The China Ministry of Finance (MOF) and State Administration of Taxation (SAT) issued a circular (Caishui [2013] No. 37, (“Circular 37”)) on May 24, 2013, announcing the expansion of the Value-Added Tax (VAT) Reform Pilot on a nationwide basis. Certain revisions to the pilot regulations in this nationwide application of the VAT program will result in a 6% VAT charge assessed on transportation charges and freight forwarding services billed and paid in China.
The VAT reform pilot program for the transportation sectors started in Shanghai on January 1, 2012 and subsequently expanded to eight other cities/provinces during 2012. The People’s Republic of China (PRC) State Council determined in April, 2013 that the limited application of the VAT pilot distorted competition, and called for the nationwide application of the VAT program. Unfortunately, the guidelines for nationwide VAT implementation abolished certain policies existing under the VAT pilot.
Under the VAT pilot, forwarders and other transportation providers could effectively invoice international transportation and freight forwarding services as “VAT Inclusive” – without billing the VAT to client shippers. Circular 37 prohibits this practice and effective August 1, 2013, the 6% VAT will be collected from clients on Air and Ocean freight charges payable within thePRC. The 6% VAT will be collected on behalf of and remitted to, the government.
It is important to note that the 6% VAT affects all transportation costs, freight forwarding charges and related service and handling fees payable within the PRC on or after August 1, 2013.
For additional information please contact your MIQ Logistics representative.