Asset Transfers During Restructuring Now VAT Exempt

The State Administration of Taxation (SAT) has recently announced that China will expand the favorable value-added tax (VAT) treatment to asset transfers during corporate restructuring.

The “Announcement on VAT Issues during Asset Restructuring (SAT Announcement [2011] No. 13)” issued on February 28 clarified that the transfer of entire or partial real assets, together with related creditor’s rights, liabilities and manpower, are exempt from VAT liabilities during asset restructuring in the form of mergers, divisions, transfers and swaps. The product transfer during the restructuring process is not subject to VAT, either.

Announcement No. 13 expanded VAT exemptions to include partial transfers, whereas previously this special treatment was limited to entire asset transfers as stipulated in Circular Guoshuihan [2002] No.420.

While Circular Guoshuihan [2009] No.585 emphasized that listed companies cannot enjoy the preferential VAT treatment after their asset transfers, the new document reversed that statement and now all tax payers are included into the scope of announced VAT treatment.

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