China: VAT rules for asset management products | KPMG | GLOBAL

China: VAT rules for asset management products; guidance affecting banks

China: VAT rules for asset management products

China’s Ministry of Finance and State Administration of Taxation jointly issued guidance to clarify the value added tax (VAT) treatment of asset management products.

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The guidance (circular)—Caishui [2017] 56—provides that the simplified VAT method will temporarily be applied to the operation of asset management products, with a VAT rate of 3%. The simplified VAT method means that output VAT at 3% will be payable on revenue, but no input VAT credits will be claimable for expenses.

The circular also defines:

  • Asset management products to include bank financial products, trust funds (including collective funds trusts, single fund trusts), property trusts, public securities investment funds, specific client asset management plans, collective asset management plans, targeted asset management plans, private equity funds, debt investment plans, equity investment plans, debt-equity combination investment schemes, asset-backed plans, portfolio insurance asset management products, pension management products
  • Asset managers to include banks, trust companies, public fund management companies and their subsidiaries, securities companies and their subsidiaries, futures companies and their subsidiaries, private equity fund managers, insurance asset management companies, professional insurance asset management agencies, pension insurance companies

Distinguishing asset management products from other business activities

Circular 56 draws a distinction between “asset management products operation” and “other business” activities. In order to facilitate the distinction, the scope of what is subject to the 3% simplified method is asset managers in relation to “asset management products operations.” Management services provided for fiduciary assets under commission or trust, as well as asset managers’ other VAT taxable activities that are not related to the operation of asset management products, are stated as “other business” in Circular 56.  

The circular includes guidance concerning the methods for collecting, filing, and calculating VAT. The commencement date has been postponed until 1 January 2018.

KPMG observation

Together with the adoption of a more simplified VAT method, the difficulties in implementing the VAT policies for asset management products have been reduced. Before 1 January 2018, asset managers need to consider conducting a tax assessment of their assets and if needed revise contracts, restructure business flows, communicate with stakeholders, and test and implement related systems changes.

 

Read a July 2017 report prepared by the KPMG member firm in China

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