Value Added Tax (VAT) for foreign companies in China

In China, the VAT system is equally applied to foreign and local companies working in the territory. Unfortunately, as foreigners, we don’t enjoy any benefit related to VAT rates. But, with the appropriate support a foreign company might gain some deductions.

Where does the VAT apply? 

VAT for foreign companies in China, as well as for Chinese companies in China, is applied on the sale of goods, repair and/or replacement of services, and on the import of items into China Mainland. Following the VAT reform in 2016, VAT is levied also on:

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.

WFOE set-up in the Shanghai Pilot Free Trade Zone

Wholly Foreign-Owned Enterprise (WFOE) is, by far, the favorite entity for foreign investors looking to set up a company in China. Representative Offices may offer cheap and easy way to feel Chinese trends, Joint-Ventures may give you a privileged access to the market, but WFOE are the only way for a foreign investor to have full control on its operations in China. And where else than in Shanghai would you set up a WFOE? Since the launch of the Shanghai Pilot Free Trade Zone (SHPFTZ) last September, new opportunities for foreign investors are arising in the city.

Shanghai VAT Pilot Program: Zero rate and exemption clarified

China’s Ministry of Finance (MoF) and State Administration of Taxation (SAT) have released an update to the VAT reforms under the Shanghai pilot program. The announcement clarifies issues regarding the application of “zero VAT rate” and “VAT exemption”.

According to the guidance—Cai Shui [2011] No. 131 issued on Dec 20, 2011,the following VAT applicable services provided in pilot areas are subject to the zero VAT rate:


  • 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;

New VAT exemption for asset restructuring transactions.

--SAT reform clarifies VAT liability on asset transfers--

Bulletin 13 on VAT exemption was issued by China's State Administration of Taxation (Bulletin of the SAT [2011] No.13) effective from March 1st, 2011.

The Worst Chief Rep Ever


Note: Since this article was published, new regulations have been released for representative offices that will come into force on March 1st 2011. If you operate an RO or are considering opening one, please contact S.J. Grand for an obligation free appraisal of whether this is the right choice for your investment.

A case study in China tax compliance issues for representative offices. 

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