Changes in Reimbursement handling with VAT substituting business tax

Date:  2017-03-22    Autor:  ECOIVS Ruide Marketing Team

After the Ministry ofFinance issued “Circular on Comprehensively Promoting the Pilot Program of theCollection of Value-added Tax in Lieu of Business Tax” (Finance [2016] No. 36)on March 23, 2016, it brought a lot of changes to the work of accountants ofenterprises in China. With this article, I make an introduction about issues onreimbursement which we meet the most after the B2V implementation.

For a company'saccountant, after B2V, the biggest problem they meet is the question whetherinput VAT needs to be deducted after a Special VAT Invoice is received.

According to Appendix I“Implementing Measures for the Pilot Program of the Collection of Value-addedTax in Lieu of Business Tax” of the Finance [2016] No. 36, in Article 27, itsays: “The input tax on the following items may not be offset against theoutput tax: 6. Passenger transportation services, loan services, cateringservices, daily resident services and entertainment services purchased”.

We can find that themost frequently-used type of invoices, which are accommodation invoices, cannow be requested as special VAT invoices, and thus input VAT can be deducted.So, as an accountant, please be sure to give employees clear billinginformation, including: Name of the enterprise, Tax number, Address and phonenumber, Bank of deposit and Bank account number. At the same time, pleaseinform your staff that Special VAT invoices could only be issued to them by forexample hotels used if above mentioned information is all provided correctly.

If any hotels refuse toissue the requested invoice due to a variety of reasons, said employees canreport to the relevant department for assistance.

Beside accommodationinvoices, for catering invoices, an accountant only needs to inform employeesto get the ordinary VAT invoices while traveling. If the accountant receivesspecial VAT invoices, please transfer out the certified input tax when doingthe tax declaration.

Except accommodationand catering invoices, another unavoidable kind of invoice is that fortransportation. It mainly consists of two cases: the first case is using publictransportation. In this case, as long as the expense is happening duringbusiness trips, reimbursement can be approved. The other case is when using aprivate car. This includes two parts, petrol and toll fee. Reimbursement ofpetrol fee is similar to the previous situation before the changes of B2V.Therefore I would not go into the details here.

However for toll fee,after the B2V changes, accountants will find that we can deduct the input taxof toll fee. But how to deduct it?

We can find the answerin Cai Fa [2016] No. 48 (“Circular on Issues concerning Toll-based Value-addedTax Deduction Policies for Toll Roads”):

I. The input VAT onroad, bridge and gate tolls paid by general VAT taxpayers may be calculated,for the time being, on the basis of the fee amount indicated in the tollinvoice (not including fee receipts, below the same) received by the taxpayersand with the following formulas:

Input VAT credit onhighway tolls = fee amount indicated in the corresponding toll invoice / (1+3%)× 3%

Input VAT credit ontolls for Class I roads, Class II roads, bridges or gates = fee amountindicated in the corresponding toll invoice / (1+5%) × 5%

Tolls refer to fees forpassing through roads, bridges or gates that are instituted and collected bythe relevant entities in accordance with laws or regulations.

II. This Circular shalltake effect as of August 1, 2016. If there happen any changes to mentionedcircular or the implementation thereof so shall this be notified separately.

Additionally please letme mention, in an updated declaration form after the B2V changes, input VAT oftoll fees should be filled into column 8 in Appendix II of “VAT Payment Return(For the General Tax payer)”. It also should be filled into column 30 in “Thestructure of the deductible input tax”.

Wish the abovementioned information will help the accountants.

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