according to the following formula:
VAT on purchase for highway and waterway passenger transport = face amount ÷ (1+3%) ×3%
(2) The “passenger transport service, loan service, catering service, daily service for residents and entertainment service purchased” in Article 27 (6) of the Measures for Implementation of Pilot of Replacing Business Tax with VAT (CS No. 36-2016 issued) and Item 5 of Article 2 (1) of the Regulations on Relevant Matters Concerning the Pilot of Replacing Business Tax with VAT (CS No. 36-2016 issued) is modified to “l(fā)oan service, catering service, daily service for residents and entertainment service purchased”.
VII.From April 1, 2019 to December 31, 2021, taxpayers in the production and living service industry are allowed to add 10% based on the VAT on purchase deductible in current period to deduct the tax amount payable (hereinafter referred to the “additional deduction policy”).
(1) Taxpayers in the production and living service industry mentioned in the Announcement refers to the taxpayers whose sales of postal service, telecommunications service, modern service and life service (hereinafter referred to as the four services) account for more than 50% of the total sales. The specific scope of the four services shall be implemented in accordance with the Notes on Sales Service, Intangible Asset and Immovable Property (CS No. 36-2016 issued).
For taxpayers established before March 31, 2019, if the sales amount from April 2018 to March 2019 (adopt the sales amount in actual operating period in the case of operating period less than 12 months) meets the above conditions, the additional deduction policy shall apply from April 1, 2019.
For taxpayers established after April 1, 2019, if the sales volume of the three months from the date of establishment meets the above requirements, the additional deduction policy shall apply from the date of registration as a general taxpayer.
No adjustment will be made within the current year after the taxpayer decides to apply the additional deduction policy. And whether the policy is applicable in the following years shall be determined by calculating the sales amount of the previous year.
The additional deductible amount that may be withdrawn but not withdrawn by a taxpayer may be withdrawn in the period, in which the additional deduction policy is determined to be applicable.
(2) The taxpayer shall withdraw the additional deductible amount for the current period based on 10% of the VAT on purchase deductible for the current period. The additional deductible amount shall not be withdrawn from the VAT on purchase that shall not be deducted from the VAT on sales in accordance with current regulations; if the VAT on purchase, for which an additional deductible amount has been withdrawn, is transferred as regulated, the corresponding additional deductible amount shall be adjusted in the current period when the VAT on purchase is transferred out. The calculation formula is as follows:
Additional deductible amount withdrawn in current period = VAT on purchase deductible in current period ×10%
Additional deductible amount deductible in current period = balance of additional deductible amount at the end of last period + additional deductible amount withdrawn in current period - additional deductible amount adjusted in current period
(3) A taxpayer shall, after calculating the tax amount payable under the general tax assessment method in accordance with the existing provisions (the “tax amount payable before deduction”), make additional deduction by the following situations:
1. Where the tax amount payable before deduction is zero, all the additional deductible amounts of current period may be carried over to the next period for deduction;
2. Where the tax amount payable before deduction is greater than zero and the additional deductible amount deductible in current period, all the additional deductible amounts deductible in current period shall be deducted from the tax amount payable before deduction;
3. Where the tax amount payable before deduction is greater than zero and less than or equal to the additional deductible amount deductible in current period, the tax amount payable shall be reduced to zero from the additional deductible amount deductible in current period. The additional deductible amount deductible in current period not deducted completely shall be carried over to the next period for deduction.
(4) If the additional deduction policy is not applicable to the goods and labor service export or cross-border taxable behaviors made by the taxpayers, the additional deductible amount shall not be withdrawn from its corresponding VAT on purchase.
The following formula shall be applied to calculate the VAT on purchase for taxpayers who are engaged in goods and labor service export or cross-border taxable behaviors, and are unable to classify the VAT on purchase from which no additional deductible amount may be withdrawn:
VAT on purchase from which no additional deductible amount may be withdrawn = all VAT on purchase that can’t be classified in current period × sales amount of goods and labor service exported or cross-border taxable behaviors of current period ÷ all sales amount of current period
(5) Taxpayers shall separately check the changes in the withdrawal, deduction, adjustment and balance of the additional deductible amount. Anyone who fraudulently applies the additional deduction policy or falsely adds the additional deductible amount shall be dealt with as per the Tax Collection Administration Law of the People's Republic of China and other relevant regulations.
(6) After the additional deduction policy expires, the taxpayer will no longer withdraw the additional deductible amount, and the surplus additional deductible amount will not be deducted.
VIII. From April 1, 2019, the VAT retained drawback system of VAT at the end of the period shall be tried.
(1) Furthermore, taxpayers meeting the following conditions may apply to the competent tax authority for rebate of the incremental VAT retained:
1. From the tax period of April 2019, the incremental VAT retained for six consecutive months (taxation by quarter, for two consecutive quarters) is greater than zero, and the incremental VAT retained of the sixth month is no less than CNY 500,000;
2. The tax-paying credit rating is A or B;
3. There are no cases of defrauding the rebate of VAT retained and export rebates or falsely issuing the VAT special invoice within 36 months prior to the claim for tax rebate;
4. Taxpayers have not been punished twice or more by tax authorities for tax evasion within 36 months prior to the claim for tax rebate;
5. Taxpayers do not enjoy the policies of "immediate levy and rebate" and "levy first and return later" since April 1, 2019.
(2) The incremental VAT retained in the Announcement refers to the newly increased end-of-period VAT retained compared with that at the end of March 2019.
(3) The rebated incremental VAT retained allowed by the taxpayers for the current period shall be calculated according to the following formula:
Allowable rebated incremental VAT retained = incremental VAT retained × component ratio of VAT on purchase ×60%
The component ratio of VAT on purchase refers to the proportion of the VAT amount noted on the VAT special invoices deducted (including the uniform invoice for sales of tax-controlled motor vehicles), special VAT payment vouchers of customs import and tax payment vouchers to all VAT on purchase deducted in the same period from April 2019 to the previous tax period before the claim for tax rebate.
(4) Taxpayers shall apply to the competent tax authority for rebate of VAT retained within the period of VAT declaration.
(5) For taxpayers exporting goods and labor service or engaging in cross-border taxable behaviors, if the exemption and offset tax rebate is applicable, taxpayers still meet the conditions stipulated herein after the tax offset rebate exemption is handled, the rebate of VAT retained may be applied. If the tax rebate and exemption is applicable, the relevant VAT on purchase shall not be used to rebate the VAT retained.
(6) After obtaining the rebated VAT retained, the VAT retained of current period shall be reduced correspondingly. Those meeting the conditions of tax rebate again as per this article may continue to apply to the competent tax authority for rebate of the VAT retained, however, no double counting shall be allowed for the continuous period specified in Item 1 of Subparagraph (1) of this article.
(7) Tax authorities shall recover the tax rebate fraudulently obtained by taxpayers who have defrauded the rebate of VAT retained through false increase of VAT on purchase, false declaration or other deception means, and deal with the cases in accordance with the Tax Collection Administration Law of the People's Republic of China.
(8) The central and local sharing mechanism of rebated incremental VAT retained will be notified separately.
(9) The Announcement shall take effect from April 1, 2019.
Ministry of Finance, State Taxation Administration and General Administration of Customs
March 20, 2019