More Detailed Rules on China VAT Reform

In today’s Newsletter we will introduce the detailed rules of VAT reduction, which shall have an impact on the tax burden of your company.

As mentioned in our March newsletter, China is on the way of a VAT reduction. On 20.03.2019, the Ministry of Finance, State Taxation Administration and General Administration of Customs issued an announcement to stipulate the Relevant Policies for deepening the VAT Reform. In our March Newsletter we introduced the VAT rate deduction. In today’s Newsletter we will introduce the detailed rules of VAT reduction, which shall have an impact on the tax burden of your company.

I. Input VAT incurred by purchasing domestic passenger transport services

Starting from April 1, 2019, with respect to domestic passenger transport services purchased by taxpayers, the input VAT incurred shall be allowed to be offset by the output VAT.

According to the announcement the purchased domestic passenger transport services can obtain VAT special invoice and the VAT of the invoice can be verified as input VAT. On the other hand, if the taxpayer fails to obtain a special VAT invoice, the input VAT shall be tentatively determined in accordance with the following provisions:

Invoices or receipts obtained

  1. General VAT e-invoice*
  2. E-ticket itinerary receipt for air transport**
  3. Railway ticket**

Input VAT

  1. Amount indicated on the invoice*
  2. (Airfare + Fuel surcharge) / (1 + 9%) × 9%**
  3. Face value / (1+9%) × 9%**


*refers to that such invoices must be a general VAT e-invoice. The VAT indicated on a paper general invoice will not be allowed to offset the output VAT.

**refers to that such receipts must indicate the passenger identity information; otherwise, it is not allowed to calculate the input VAT.

In practice, we propose your company to process and calculate the input VAT of proof 2, 3, 4 according to the following procedures:

  1. Company or employees purchase passenger transport services for company business and obtained above mentioned receipts.
  2. Company or employees collect and paste the obtained above mentioned invoices and receipts separately from other expense claims, and submit them to the Finance Department.
  3. After review, the Finance Department calculates the input VAT and files photocopies of above-mentioned invoices and receipts together with other deduction forms of input VAT.

II. Period-end overpaid VAT refund

From April 1, 2019, the period-end overpaid VAT refund system shall be implemented tentatively. A taxpayer who meets all the stipulated conditions may apply to the responsible tax authority for a refund of newly VAT prepayment. The VAT prepayments refer to newly added period-end VAT prepayment compared with that by the end of March 2019. We propose your company to communicate with your responsible tax authority directly as to the VAT refund issue. If your company finally gets the refund, it will be helpful for your company’s cash flow management.