Guidance issued by the tax authorities in China expands upon the value added tax (VAT) exemptions made available for the financial services sector.
A circular, Caishui  70 (30 June 2016)—jointly issued by the Ministry of Finance and the State Administration of Taxation—expands the categories of VAT exemptions for the financial services sector.
When the VAT regime launched on 1 May 2016, VAT generally was set to apply to most financial services transactions—including fee-based services and many margin-based services or products. Thus, lending activities for which interest income was derived and gains derived from trading in financial products were to be subject to VAT. Only limited exemptions were provided.
With the release of Circular 70, policymakers have responded to concerns expressed by the financial services sector just ahead of the first VAT filing deadline for banks (set for 20 July 2016).
The new guidance is effective retroactively to 1 May 2016—meaning that the expanded VAT exemptions will affect all transactions of the financial services sector from the inception of the VAT regime.
Read a July 2016 report prepared by the KPMG member firm in China: New Circular expands upon China’s VAT exemptions for financial services industry
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.