State Administration of Taxation Issues FAQs Relating to Deed Tax and VAT

Recently, China’s State Administration of Taxation (SAT) issued frequently asked questions relating to deed tax and value-added tax (VAT). The answers provided are based on existing regulations. They are as follows:

Deed Tax Related

Q: Where a parent company transfers land to its wholly-owned subsidiary, will deed tax apply?

 

A: According to Article 8, Paragraph 2 of the “Notice Regarding Deed Tax Policies Relating to Reorganization and Restructuring of Enterprises and Public Institutions (caishui [2012] No.4) (hereinafter referred to as ‘Notice No.4’)” jointly issued by the Ministry of Finance (MOF) and SAT in January 2012, deed tax is exempt on the transfer of land use and property rights between and among enterprises held by the same investors.  This includes transfers between parent companies and their wholly-owned subsidiaries, among wholly-owned subsidiaries under the same company, and between a natural person and his/her established sole proprietorship enterprise or one-person limited liability company.

Q: Should the land use and property rights that continue to exist after the merger or division of enterprises be subject to deed tax?

A: According to Notice No. 4, from January 1, 2012 to December 31, 2014, where two or more companies merge and the original investors remain, the newly established company will be exempted from deed tax on the land use and property rights it obtained from the original merging parties.

Where a company is split into two or more companies and the same investors remain, the divided enterprises will be exempted from deed tax on the land use and property rights they obtained from the original enterprise.

VAT Related

Q: Where the purchaser and seller agree to use Bank’s Acceptance Bill for settlement, with the purchaser bearing the discount interest fees incurred, can the discount interest fees be deemed as VAT additional expenses for which a separate VAT special invoice can be issued?

A: According to Article 6 of the “Interim Regulations on Value-added Tax (VAT)” and Article 12 of the corresponding detailed rules for implementation, sales volume is the total purchase price and additional expenses charged by taxpayers to buyers for goods sold or taxable services provided, but excluding output tax collected. “Additional expenses” refers to amounts collected in addition to price from buyers, including processing fees, packaging fees, storage fees, interest on delayed payment, liquidated damages, and other kinds of charges collected additional to price.

Discount interest fees also fall under the category of additional expenses and thus a VAT special invoice can be issued for it separately.

Q: Can the payments made for purchasing special equipment relating to the VAT control system and technical maintenance fees be wholly offset from the VAT taxable income? If so, how?

A: According to the “Notice on Policies Concerning VAT Credit for the Purchase Price and Technical Maintenance Fees for Special Equipment for VAT Control System (caishui [2012] No.15)” issued jointly by the MOF and SAT, payments made for the first purchase of special equipment relating to the VAT control system after December 1, 2011, and technical maintenance fee paid after December 1, 2011 can be wholly offset from the VAT taxable income on the strength of the relevant invoices. Where the amount of such payment exceeds the amount of VAT taxable income for the current period, the excess can be carried forward to the subsequent period for offsetting.

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