Shanghai To Implement Value-Added Tax Pilot Program on January 1, 2012 (PDF-126kb)
Shanghai To Implement Value-Added Tax Pilot Program on January 1, 2012 Authors: Woon-Wah Siu, Lu Wang, Joanna Hong Xia JiangCurrently most enterprises providing services in Shanghai do not pay value- added tax (VAT). Instead they pay a business tax based on their revenues, which in Shanghai currently ranges from 3% to 5% but can be significantly higher for specific sectors. That will change soon. Officials have announced a pilot program imposing VAT in Shanghai beginning January 1, 2012, on services including transportation, technology, creative, logistics, authentication and consulting, and movable property leasing. Tax rates under the pilot VAT program will range from 3% to 17%.
On November 16, 2011, the Ministry of Finance and the State Administration of Taxation jointly released the Notice on Promulgation of the "Pilot Scheme for Replacing Business Tax with Value-Added Tax" (Circular 110). Circular 110 paves the way for eliminating the business tax eventually and replacing it with value-added tax. The VAT reform will be launched by a pilot program to be implemented in Shanghai.
Shanghai Pilot Program
Circular 111, the Notice on the Pilot Scheme for Replacing Business Tax on the Transport Sector and Selected Modern Service Sectors with Value-Added Tax in Shanghai, contains detailed implementation rules applicable to the pilot program in Shanghai, which is to commence on January 1, 2012.
Under Circular 111, not only domestic entities and individuals in Shanghai that provide VAT-taxable services, but also overseas entities and individuals rendering VAT-taxable services to persons in Shanghai, are required to pay VAT. Where an overseas supplier does not have a business establishment in Shanghai, its withholding agent or service recipient will pay VAT if the withholding agent or service recipient is established or resides in Shanghai. If services are provided by foreign entities to entities in China and the service is consumed entirely outside China, VAT will not apply.
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