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ALL ABOUT CHINA VAT

Frequently Asked Questions – Internal Use Only

South China Marketing ï‚Ÿ 5 August 2013

How to use this document

•This is an internal use FAQ – you may familiarize yourself with the info inside this document to customize your message to your customers, but please do not distribute externally under any circumstance.

•This is a living document – due to significant uncertainty surrounding the implementation of VAT in China, we may have to constantly update the FAQ until situation stablizes, so please always check the most updated FAQ here.

•This document is for commercial guidance purpose – we aim to facilitate customer- facing staff with speaking points when discussing VAT with customers to the knowledge we can reasonably obtain. In any occasion when there is contradiction with local regulatory rules, local rules shall prevail.

South China Marketing

Slide no. 2

Category 1: Definition

1. What is VAT?

 

2. What is VAT Fapiao?

 

 

 

•VAT is the abbreviation of Value Added Tax. A VAT is like a sales tax in which ultimately only the end consumer is taxed.

•In service sector, China plans to reform the taxation regime by replacing business tax with VAT.

According to Cai Shui no. 37 (Circular 37) issued by the Ministry of Finance and State Administration of Taxation in P.R. China

 

1 Aug

 

Business

2013

Value

Tax

 

Added Tax

Service Sector (including Shipping)

•Fapiao literally means invoice in Chinese. It is the official receipt to record a transaction and also the means for local tax bureau to monitor taxation.

•There are two types of VAT Fapiao:

•VAT Special Fapiao – VAT paid can be deductible for companies eligible to VAT deduction in China (general tax payer)

•VAT General Fapiao – not deductible

•Maersk (China) Shipping Co Ltd can issue both types of VAT Fapiao.

 

Yes

VAT Special

Is the customer a

Fapiao

 

general tax payer

 

 

in China?

No

VAT General

Fapiao

 

 

South China Marketing

Slide no. 3

Category 1: Definition

3.Why we are charging 6% VAT?

•According to Caishui No. 37, all ocean transport service providers, including Maersk (China) Shipping Co Ltd, are required to implement this tax policy that will become effective as of 1st August 2013 in order to be legally compliant.

•Maersk (China) Shipping Co Ltd will be taxed VAT with a ratio of 6% on all the charges we invoice on behalf of Maersk Line that are collected in Mainland China.

•The 6% VAT will be collected on behalf of and remitted to, the government.

4. Why some carriers are charging more than 6%?

•Apart from 6% VAT, local tax bureaus also levy some local surcharges including City Maintenance and Construction Tax, State Education Surcharge, Local Education Surcharge and River Management Fee, which add up to about 12-15% of VAT.

•These local surcharges vary across different locations.

•At the moment Maersk (China) Shipping Co Ltd will not charge these sub taxes from customers, as we are still studying how best to implement that.

•We are not ruling out that we will at a later stage charge the additional taxes on customers as well.

South China Marketing

Slide no. 4

Category 2: Scope

5. What will be subject to 6% VAT?

•The 6% VAT will be levied by Maersk (China) Shipping Co Ltd on top of the freight and all other charges payable in Mainland China.

•The 6% VAT does not apply as long as the actual payment is made outside Mainland China.

For shipments from or to ports in Mainland China (not including Hong Kong)

Ocean freight + all other charges paid in Mainland China

Yes, all are subject to 6% VAT

 

 

 

 

Ocean freight paid overseas, all other charges paid in Mainland China

Only origin/destination charges

are subject to 6% VAT

 

Ocean freight + all other charges paid in Hong Kong

 

 

No 6% VAT

 

 

South China Marketing

Slide no. 5

Category 3: Timeline

6. When will the 6% VAT start to be implemented?

•The tax policy will become effective as of 1st August 2013.

•Due to significant uncertainty surrounding the implementation of this policy over the past month, as a commercial consideration, Maersk Line has decided to maintain existing invoicing arrangements towards customers and absorb the VAT on customers’ behalf from 1st August through

14th August 2013.

•As from 15th August 2013, an additional 6% VAT will be levied by Maersk (China) Shipping Co Ltd on top of the freight and all other charges payable in Mainland China.

7.Why Aug 15?

•We have started to inform customers about potential impact on VAT implementation with our first customer advisory on 2nd July 2013.

•Due to significant uncertainty surrounding the implementation of this policy over the past month, we have decided to give customers two weeks time to honor our commitment on sufficient advance notice.

South China Marketing

Slide no. 6

Category 3: Timeline

8. What does the implementation date of 15th August 2013 refer to?

•The effective date will be the VAT Fapiao issuance date.

•This means for some shipments with Maersk Line which have sailing before 15th August would still need to consider the additional 6% VAT.

9. What if the Fapiao is reissued after 15th August 2013?

•Once the Fapiao is issued on or after 15th August, it will be subject to 6% VAT.

•It will be reviewed case by case on which party to absorb this 6% VAT if the Fapiao is originally supposed to be issued before 15th August but gets reissued after.

South China Marketing

Slide no. 7

Category 4: Competition

10. Are Chinese carriers exempted from VAT implementation?

•It is not entirely clear at the moment. Based on our initial understanding, Chinese carriers are VAT exempted. But both China Shipping and COSCO announced collection of VAT as of August 1st 2013 in late July. However, apparently COSCO withdrew the announcement and will apply zero VAT using ship owner Fapiao. What we learned so far is that China Shipping plans to follow suit but nothing written seen from China Shipping yet.

11. Are all carriers having the same implementation date and same %?

•Although all ocean transport service providers are required to implement the tax policy that will become effective as of 1st August 2013, it is up to each and every individual carrier to decide how to implement the tax policy change with customers.

•As a matter of fact, not all carriers have the same practices. Some are charging more than 6%, while some including Maersk Line stick to 6%. Most of the carriers have chosen Aug 1 to be the implementation date.

South China Marketing

Slide no. 8

Category 5: Practicalities

12. How will we collect the 6% VAT from customers?

•For customers with monthly/weekly statements, a 6% VAT will be added in statements/spreadsheets (per invoice level). Customers will be requested to pay based on amounts per statements (including both payable freights and 6% VAT), and Fapiao will be issued obo freights paid plus 6% VAT also.

•For customers without statements (customers with smaller volume), we will request them to pay 6% VAT apart from FACT invoice (FACT invoice will not show 6% but we can provide 6% VAT Fapiao).

•If cash customers only pay us freight but refuse to pay 6% VAT, the Fapiao/booking system will be reflected as short payment and B/L won’t be released.

•For some customers who strongly request to get invoices with 6% VAT added, we will consider to manually revise our FACT invoices to show the 6% VAT.

South China Marketing

Slide no. 9

Category 5: Practicalities

13. Can I change payment location from Mainland China to Hong Kong to avoid the 6% VAT?

•Yes you can. Please clearly state your intended payment location as “prepay in Hong Kong” on the Shipping Instruction, and place the payment according to our Hong Kong bank information stated on the FACT invoice.

•For credit customers in other clusters but without credit terms extended to South China Cluster, customers will be treated as cash customers where payments must be received before BL/cargo is released.

•Sales owner would need to review whether to extend the credit terms with customers and file the change with PRSFIN.

South China Marketing

Slide no. 10

Category 5: Practicalities

14. Is this applicable to customers with a

“no new surcharge” clause in their contract?

•Yes.

•The 6% VAT is not a new surcharge. It is collected on behalf of and remitted to, the government.

15. I have paid 6% VAT. How can I get it deducted?

•If you are a general tax payer in China and have paid 6% VAT for your business with Maersk Line, you can request VAT Special Fapiao from Maersk (China) Shipping Co Ltd.

•With the VAT Special Fapiao, you may apply deduction for the amount you paid us on VAT from your local tax bureau.

•Please consult your respective local tax bureau for the practicalities on the VAT decution.

South China Marketing

Slide no. 11

We look forward to continue

serving you as your carrier of choice!

Contact us should you have any query.

Guangzhou Branch

Room H 4/F, Xingyuan Mansion 898 Tianhe Bei Road Guangzhou 510898, China Tel:+86 (20) 3811 2288

Shenzhen Branch

Room A 14/F, Maoye Time Square

Haide No.2 Road

Nanshan District Cultural Center

Shenzhen 518054, China

Tel: +86 (755) 2502 0000

Hong Kong Branch

19/F, One Kowloon

1 Wang Yuen Street

Kowloon Bay, Hong Kong, SAR

Tel: +852 3765 3765

For details of other branches, please visit our website www.maerskline.com.cn