China Releases Announcement on VAT Determination for Direct Selling Enterprises

Feb. 1 – To clarify issues regarding the determination of value-added tax (VAT) in direct selling, China’s State Administration of Taxation released the “Announcement on Issues Concerning the Determination of Value-Added Tax for Direct Selling Enterprises (Announcement [2013] No. 5, hereinafter referred to as ‘Announcement’)” on January 17, 2013. Detailed information can be found below.

For the purpose of this article, several key terms are defined here:

• The term “direct selling“ refers to the method of distribution whereby a direct selling enterprise recruits direct salespersons to promote and sell its products directly to the ultimate consumers outside of fixed places of business.
• The term “direct selling enterprise” refers to an enterprise which, upon approval, sells products by way of direct selling according to the relevant regulations.
• The term “direct salespersons” refers to individuals who promote and sell products directly to consumers outside of fixed places of business.

According to the Announcement, where a direct selling enterprise sells products to a direct salesperson, who then sells the products to consumers, the sales amount of the enterprise should be the total sales price and other charges collected from the direct salesperson. Under such circumstances, the direct salesperson should pay VAT according to the current provisions when selling products to consumers.

Where a direct selling enterprise sells products through direct salespersons and collects payments for the goods directly from the consumers, the sales amount of the enterprise should be the total sales price and other charges collected from the consumers.

The Announcement is scheduled to take effect from March 1, 2013.

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