China’s State Administration of Taxation recently issued the Announcement [2021] No.4 with the aim of streamlining procedures for claiming VAT incentives with the new policy effective from April 1^st, 2021.

The Announcement facilitates taxpayers who claim VAT reductions and exemptions, since a direct claim in the routine VAT filing form is now sufficient (e.g., a separate application is no longer required). Supporting materials should be well kept and be ready for inspection when necessary.

For taxpayers who claim the preferential VAT policy of refund upon collection for the first time, application materials and supporting materials shall be submitted to the tax authority.

For any subsequent claims for the preferential VAT policy of refund upon collection, if transaction situations remain unchanged, supporting materials are no longer required, with the exception of the application forms. If transaction situations have changed, a written explanation should be submitted to the tax authority upon the next filing.

Taxpayers who no longer meet the criteria for VAT incentives shall cease enjoying them from the exact month when they fail to meet the criteria.

The most relevant aspect of this new policy is that taxpayers are no longer required to prove their case before enjoying VAT incentives. The Announcement therefore reduces the workload of taxpayers. However, there is no change to the existing criteria of enjoying VAT incentives.

In short, taxpayers are now tasked with the obligation to self-review and assess their own qualifications and will be held responsible for any errors. As such, the documentation record for the application has become more crucial than ever. Therefore, a review of the tax function of enterprises should be made, in order to ensure the assessment and documentation of VAT incentives are well performed.

If you would like to know more about the most recent tax and financial developments in China, or you require our assistance on this matter, please contact us at info@phcadvisory.com.