Applicable for Lifestyle Services Businesses, Takes Effect Oct 1st, 2019

The State Administration of Taxation (SAT) and the Ministry of Finance jointly issued a notice on 30 September 2019 to offer super deduction of VAT input credit for lifestyle services businesses. This new super deduction became effective on 1 October 2019.

What is a super deduction?

Super deduction means that the company may deduct input VAT higher than the actual value. In our example, a company booked a VAT input credit of RMB100 for the previous month. According to this new rule, a 15% super deduction can be accounted for. As a result, the actual VAT input credit that can be deducted would be RMB 115, based on this calculation:

RMB100 x (1+15%)=RMB115

Who can enjoy such a super deduction?

This super deduction is applicable to all service companies in the area of so-called lifestyle services as defined in the Caishui Tax Circular [2016] No. 36. This includes:

  • cultural and sports services,
  • education and medical services,
  • tourist and entertainment services,
  • catering and lodging services,
  • and other daily lifestyle services.

Which conditions apply for the super deduction?

  1. For companies conducting lifestyle business, the sales revenue for the lifestyle services should account for over 50% of its total sales revenue.
  2. The calculation if lifestyle services related revenue accounts for at least 50% of the total sales revenue is based on the revenue for the 12 months prior to this policy taking effect (October 2018 to September 2019). For companies established within the last 12 months, the calculation will be based on the time since they were incorporated.

For how long will this super deduction be applicable?

The time period for the super deduction shall be from 1 October 2019 to 31 December 2021.

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.

Contact: elizabeth.shi@ecovis-beijing.com

About ECOVIS Beijing

Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. We are specialized in advising mid-sized international companies and focused on tax and legal advisory, accounting and auditing. We frequently publish articles on new regulations and recent developments in China and Germany on our website.

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