business tax

Transition from Business Tax to VAT system in China: New VAT policies for finance leasing services

As part of the transition from the Business Tax to the VAT system in China, the State Administration of Taxation (SAT) has released:

  1. Announcement [2015] No. 90 “Announcement on relevant VAT issues in relation to the transition of business tax to VAT”, and
  2. Caishui [2015] No. 144 (“Circular 144”) on Stamp Duty policies.

Key objective:

Double Tax Treaty Between China and Switzerland

Switzerland and China signed a new tax treaty on September 25, 2013 in order to avoid double taxation and to prevent from fiscal evasion as regards taxes on income. The new Treaty replaces the existing treaty from 1990. The agreement has become effective since November 15, 2014 and applies to income derived on or after January 1, 2015.

The key features of the main changes are summarized in this table:

China taking tax measures to boost small profit businesses

Scope of VAT, Business Tax exemption expands for low-profit businesses

In an effort to further boost the growth of low-profit enterprises and individual enterprises in China, the State Council is working on several tax and administrative measures for small businesses. The measures are expected to offer some concessionary tax treatment, certain tax exemptions and waiver of registration fee in certain cases.

An overview of the VAT Reform

The Value-Added Tax (VAT) has been carefully introduced in China since 2012, starting in Shanghai and spreading in the whole country. After 2 years and more than 500 regulation changes, the VAT reform is about to enter its very last phase, seeing the total removal of the Business Tax (BT). Understanding how the VAT works has, therefore, never been so important, as this tax bears both high risks and opportunities.

Current state of the reforms


Recently China and Switzerland re-negotiated the double taxation agreement that has been in existence since 1990 and signed a new double taxation agreement “DTA”. The new agreement still has to go through referendum in Switzerland so its enforceability is still uncertain. However, if everything goes as planned, it’s expected to become effective some time next year.


The International Department of State Administration of Taxation (“SAT”) has released a new SAT announcement, Announcement No.19. The announcement clarifies when the secondment of an employee by a non-resident company will give rise to a taxable presence (also known as establishment) in China. The announcement became effective on June 1, 2013. This announcement is an expansion of Circular 75 released in 2010 providing further clarification on the Permanent Establishment (“PE”) risk associated with certain secondment arrangements.


  • From 1 January 2012 qualified businesses in Shanghai will be required to charge VAT following approval by the local tax bureau;
  • Input VAT is creditable both for qualified pilot participants and their customers;
  • Generally, the program follows existing VAT mechanisms;
  • Two new VAT rates will be introduced, 6% and 11%, adding to the existing rates of 13% and 17%;
  • Treatment of exports is yet to be determined but likely 0% or tax exempt;
  • The first VAT return is due on 15 February 2012;
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