China: VAT treatment of finance leasing services, transactions

China: VAT treatment of finance leasing services

China’s State Administration of Taxation issued guidance concerning value added tax (VAT) issues of finance leasing activities. The guidance was issued in light of the transition from the business tax regime to the VAT system in China.

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The guidance is known in English as Announcement No. [2015] 90, “Announcement on relevant VAT issues in relation to the transition of business tax to VAT.” Specifically, articles 3 and 4 of Announcement 90 concern the following VAT issues of finance leasing arrangements:

  • Taxpayers providing finance leaseback services of movable assets may “deduct” or subtract the amount of principal (based on the amount listed in the contract) from the amount of taxable income subject to VAT. If there is no contract amount listed, the amount to be deducted may refer to the repayment amount of the principal.
  • Taxpayers that provide finance leasing services of movable assets and transfer their lease-related receivables to financial institutions (including banks) under a factoring arrangement, are still required to issue VAT invoices to the lessee and to report the relevant amount of taxable income for VAT purposes. The factoring arrangement does not change the business relationship between lessor and lessee.

The effective date for this guidance is 1 February 2016. Unresolved matters will be subject to this new guidance after it takes effect.


Read a January 2016 report prepared by the KPMG member firm in China: New Tax Regulation Clarifying VAT Treatments on Finance Leasing Business Activities

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