The State Administration of Taxation (SAT) and the Ministry of Finance (MOF) jointly released the Supplementary Circular on Several Tax Policies Relating to the Conversion of Value Added Tax to Business Tax in Transportation and Modern Services Industries (“Supplementary VAT Circular”) on June 29, 2012, which takes effect retrospectively on January 1, 2012. The Supplementary VAT Circular has further clarified some issues prescribed under the Measures for Pilot Scheme Relating to the Conversion of Value Added Tax to Business Tax in Transportation and Modern Services Industries (“VAT Pilot Measures”). 

I. International Transportation 

On January 1, 2012, entities or individuals from countries or regions that haven’t reached bilateral arrangements with the Chinese government for the avoidance of double taxation on transportation became subject to a three percent withholding value-added tax (VAT) on revenue from their international transportation business provided to domestic entities or individuals, assuming that such services meet the requirements stipulated in the VAT Pilot Measures. 

The VAT to be withheld shall be calculated as follows: VAT = Payment received / (1+ 3%) X 3%. 

II. Shipping Agents 

On January 1, 2012, the VAT payable by the shipping agents became calculated on the basis of the revenue from their port services. 

III. Tangible Assets Lease 

From July 1, 2012 on, VAT general taxpayers under the VAT Pilot Measures may choose to pay the VAT on a simplified calculation basis, provided the operating lease services offered by them are based on the tangible assets acquired or self-manufactured before the enforcement of the VAT Pilot Measures. 

• Supplementary Circular on Several Tax Policies Relating to the Conversion of Value Added Tax to Business Tax in Transportation and Modern Services Industries 
• Issuing Authority: the State Administration of Taxation and the Ministry of Finance 
• Date of Issuance: June 29, 2012 / Effective date: January 1, 2012