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China's VAT Exemption for International Forwarding

Every service transaction with payment from China to abroad is subject to the Value Added Tax (VAT) at a specific rate. However, VAT on international forwarding services can be considered exempt in China, and companies may apply to the local authority for the relevant exemption by referencing Circular 106 of 2013 and Bulletin 42.

Under Circular 106, international freight forwarding services were exempt from VAT only if the forwarder had direct commercial dealings with overseas carriers and made direct payments to them. Furthermore, the State Administration of Taxation (SAT) and the Ministry of Finance (MOF), with Bulletin 42, expanded the scope of the VAT exemption to include all international freight forwarders and forwarding services within the international supply chain, encompassing activities such as international cargo transport, transportation entering and departing ports, and loading and unloading.

The exemption is contingent upon transactions settled through a financial institution, as stipulated by the "settling requirement." This adjustment aims to streamline and facilitate international freight forwarding services in China. Notably, VAT on international forwarding services can be exempted in China. Companies interested in availing of this exemption are encouraged to apply at the local tax authority, referencing Circular 106 of 2013 for guidance.


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