On August 18, 2016, the State Administration of Taxation issued the Announcement on Issues in the Administration of Tax Collections under the Pilot Program of Replacing Business Taxes with Value-added Taxes (the “Announcement”). Since the general launch of the pilot program to replace business taxes with value-added taxes on May 1, 2016, taxpayers, industry competent authorities, trade associations and tax agencies have raised many questions to the State Administration of Taxation. The Announcement was issued by the State Administration of Taxation to respond to the issues so raised.
(1) Transactions that are not considered domestic sales of services or intangible goods
In addition to exempting from taxes services or intangible goods sold by a foreign entity to domestic persons that take place entirely overseas, the Announcement lists four other transactions which are specifically not considered domestic sales of services or intangible goods.
(2) Individuals leasing real estate may apply the tax exemption policies for micro enterprises
For individuals leasing real estate that take multiple months of rent in advance, that rent may be evenly distributed over the corresponding lease period to see if it exceeds RMB 30,000 per month. If so, the individuals may apply the tax exemption policies for micro enterprises.
(3) Value-added tax issues for prepaid cards
Operational issues in the use of invoices in various business scenarios for single purpose and multi-purpose prepaid cards are specifically addressed.
(4) Regarding the determination of the purchase price for restricted shares transferred by a company
(A) When a listed company undergoes share distribution restructuring, for shares that were not outstanding prior to the recommencement of trading, and shares derived from the above that were gifted or transferred during the period from the recommencement of trading to the date the share transfer restrictions were lifted, their purchase price shall be the price on the first day of the recommencement of trading after the share distribution restructuring has been completed. (B) For restricted shares created after a company’s IPO, and shares derived from the above that were gifted or transferred during the period from the recommencement of trading to the date the share transfer restrictions were lifted, the purchase price shall be the price of the IPO. (C) For restricted shares created as a result of a major asset restructuring conducted by a listed company, and shares derived from the above that were gifted or transferred during the period from the recommencement of trading to the date the share transfer restrictions were lifted, the purchase price shall be the price at the close of trading the day before the suspension of trading in the company’s shares due to the major asset restructuring.
(5) The timing of tax obligations in providing loan services
Interest on loan services provided by taxpayers is typically settled in a monthly or quarterly basis. For banks providing the same services that collect interest in installments, all interest revenue collected from the day of settlement shall be included as part of the turnover for the term associated with the interest settlement date, and the payable value-added tax shall be calculated pursuant to current rules.
(6) Regarding deadlines for payment of value-added taxes
For taxpayers selling goods or services, if there is a single good/service for which the value-added tax may be paid on a quarterly basis, all other acts conducted at the same time by the taxpayer that involve value-added taxes and consumption taxes may also be paid on a quarterly basis.
(7) Regarding adjustments to the data to be provided in tax prepayment for construction services
The list of information to be provided in tax prepayment for construction services in different places is adjusted, and the taxpayer no longer needs to provide originals of contracts in the prepayment process. Instead, it will suffice to provide copies of such contracts affixed with official seals.
(8) Refinement and improvements to the Tax Classifications and Coding of Goods and Services
To facilitate the issuance of invoices by taxpayers, the Tax Classifications and Coding of Goods and Services have been refined and improved as follows: First, there are now more detailed classifications and coding for certain services based on the more detailed business categories as a result of taxation analysis of different sectors in replacing business taxes with value-added taxes. Secondly, the “Non-taxable Item in the Absence of Selling Acts” code is added.
The Announcement came into effect on September 1, 2016. Matters not handled prior to that shall be subject to the provisions of the Announcement.