China SAT Issues Circular on Deduction of Import VAT

On April 12, 2011, the State Administration of Taxation (“SAT”) issued the Circular on Relevant Issues Regarding the Administrative Regulations on the Trial Implementation of the “Comparison Prior to Deduction” Policy Applicable to the Special Letter of the Customs Import Value-Added Tax (“VAT”) Payment (“Customs’ Tax Payment Letter”) in Certain Areas (Guoshuihan [2011] No. 196, “Circular”).  The Circular applies to Hebei, Henan, Guangzhou and Shenzhen and clarifies issues with regard to the implementation of the “comparison prior to deduction” policy applicable to the deduction of import VAT. 

The Circular provides that, where the results of the verification and comparison of the Customs’ Tax Payment Letter are conforming, but the taxpayer failed to declare input VAT deduction on time, the taxpayer should submit the “Notification Letter of the Verification and Comparison Results of the Customs’ Tax Payment Letter” to the competent tax authority prior to the expiration of the June 2011 tax declaration period.  After verification by the competent tax authority, the taxpayer will be permitted to deduct input VAT. 

Starting from June 2009, where the verification results of the Customs’ Tax Payment Letters show that they are inconsistent, incomplete or have repeated numbers, taxpayers are required to apply for amendment or verification of data within 90 days of the issuance of the results.  

Failure to do the above within the stipulated time limits will result in the denial of input VAT deduction.

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