The new round of tax system reforms currently being promoted by the central government, particularly the “replacement of business tax by value-added tax” reform (BT to VAT), not only increases enterprises’ tax costs, but also brings with it certain tax law risks.
Meanwhile, the national shift in industry and the implementation of the strategy of large-scale development of western China provide enterprises with large tax incentive policies, thereby offering wholly Chinese-owned and foreign-invested enterprises investing in China room to implement domestic tax structuring arrangements.
Challenges to traditional structures
BT to VAT in such industries in China as transport, postal services and telecommunications has now been expanded to cover the entire country, and it is expected that by the first half of 2015 the state will launch BT to VAT for the finance industry, and complete BT to VAT for such industries as construction and real estate by the second half of 2015. On the one hand, BT to VAT has the effect of reducing taxes for small enterprise taxpayers – those with annual sales turnover of less than RMB5 million (US$820,000) – but on the other hand it has the effect of severely increasing taxes on certain large enterprises.
Liu Tianyong is the managing partner of Hwuason Lawyers in Beijing. He can be contacted on +86 10 6410 7727, or by email at firstname.lastname@example.org