VAT Reforms for the Telecommunications Sector

VAT Reforms for the Telecommunications Sector

China Tax Alert - Issue 10, May 2014

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Beijing Sanlitun

On 29 April 2014 China’s Ministry of Finance and State Administration of Taxation jointly issued Circular Caishui [2014] 43 (“Circular 43”) which provides for the entry into the Value Added Tax (“VAT”) reforms of the telecommunications sector. The transition from Business Tax (“BT”) to VAT for the telecommunications sector has been much anticipated.  However, the release of Circular 43 provides for a very short timeframe for transition, with VAT to commence from 1 June 2014. This will prove challenging given the complexities associated with having multiple VAT rates in the one industry – Circular 43 provides for an 11% VAT rate for basic telecommunications services and a 6% VAT rate for value-added telecommunications services. Furthermore, the discontinuance of a number of concessions which existed under the BT system means that the scope of these reforms now affect a broader group of taxpayers, including foreign telecommunications providers, as well as new forms of telecommunications service providers such as the digitised services industry.

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