In October 2016, the State Administration of Taxation (SAT) issued an announcement that pursuant to the Several Opinions of the State Council on Stabilizing and Reviving Foreign Trade (Guo Fa [2016] No. 27), the SAT, the Ministry of Finance and the General Administration of Customs decided to carry out a pilot program of granting VAT general taxpayer (GTP) status to enterprises in selected zones under special customs supervision. The announcement is detailed as follows:
1. The pilot program shall cover the following special customs supervision zones: Kunshan Comprehensive Free Trade Zone, Suzhou Industrial Park Comprehensive Bonded Zone, Shanghai Songjiang Export Processing Zone, He'nan Zhengzhou Export Processing Zone, Zhengzhou Xinzheng Comprehensive Bonded Zone, Chongqing Xiyong Comprehensive Bonded Zone and Shenzhen Yantian Comprehensive Bonded Zone.
Enterprises located in the aforesaid zones qualified under VAT GTP provisions may, at their own discretion, apply to the local tax and customs authorities for becoming pilot enterprises and may apply to the local tax authorities for registration as VAT GTPs.
2. From the date when pilot enterprises have been granted the VAT GTP status, the following tax policies shall apply:
1) If pilot enterprises import equipment for their own use (including machinery and equipment, building materials and office supplies), such imported equipment shall be temporarily exempted from import tariff as well as from VAT and consumption tax for the stage of importation (hereinafter referred to as import tax). Such temporarily exempted import tax will be apportioned pro-rata for each year within the period of the Customs supervision of the imported equipment for their own use; at the end of each year, the amount of such temporarily exempted import tax shall be split according to the proportion of domestic sales and export sales. For the proportion of export sales, the pilot enterprise shall be subject to the tax policy of special Customs supervision areas; for the proportion of domestic sales, the pilot enterprise shall pay tax pursuant to the tax policies that are applicable to the zones outside the special Customs supervision areas (hereinafter referred to as out-zones).
2) In addition to equipment imported for own use, the purchase of the following goods will also be covered by the bonded policy:
a. Goods purchased from overseas that enter the pilot zone;
b. Bonded goods purchased from special customs supervision zones (excl. pilot zones) or customs bonded supervision zones that enter the pilot zone;
c. Bonded goods purchased from non-pilot enterprises within the pilot zone;
d. Bonded goods purchased from other pilot enterprises within the pilot zone that have not been processed.
3) VAT and consumption tax shall be paid to tax authorities for the sale of the following goods:
a. Goods sold outside the zone within the Chinese territory;
b. Goods sold to bonded zones or bonded supervision zones that do not provide a tax refund (excl. bonded goods that have not been processed);
c. Goods sold to other pilot enterprises within the pilot zone (excl. bonded goods that have not been processed).
If bonded goods are contained in the aforesaid goods, the pilot enterprise shall pay import duties to the customs agency in accordance with the state of bonded goods entering the special customs supervision zone, and pay the interest accrued from the postponed duty.
4) The bonded policy will continue to apply to unprocessed goods sold to special customs supervision zones or bonded customs supervision zones.
5) Export tax refund (exemption) shall apply to the sale of the following goods (excl. unprocessed bonded goods). Tax authorities shall audit and handle such tax refunds (exemption) with the corresponding electronic data provided by the customs:
a. Exported goods;
b. Goods sold to special customs supervision zones (excl. pilot and bonded zones) or bonded supervision zones (excl. those that do not provide a tax refund);
c. Goods sold to non-pilot enterprises within the pilot zone.
6) Except as otherwise provided by the Ministry of Finance, the General Administration of Customs and the SAT, the laws and regulations on tariff, VAT and consumption tax that are applicable to out-zones shall apply to pilot enterprises.
3. For processing trade goods sold from out-zones to pilot enterprises, current tax policies shall continue to apply. The export tax refund policy shall no longer apply to other goods sold to pilot enterprises (including water, steam, electricity and gas). VAT and consumption tax shall be paid pursuant to applicable provisions.
4. Tax and customs authorities shall increase information exchange with regards to tax collection and goods supervision. Customs authorities shall provide tax authorities with electronic customs clearance data for the goods to which the export tax refund may apply.
5. This announcement shall come into force on November 1, 2016.
State Administration of Taxation
Ministry of Finance
General Administration of Customs
October 14, 2016