China VAT on foreign digital services update

New draft law indicates foreign providers will face digital services VAT responsibilities

In January, Chinese draft VAT law was issued. Aside from consolidating many existing laws, it includes a shift towards imposing VAT compliance obligations on non-resident providers of digital services.

It talks of VAT “for the sale of services and intangible assets, where the services and intangible assets are consumed within China, or the sellers are domestic entities or individuals”.

The bill is likely to pass into law in 2023.

Foreign digital digital service providers escape Chinese VAT net

Mainland China places the Value Added Tax responsibilities for non-resident sourced digital or electronic onto the Chinese resident customer. This applies to both B2C and B2B. There is no facility for non-residents to register for VAT. Non-resident providers of digital services should consider the likelihood that their customer will impose Withholding VAT on the payment, and may wish to charge a VAT inclusive price even though they are not VAT registered.

The current VAT rate in China is 13%. However, there is extensive use of the reduced rates: 9%; 6%; 3%. Follow VAT Calc’s global VAT and GST on digital services tracker for live updates on worldwide reforms.

VAT on foreign goods is therefore collected as import VAT – rather than it being assessed by the provider at the point-of-sale. Chinese recipients for such services must self-assess the VAT due via declarations to the XXXX. In reality, this does not happen often.

Chinese Withholding VAT

Chinese marketplaces and intermediaries will typically act as a VAT withholding agent. There is no reverse charge / zero-rating operation on foreign digital services to businesses or consumers.

China does impose a range of Withholding VAT requirements on resident purchasers for foreign supplies. Non-residents should therefore be wary of losing part of their revenues as irrecoverable tax since they cannot VAT register in China.

VAT Calc’s in real-time VAT Calculator and Auditor  services produce instant and accurate Chinese of other country VAT calculations into your ERP, billing, e-commerce or e-invoicing systems.

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