Dec 2008 - VAT reform

VAT Reforms

On 10 November 2008, the PRC authorities announced the amendments to the relevant regulations on VAT, Business Tax and Consumption Tax.

One of the key focuses is the VAT reform. Effective from 1 January 2009, VAT incurred on acquisition of fixed assets can be set off against output VAT in computation of VAT payable.

Currently, it is not permitted in general and those input VAT should be treated as cost of fixed asset. As such, a substantial amount of money could be trapped, causing cash flow problems for some enterprises.

The reform will allow full input VAT, as supported by valid VAT invoice, which is incurred by general VAT payer on purchasing fixed assets to set off against output VAT. Please note that such reform is nationwide without limitation on industries although VAT incurred on purchasing certain personal consumption items such as small motor cars, motor cycles and yachts are specifically disallowed.

It is understood that this new policy is applied to newly-purchased fixed assets on or after 1 January 2009.