VAT Transformation

Client Profile

The client is a company incorporated in Shanghai’s Jiading district. Its parent company in Germany designs and manufactures packaging and special machines worldwide for the pharmaceutical, life science, F&B, cosmetics, chemical and paper hygiene industries. With a presence in China since 2008, the company has a headcount of about 40 staff.

Challenges

The Chinese Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly released two import circulars (Caisui Circular 110 and Caisui Circular 111) on 16 November 2011, which announced the implementation of a Value Added Tax (“VAT”) Transformation Pilot Programme. This programme would be implemented in phases and cover all sectors by 1 May 2016.

The first phase of the VAT Transformation Pilot Programme focused on the transportation industry and certain modern service sectors, including the client, which provides its parent company with after-sales services. Consequently, the client is now subject to a VAT rate of 6% instead of a business tax rate of 5% previously. Looking for a way to maximise its profit under the new tax regime, the client approached SBA Stone Forest (SBASF) for assistance.

Our Engagement

  • Analyse the financial/tax burden impact on the client’s business model as a result of the change from a business tax to a VAT regime
  • Review the tax terms in purchase/sales agreements
  • Analyse the client’s pricing strategy in existing sales/purchase transactions, and identify ways to renegotiate the pricing structure so that it would be favourable for the client under the new tax regime
  • Identify opportunities to maximise the company’s profit based on insights gained from the activities above
  • Determine tax category for VAT
  • Purchase tax and scan devices from tax authority on client’s behalf to compute VAT payable
  • Purchase blank VAT invoice
  • Monthly VAT filing (Including calculation of tax burden)

Results

  • Client successfully maximises profits under the new tax regime
  • Peace of mind for the client over compliance with the new tax regime


 

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