China VAT Changes – effective 1st August 2013

Please be advised of the “Notice on Carrying out the Pilot Practice of Levying Value Added Tax in lieu of Business Tax on the Transportation Industry and Some Modern Service Industries in China” (Circular Caishui [2013] 37) issued by the China’s Ministry of Finance and the State Administration of Taxation on May 24th, 2013, which will come into effect on August 1st, 2013.

Businesses in China (including Freight Forwarders) will be taxed VAT at a rate of 6%. In addition, the relevant tax policies for initial pilots which took effect January 1st, 2013 will be repealed on August 1st, 2013, having a direct impact on the taxation of invoices for Export and Import related services.

In summary
The Chinese Government will introduce a new tax of 6% on all pre-paid freight charges in China after August 1st 2013.

Import Airfreight
All cargo must move on a freight prepaid basis with the airlines (essentially to avoid any costly airline handling charges upon arrival into NZ). As a result, on freight collect shipments, the tax of 6% will apply on all airfreight and origin charges, including Fuel and War surcharges. Where the terms on the House Airway Bill are freight prepaid, your supplier/agent will face the same increases of 6% VAT on airfreight and origin charges also.

Import Seafreight (Freight Prepaid) 
Where terms are freight prepaid (ie your agent or supplier pays for freight and origin charges) your supplier/agent will face the increases of 6% VAT on oceanfreight and origin charges.

Import Seafreight (Freight Collect) 
Where terms are freight collect, the 6% VAT will apply to any collect origin charges only. The 6% VAT will not apply to any collect oceanfreight charges as Mondiale are able to pay the shipping lines for oceanfreight in New Zealand, as opposed to China.

We would recommend that you discuss these changes with your suppliers directly, as it may have an effect on product pricing as a result.

There is a great deal of uncertainty about the application of the new rules and our agents are constantly seeking clarification with the Ministry of Finance and State Administration of Tax in China.  

As is often the case with changes to regulations in China, there is some ambiguous and confusing information in circulation surrounding the implementation of this tax, all of which can be interpreted in conflicting ways by different parties. However, we have sought independent legal advice to support our understanding of the new requirements and we will continue to keep you updated of any further details or changes should additional information come to hand in due course.

Please note that this VAT is not applicable to charges paid in Hong Kong.

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