TAX NEWS - DECEMber 2009

China VAT: SAT extends period to claim input VAT deduction

The Chinese State Administration of Taxation published a notice (Circular 617) on 9 November 2009 that extends the period to obtain an input VAT credit from 90 to 180 days. The circular takes effect 1 January 2010.

According to the rules that allow general VAT payers to recover input VAT incurred on domestic purchases or imports, VAT deduction vouchers (i.e. VAT special invoices, transportation invoices, etc.) must be verified by the tax authorities before input VAT can be credited against output VAT for the relevant period. Since 2003, general VAT payers have been required to submit a VAT special invoice or other deduction voucher to the in-charge tax authorities for verification within 90 days of the date the voucher is issued. Otherwise, input VAT may not be credited against output VAT, leading to an irrecoverable VAT cost. In the past, some taxpayers have lost the benefit of an input VAT credit because of the short time frame. Circular 617 was issued to resolve this problem.


Invoice for domestic purchases

Circular 617 provides that a special VAT invoice, standard invoice for qualifying transportation services and standard invoice for motor vehicles sales issued to a general VAT payer on or after 1 January 2010 must be submitted to the tax authorities for verification within 180 days from the date the invoice is issued, and the invoice must be used to claim an input VAT credit within the VAT filing period in the month following the month the invoice is verified.


Certificate for import of goods

Import VAT is paid to the Customs authorities and, once paid, the Customs authorities will issue a tax completion certificate that can be used to support a claim for an input VAT credit. Unlike in the case of special VAT invoices, the "verify first, deduct later" practice applies only to general VAT payers in pilot areas (i.e. Hebei, Henan, Guangdong and Shenzhen). For input VAT incurred on the import of goods, general VAT payers that are required to use the "verify first, deduct later" policy must apply to the competent tax authorities to have a VAT payment certificate issued by Customs on or after 1 January 2010 verified within 180 days of the date the certificate is issued. General VAT payers that are not required to apply this policy must report the input VAT credit for a VAT payment certificate issued on or after 1 January 2010 to the tax authorities by the end of the first VAT filing period following the 180-day period after the certificate is issued. Both periods are extended from 90 to 180 days.


Lost vouchers

If a general VAT payer loses its special VAT invoice or import VAT certificate, the taxpayer can submit supplementary supporting documentation within 180 days from the date the invoice or certificate is issued. The documentation can be used to claim an input VAT credit once the tax authorities have examined and approved the documents.


Summary

If the taxpayer fails to have a special VAT invoice or deduction voucher verified or does not claim the input VAT credit within the required time period, input VAT may not be credited against output VAT. Taxpayers should be aware of this policy and ensure that their VAT internal controls and compliance management are sufficient, so that supporting deduction vouchers can be submitted to the tax authorities for verification within the 180-day period, enabling the taxpayer to recover input VAT.