The End of China’s Business Tax

A Unified VAT for Goods and Services

On 1 May 2016, China officially replaced the existing Business Tax (BT) system with a modern Value Added Tax (VAT) system. The government first introduced a pilot version in 2012 and has been steadily increasing the amount of sectors included in the scheme, with full implementation across all industries since last weekend. Premier Li Keqiang emphasised that the VAT reforms will not increase the tax burden on any industries. The overall savings as a result of the reform are expected to reach RMB 500 b in 2016.


Why Is China Changing its Tax System?

China’s service sector is growing steadily, currently already making up over 50% of the economy. The government wants to move away from a manufacturing-based economy and the new VAT reform is considered the next big step in order to boost investment. In addition, the previous tax system created issues of double taxation and was considered inefficient overall.


How will it work?

The below graphic illustrates simply how the new VAT system compares to the previous BT. Not only is the overall tax paid less, but the VAT is only collected once (by Company C) and paid by the end-consumer. Previously, both Company B and C paid 5% BT.


How Will This Affect Your Business?

  1. Compliance: Taxpayers have to take immediate action to prepare for future VAT compliance, including reporting and invoice management. Fiducia can take over your VAT filing so you don’t miss any deadlines.
  2. Supply Chain: This reform will impact your supply chain, especially your agreements with suppliers and/or customers. We can update your contracts and help you communicate with all parties involved.
  3. Individual Income Tax (IIT): While BT revenue was collected by local tax bureaus, VAT revenue is collected by the State Administration of Taxation (SAT). With the reform, there will be a substantial drop of revenue for local tax bureaus. IIT will now be the major tax income for them, and we foresee more stringent checking and collection. We can help you with proper salaries and tax arrangements, and handle your individual tax returns.
  4. Technology: Taxpayers must make sure to update their ERP systems to reflect the new VAT compliance requirements. This might become a very time consuming matter that could result in reporting complications. Fiducia can help you upgrade your VAT calculation and tax reporting systems.


How Fiducia Can Help

With over 30 years of China insight, Fiducia acts on behalf of our clients, handling tax matters and compliance, providing cross-border tax consulting. We represent you in your unique tax situation, whether it is corporate or individual, national or international.


Please email us if you wish to discuss how this will impact your business in Greater China at