Michaela Merz

China – transportation services – new rules as from August 1, 2013

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China is undergoing a Business Tax to Value Added Tax transformation (“B2V”) Pilot Program, with transportation and certain modern services becoming the first batch of pilot industries. Effective August 1, 2013, the B2V Pilot Program of transportation and certain modern services (including freight forwarding services) was expanded nation-wide.  Under the B2V Pilot Program, the taxable service should be subject to VAT if either the service provider or the service recipient is within the territory of China.

  • For domestic transportation service, the applicable VAT rate is 11%;
  • For international transportation service, the service may be zero-rated if the Chinese transportation service provider is licensed; otherwise it may be exempted from VAT;
  • For freight forwarding service, the applicable VAT rate is 6%; no zero-rating is available although exemption is possible if the services are provided to overseas persons.

Depending on the transportation/logistics arrangements, the current VAT rules could lead to different VAT positions.  Find below an overview of the VAT positions relating to international transportation/logistics services.

For Foreign Carriers:

  • VAT position on income from China will depend on what aviation, maritime and /or double tax treaty between the two countries stipulated
  • If no such treaty between the two countries, then its income from China will be subject to 11% VAT, to be withheld by the buyer, which will then become input credit to the buyer

For Domestic Carriers:

  • If the domestic carrier is licensed, it can apply for VAT zero-rated
  • If the domestic carrier is not licensed, it can apply for VAT exemption

For Freight Forwarders:

  • Gross income (including payment on behalf, etc) from domestic service recipients will be subject to 6% VAT
  • Income from foreign service recipients may qualify for exemption, guideline for VAT exemption is not available yet and local practice varies

For Shipping Agents (Foreign ship liners are required to provide their services via a shipping agent in China, while domestic ship liners can face customers directly.  Hence, in theory the customers of domestic shipping lines could bypass this 6% VAT.)

  • Gross income (including payment on behalf, etc) from domestic service recipients will be subject to 6% VAT
  • Income from foreign service recipients may qualify for exemption, guideline for VAT exemption is not available yet and local practice varies

For further details please contact:

Alan Wu
Partner – National Indirect Tax Leader – China Tax & Business Advisory Services
PricewaterhouseCoopers Consultants (Shenzhen) Limited, Beijing Branch
Phone: +86 (10) 6533 2889
Email: alan.wu@cn.pwc.com

 

 

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