China: VAT expansion, effective 1 May 2016 | KPMG | GLOBAL

China: VAT expansion, effective 1 May 2016

China: VAT expansion, effective 1 May 2016

The scope of application of value added tax (VAT) in China is being expanded to apply to several sectors that were previously subject to business tax. Among the sectors that will be subject to VAT—beginning 1 May 2016—will be:


Related content

  • Real estate and construction 
  • Financial services and insurance
  • “Lifestyle services” (including hospitality, food and beverage, healthcare, and entertainment)

The expanded VAT scope was announced by Premier Li Keqiang at the opening of the National People’s Congress on 5 March 2016. Once this VAT expansion is completed, this will mark the five-year plan for fully replacing the business tax with VAT. It also means that VAT will ultimately apply to the import and sale of all goods in China, and that the provision of all services in China will be subject to VAT. The business tax will effectively cease to apply.

The VAT rates generally are expected to be higher than the current rates of business tax (for instance, the current business tax rate on construction services is 3%, whereas the expected rate of VAT will be 11%; financial services and insurance are subject to a 5% rate of business tax, but are expected to be subject to VAT at a rate of 6%).

Detailed implementation guidance is expected to be issued in the near future.


Read a March 2016 report prepared by the KPMG member firm in China: China’s value added tax expanded to fully replace business tax in major new announcement 

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor 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 on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal