Chinese authorities have recently announced that a new value added tax (VAT) of 6% will be assessed on all freight charges payable in China beginning August 1, 2013. All freight transportation services payable in China must be compliant with this regulation based on the issuance date of the VAT invoice.
Ocean freight carriers have begun issuing customer notices advising customers that as international transport agencies in China and as the general taxpayer of the logistics auxiliary industry, they are therefore subject to the 6% VAT from the Chinese government. At the start of peak season shipping and coupled with general rate increases from ocean freight carriers, this is an enormous burden on international shippers.
China’s VAT reform, originally beginning January 1, 2012, is an effort to shift certain types of services from a business tax (BT) to the VAT system. The prime differentiating factor between the two is that the VAT system is generally recoverable since it uses an input-output credit mechanism, while the BT is not. The new circular adds additional amendments, namely for the transportation industry, a tax on all transportation services.
The freight amendment, China’s State Administration of Taxation (SAT) released the Cai Shui  No. 37 (Circular 37) Notice on Tax Policy Concerning Nationwide Implementation of VAT Pilot Program for Transport and Modern Services Sectors, was issued by the Ministry of Finance (MOF) and the State Administration of Taxation (SAT). As a result of this notice, the pilot program will be expanded across the country and will repeal and replace the VAT pilot program originally introduced January 1, 2012.
Any Chinese providers of freight transportation services, including road/inland water freight transportation service, port and dock services, freight and passenger terminal services, loading/unloading and handling services will be levied the new VAT.
- China VAT 6% = effects all transportation services payable in China.
- Begins August 1, 2013, replacing the previous January 1, 2012 pilot obligations.
- VAT date is defined as the issuance date of the VAT invoice.
- Services to be levied the VAT include all local and international transportation payable in China.
OOCL, in particular, has issued the following arrangements for shipper and freight forwarders proper adherence to this new regulation. These operational items help alleviate uncertainty surrounding the announcement:
- “For shipments moving on/before 28th July, 2013 (export as per ‘on board date’; import as per ‘actual arrival date’), VAT invoice will be issued before 31st July, 2013 provided that confirmation on the payable amount and the invoice information is received from the payer before 17:30, 29th July, 2013.
- For shipments moving between 29th and 31st July and thereafter (export as per ‘on board date’; import as per ‘actual arrival date’), VAT Invoice will be issued and is subject to Value Added Tax and associated surtaxes.
- Should there be any change after VAT invoice is issued, please inform our Finance Department in written at respective location before 30th July, 2013. An updated VAT invoice will be re-issued on/before 31st July, 2013, subject to VAT invoice amendment fee at RMB500 per invoice.
- For any amendment request received on/after 1st August, 2013, a special VAT invoice is required to apply through the State Administration of Taxation (SAT) of PRC and a subsequent amendment fee at RMB500 will be levied.
- For “freight prepaid” and surcharges to be settled elsewhere outside mainland China, customer is required to clear specify the payment office and payer’s full title at the time of shipping.”