Implementation rules regarding the “Exempt, Credit and Refund” method to the export of zero-rated service under the VAT transformation program

3 min.

By ECOVIS Ruide China, Pingwen Hu

Further to the guidance provided in Circular Caishui [2013] No. 37 (“Announcement of the Nationwide Pilot Program of Transforming Business Tax to VAT in the Transportation Sector and Certain Modern Services Sector”) on the VAT treatment of exported services, the State Administration of Taxation has recently released the detailed implementation rules for the VAT treatment in relation to zero-rated exported service, SAT Public Notice [2013] No. 47 (hereinafter referred to as “Circular 47”), entitled “Provisional Measures of Applying the Exempt, Credit and Refund (“ECR”) Method to Zero-rated VAT Services”, which is effective retrospectively from 1 August 2013.

The main contents are as follows:

1. Provides further clarification on the scope of services eligible for zero-rated VAT treatment, including:
a) International transportation service and transportation service within regions of Hong Kong, Macau and Taiwan;
The above transportation service includes carrying passengers or goods from China to overseas, carrying passengers or goods from overseas to China, and carrying passengers or goods overseas. It also includes carrying passengers or goods from Mainland China to Hong Kong, Macau and Taiwan, and carrying passengers or goods in Hong Kong, Macau, and Taiwan.
b) Providing research and development services and design services to units overseas;
The Circular 47 clarifies that the regions and zones supervised by the Chinese Customs authorities shall be regarded as “domestic regions” for the purpose of determining the export of services.
It also provides a further guidance of what constitutes research and development services and design services, and emphasizes that the design services provided on domestic real estates shall be excluded.

2. Provides detailed calculation method in applying the ECR method;
The Circular 47 basically follows the current ECR method that is used for the export of goods.

3. The export refund rates for zero-rated services stay the same as their VAT rates;

4. Provides detailed documentation requirements and timelines for performing the ECR assessment and application;
Zero-rated export service providers shall collect and submit complete documents to competent tax authorities within prescribed periods. Otherwise it would not be eligible for the ECR method and subject to VAT accordingly.

5. The SAT Public Notice [2012] No. 13 entitled the Announcement of the State Administration of Taxation on Provisional Measures of Applying ECR on Zero-rated Services in Pilot Areas of Transforming Business Tax to VAT shall be expired since 1 August 2013.

If you have further requests, please do not hesitate to contact us. ECOVIS Ruide has a professional consulting team and professional personnel who can provide further instruction and consulting service.

Contact person

Lawyer in Heidelberg, Richard Hoffmann
Richard Hoffmann
Lawyer in Heidelberg
Phone: +49 6221 9985 639
E-Mail