April 2019 - 10% additional VAT input deduction

This policy applies to service industry taxpayers with at least 50% of their total income derived from postal services, telecommunication services, modern services① and living services.

Specific scope of the total income for taxpayers who meet the previously mentioned criteria:

• For taxpayers incorporated on or before March 31^st, 2019: the sales within the period from April 2018 to March 2019;
• For taxpayers incorporated on or after April 1^st, 2019: the sales within 3 months from the date of establishment. 

Where it is determined that the additional credit policy applies to a taxpayer, no adjustment shall be made within the current year, and whether it shall apply in the following years shall be determined in light of the sales volume during the previous year.

Calculation method:

VAT input recognized * 10% of the month

Conditions:

• Please note that an application must be filed with the tax authorities to benefit from this policy. We attach for reference the application form. We are happy to assist with the application if needed.
• A ledger needs to be prepared separately in relation to the 10% additional VAT input credit.

The additional input deduction doesn’t apply to taxpayers who: 

• Export goods and services and have cross-border taxable behavior
• Engage in exporting goods and services and cross-border taxable activities, no additional input deduction should be calculated according to the proportion of current sales. 

Mazars’ Recommendation

• Please pay attention to and keep track of your invoice system,
• Implementing these solutions would require the support of employees and/or administrative staff.

Notes:

① Modern services refer to:

• R&D and technology services
• Information technology services
• Cultural and creative services
• Logistics supporting services
• Leasing services of tangible movable property
• Authentication consulting services
• Radio, television and film services

References:

• For more information about the service scope definition, you can refer to Caishui [2016] No. 36 (link here in Chinese)
• Ministry of Finance, State Administration of Taxation, Customs [2019] no.39 – Announcement on Deepening the reform of VAT (link here in Chinese)
• Guoshui [2019] no.14 – Announcement on Deepening the reform of VAT (link here in Chinese)