China new superdeduction for VAT
The Ministry of Finance and the State Administration of Taxation have jointly issued the “Announcement on Clarifying the Policies on Value – Added Tax Super-deduction for the Life Service Sector” (Announcement of the MoF and SAT [2019] no. 87) on September 30th 2019, related to the 15% super-deduction policy for taxpayers in the life service businesses.
From October 1st, 2019 to December 31st, 2021, the taxpayers operating in the life service sectors are allowed to add an extra 15% deduction based on the deductible input VAT in the current reporting period.
In order to be eligible for this treatment, the taxpayer shall derive at least 50% of its total sales from the provision of life services. If the taxpayer has been established before September 30th, 2019, the super-deduction policy can be applied if the above condition is met during the period October 2018 – September 2019 (or during the actual business period, if the taxpayer has been established after October 2018, but before September 30th, 2019).
For taxpayers established after October 1st, 2019, the super-deduction policy is applicable if the sales volume within three months after the date of their establishment meets the above conditions.
The eligible taxpayers shall accrue the current period super-deduction as 15% of the same period deductible input VAT.
Any input VAT that cannot be offset with output VAT in accordance with the regulations will not be considered in the computation of the super-deduction: therefore, where input VAT against which super-deductions have been accrued is transferred out, the super-deductions for the current period when the input VAT is transferred out shall be reduced accordingly.
The calculation formulas are as following:
Current period accrued super-deductions = Current period deductible input VAT x 15%
Current period deductible super-deductions = Balance of super-deductions by the end of the previous period + Current period accrued super-deductions – Current period reduced super-deductions.
The services considered in the category of life service are those indicated in the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax, jointly issued by the Ministry of Finance and the State Administration of Taxation on March 23rd, 2016 (Cai Shui [2016] No. 36). These services include:
Cultural and sport services
Education and medical services
Tourism and entertainment services
Catering and accomodation services
Daily services for residents; and
Other life services.