China VAT reforms

On 1st August 2013, China’s new VAT reform is extended nationwide.

This geographical extension represents a continuation of the pilot business tax/value added tax reform launched on 1st January 2012 in Shanghai and which was later rolled out to eight other cities/provinces during 2012.

From 1st August 2013, the VAT rate charged on freight operators is 11% for transport services and 6% for logistics and ancillary services.

  • Activities included in transport services: dispatching cargoes or passengers to the destination by means of transportation vehicles, including land and water, though rail is excluded.
  • Activities included in logistics and ancillary services: aviation services, port services, freight station services, freight forwarding, Customs clearance, warehousing and material handling.

It is noteworthy that the Tax Circular for nationwide VAT implementation abolishes 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 the 6% VAT will be collected on freight charges payable within the PRC. The 6% VAT will be collected on behalf of and remitted to the government.

Major shipping lines in China, including Maersk, Hamburg Süd, and MSC have already sent letters to their customers stipulating that “an additional 6% Value-Added Tax (VAT) will be levied on top of the freight and charges payable at China starting from 1 August 2013, based on the issuance date of the VAT invoice”.

Significant uncertainty exists, especially on the precise scope of the VAT scheme and its exemptions, as well as on the distinction between domestic services and international services. For instance only domestic aviation is subject to the VAT regime and international shipping is not liable for VAT.

Allport Cargo Services will continue to monitor the situation and provide further updates as the situation develops