The State Taxation Administration (STA) recently issued a notice clarifying 14 issues regarding VAT treatment. We have summarized the most important changes in the following text.

All information is based on the STA’s circular Public Notice on VAT Levy Questions Regarding Input VAT Deduction for Domestic Passenger Transportation and other items (Public Notice No. 31 of 2019) as issued on September 16, 2019 (hereinafter the Public Notice).

1. Input VAT Deduction possible for Domestic Passenger Transportation

The Public Notice stipulates that, starting from April 1 2019, VAT paid for domestic transportation for employees can be utilized as input VAT credit.

It further defines “employee”, as anyone who has signed an employment contract with the company or was consigned to work in the company by a labor consignment party. This means that the firm can’t utilize as input VAT credit transportation expenses of part-time staff without a regular work contract or others who did not sign proper employment contract with the company.

2. Super Deduction Base: “Sales Revenue” as filed with the tax bureau

Pursuant to a circular published earlier this year, it was further clarified which input VAT credit super deduction is allowed. For the base of the super deduction, this Public Notice sets out that the “sales revenue” includes the amount the company files with the tax bureau, plus any adjustment amount which is made by the tax bureau during a tax audit, or an adjustment made according to tax assessment.

3. VAT Exemption for Small-scale VAT Taxpayer during establishment/ deregistration period

Other changes affect small-scale VAT taxpayers filing VAT on a quarterly basis. If in any given quarter the actual business operation is less than a quarter due to establishment or deregistration and the sales revenue of that quarter is less than RMB 300,000, the VAT shall be exempted. This will be applied retro-actively from January 1, 2019.

4. Deduction of Taxable Base for Sub-contracts in Construction Business

Construction businesses subcontracting a project partially to another party, the taxable base for VAT shall be the revenue it receives, minus the amount it pays to a subcontractor, including all service fees and charges.

5. Unified VAT treatment for “Eat in” and “Take away” dining

The STA further unified the VAT treatment of “Eat in” and “Take away” dining options, as take-away has become increasingly popular with consumers. Therefore, in order to ensure the consistency of the tax treatment the notice stipulates that taxpayers preparing food on site and selling directly to the consumer will be classified as “catering service” for VAT purposes. The applicable tax rate is 6%.

This Public Notice shall be effective as of October 1 2019, except for the item 1 and 2 above. Please do not hesitate to contact our tax team to find out which effect the new VAT treatment will have on your business.


Elizabeth Shi – Senior Tax Manager

Elizabeth has over 15 years of working experience in China’s legal, tax and business field. Prior to joining Ecovis, she worked within the Big Four accounting firms’ tax and business advisory departments. She advises companies on various China tax and legal related matters, including dealing with taxes and other government authorities. Her expertise covers tax compliance, restructuring, M&A, tax due diligence, liquidation and deregistration related tax matters as well as tax planning for companies and individual expatriates. Elizabeth started her professional career as a legal consultant in a prestigious IP firm, working on foreign direct investment (FDI) and intellectual property (IP) projects.



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