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China's Ministry of Finance and the State Administration of Taxation jointly released Caishui [2018] No. 70 (Circular 70). Under Circular 70, effective from 27 June 2018, accumulated uncredited input value added tax (VAT) balances, i.e., VAT receivables, for 18 industries including advanced manufacturing, and some of modern service industries as well as the power-grid enterprises may be refundable.

Taxpayers in the following industry sectors will receive priority in the application process:

• New-generation information technologies
• High-end numerically-controlled machine tools and robotics
• Aeronautics and space equipment
• Ocean engineering equipment and high-tech vessels
• Advanced rail transit equipment
• Energy conservation and new-energy cars/vehicles
• Electronic equipment
• Agricultural machinery and equipment
• New materials
• Biological medicine and high-performance medical devices

All applicants are required to have the tax credit rating of A or B in the Chinese tax authorities' system. Qualified taxpayers are able to claim the refund based on the VAT receivables balance as of the preceding filing period prior to date when the application is made, for example, if the application is done in October, 2018, the applicable receivable balance is as of 30 September 2018. However, the total refund amount is capped at the 31 December 2017 balance.

Refundable VAT is computed as follows:

Amount of input VAT refund = Ending balance of input VAT credit as of the end of the previous period (i.e., accumulated VAT receivable balance) x refund ratio (to be determined by a special formula)

The refund procedural implementation is expected to be completed by the end of September 2018; however, it may be extended, subject to further notice issued by Chinese tax authorities.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong

• Jane Hui
  jane.hui@hk.ey.com
• Becky Lai
  becky.lai@hk.ey.com

Ernst & Young (China) Advisory Limited, Shanghai

• Walter Tong
  walter.tong@cn.ey.com
• Vickie Tan
  vickie.tan@cn.ey.com

Ernst & Young (China) Advisory Limited, Beijing

• Henry Chan
  henry.chan@cn.ey.com
• Martin Ngai
  martin.ngai@cn.ey.com
• Andrew Choy
  andrew.choy@cn.ey.com

Ernst & Young (China) Advisory Limited, Shenzhen

• Clement Yuen
  clement.yuen@cn.ey.com

Ernst & Young LLP, China Tax Desk, New York

• Min Fei
  min.fei@ey.com
• Andrea Yue
  andrea.yue1@ey.com
• Vickie Lin
  vickie.lin@ey.com

Ernst & Young LLP, China Tax Desk, Chicago

• Lucy Wang
  lucy.wang1@ey.com

Ernst & Young LLP, China Tax Desk, San Jose

• Diana Wu
  diana.wu@ey.com

Ernst & Young LLP, China Transaction Tax Desk, New York

• Sherry Cui
  sherry.cui1@ey.com

Ernst & Young LLP, Asia Pacific Business Group, New York

• Chris Finnerty
  chris.finnerty1@ey.com
• Kaz Parsch
  kazuyo.parsch@ey.com
• Bee-Khun Yap
  bee-khun.yap@ey.com

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ATTACHMENT

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