China Expands VAT Regime on May 1, 2016 | KPMG | CA

China Expands VAT Regime on May 1, 2016

China Expands VAT Regime on May 1, 2016

Global Tax Adviser, March 08, 2016. John Bain, GTA, Indirect Tax. China will expand the scope of its value added tax (VAT) regime to key sectors such as real estate and construction, financial services, insurance and lifestyle services (e.g., hospitality and food and beverage). The changes will take effect on May 1, 2016. While China is expected to release detailed implementation rules to provide further details, businesses should review how the upcoming changes may affect their transactions and costs in light of the short implementation timeframe.


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The upcoming changes were announced March 5, 2016 as part of the government's plan to replace the Business Tax (BT) that still currently applies for these sectors. Once fully implemented, it is estimated that VAT will apply to most sales and imports of goods in or to China and supplies of services.

Expanding the scope of VAT

With the upcoming changes, China will have one of the broadest VAT system in the world, particularly for the financial sector. In this area, VAT may apply to many financial services, including interest income. Significant changes will also effect real estate transactions.

The detailed implementation rules are expected to be released shortly. It will be interesting to see whether China will include transition rules, grandfathering relief, new exemptions for some financial services or other relief to help businesses manage the costs that will arise from these VAT changes.

While China has not released specific VAT rates, it appears that an expected 6% VAT may apply for the financial and insurance sector and on the lifestyle services. For the construction and real estate sectors, an expected 11% VAT may apply.

For more information, contact your KPMG adviser or John Bain at or (416) 777-3894.


Information is current to March 08, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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