Dec. 2013 - Detailed implementation rules for filing of exemption on VAT-able cross-border services in Beijing

The Beijing State Tax Bureau issued the Circular Announcement [2013] No. 22 concerning the issues related to the filing of VAT exemption and clearance of VAT paid during the previous pilot period for VAT-able cross-border service (“Announcement No. 22”) on 25 November 2013. It prescribes guidelines for the application of VAT exemption treatment with regard to VAT-able cross-border services in Beijing.

Highlights of Announcement No. 22

Based on the implementation rules of VAT exemption for cross-border services stipulated by SAT Announcement [2013] No. 52, Announcement No. 22 provides detailed guidance on the proving documentation for cross-border services and the instruction on VAT clearance.

1. The guidelines for filing VAT exemption

If companies are in one of the following two situations, they are eligible to apply for VAT exemption:

  1. Services rendered outside China (“Overseas services”)
  2. Services rendered to overseas services recipients (“Services for overseas recipients”)
 

Overseas services

Services for overseas recipients

Services scope eligible for VAT exemption

(1) Engineering survey and exploration services

(2) Conference and exhibition services

(3) Warehousing services

(4) Tangible movable property leasing services

(5) Distribution and broadcasting services

(6) International transportation services

(7) HK, Macau and Taiwan transportation services

(8) Services applicable to simple VAT taxing method

(8.1) International transportation services

(8.2) HK, Macau, Taiwan transportation services

(8.3)   R&D services applicable to simple method

(9) Cross-border services provided to overseas entities

(9.1 - i) Technology transfer, technical consulting

(9.1 - ii) IT services,
cultural and creative services, logistics and ancillary services,
certification and consulting services,
radio, film and TV services, etc.

(9.2) advertising services

Required documents

(1)~(5) and (9.2) services: a + b + c + d

a.  Filing form for VAT exemption

b.  Cross-border service contract 

c.  Written confirmation for activities incurred overseas issued by service recipient (overseas entity) with the signature of the legal representative or company chop

d.  Search results of entry-exit records for those key service providers from China entity who travel out of China

(6),(7),(8.1),(8.2) services: a + b + e + f

e.  Bill of lading

f.  Summary of the revenue from passenger transportation, number of passengers, departure and arriving information

(9.1 - ii) services: a + b + g or h

g.  Registration certificate of the overseas entity; OR

h.  Written confirmation issued by the third party 

 

(8.3) and (9.1 -i): a + b + g or h + i

i.  Registration certificate of technology export issued by Beijing Municipal Bureau of Commerce 

 

2. The clearance for VAT paid during the previous pilot period

Period covered

September 2012 to November 2013

Schedule

Submission should be done before 31 March 2014

Post-filing

  • File all the contracts signed before November 2013 at once and separately prepare the filing materials for each contract, no matter submitting the VAT exemption application documents before or not 

Documents

  • VAT declaration form
  • Breakdown of revenue from cross-border services
  • Proving documents for cross-border services 

Requirements

  • Separate taxable income and exempted income
  • Special VAT invoice for exempted income should not be issued

Non-creditable input VAT

Non-creditable input VAT = (income subject to simple VAT taxing method + non VAT taxable income + VAT exempted income) / (sales + turnover)

 

Observations for Announcement No. 22

1.  Limited guidance on making regular VAT exemption application

Announcement No. 22 gives detailed guidance on the proving documentation for cross-border transaction services. However, it does not specify any requirements on the cross-border service contract, such as the contract parties, services location, service rate and amounts, payment terms, etc. In situation where we have  a general framework contract without any service amounts and payment terms, will the Beijing state tax bureau  accept a general framework contract for filing purpose or will it require a specific order to be filed each time or each month?  

2.  No actual time limit for the filed VAT during the pilot period

The Beijing State tax bureau allows taxpayers to submit the required documents of the VAT exemption application and clear tax for VAT paid for the clearance period covered before 31 March 2014. Furthermore, if the VAT exemption for qualified cross-border services was not filed during the previous pilot period, the VAT paid should be refundable or creditable even if the post-filing is to be performed after 31 March 2014. The tax bureau provides extension to apply for the VAT exemption if taxpayers cannot meet the tight deadline to collect all the required application materials within four months. To be prudent, the taxpayer should endeavor to submit the VAT exemption application materials before 31 March 2014 and need to liaise with the competent tax bureau in advance to apply for the extension under the circumstance mentioned above.

3.  Compliance burden

It may be difficult for some taxpayers to collect all the cross-border service contracts, especially for those services provided between related parties. In this regard, taxpayers will face the dilemma of resigning contracts risks and losing the opportunity of enjoying VAT exemption. As it is required by the Announcement, in some circumstances, supporting material must be issued by competent third parties (e.g. the registration certificate for technology export, confirmation or offshore outsourcing services, etc.) which are both time consuming and costly. Even though it is possible to obtain those certificates, it is often quite difficult and usually takes a long time.

4.  Need for further clarification 

Announcement No. 22 does not require evidence for overseas derived income. Does it mean the taxpayers can claim VAT exemption if they have issued formal invoices, recognized the revenue accounting-wise but not yet received the service fees? It is necessary to confirm with the competent tax bureau whether the additional documents are required to prove the collection of overseas revenue, i.e. bank receipt, payment voucher. If it is mandatory, how can taxpayers claim for VAT exemption without evidence that the income is derived from overseas?   

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Dec. 2013 - Mazars China tax newsletter - Special Beijing

Dec. 2013 - Mazars China tax newsletter - Special Beijing