Discussion about purchase of company vehicle in China

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

China has become one of the biggest vehicle markets inthe world in recent years, and the role which vehicle plays in daily life seemsto be more and more important. Owning company vehicle can help not only developbusiness but also fulfill company internal needs. So our topic today is abouthow to purchase company vehicle and related accounting & taxation issues inChina.

Procedure of purchase of company vehicle

Usually the procedureof purchase of company vehicle in China is as follows: 1.Choose vehicle ina  vehicle shop; 2.Vehicle payment;3.Application for vehicle insurance(it’s obliged to buy compulsory traffic accident liabilityInsurance and third partyliability insurance ); 4.Payment of vehicle purchase tax; 5.Payment of vehicle and vessel usage tax; 6.Application for vehicle movement certificate (newvehicle without license plate is allowed to move only with this certificate);7.Vehicle examination (new vehicle is allowed to get a license plate afterqualification in vehicle examination center); 8.Get license plate. Normally,step 3 to 8 can be done by vehicle shop, of course some service fee such as feefor service for getting license plate will be charged.

Relatedtax and fee

l  Value-Added-Tax(VAT)

Vehicle price which is showed in vehicle shop in Chinanormally includes 2 parts: vehicle price without tax and value-added-tax (VAT).The tax rate is 17%, and VAT = vehicle price/1.17*0.17. The vehicle pricewithout tax and corresponding VAT are printed on the invoice for vehiclepurchase which is issued by vehicle shop. The VAT can be deducted as input VATby company’s monthly tax declaration within 180 days after issuing of theinvoice according to Chinese tax law.

l  Vehicle Purchase Tax (VPT)

The next tax which mustbe paid for vehicle purchase in China is the vehicle purchase tax (VPT).According to “regulation of levying vehicle purchase tax” released by Chinesestate administration of taxation, VPT = taxable price*tax rate, the tax rate is10%. The taxable price of Chinese-made vehicle is defined as vehicle pricewithout VAT plus additional fees and charges. Usually the taxable price isequal to vehicle price without VAT plus such additional fee as storage fee,transport fee etc., but due to sales promotion or some other reasons the actualvehicle price without VAT plus additional fees is often lower than the minimumtaxable price which is determined by Chinese state administration of taxationbased on information from vehicle manufacturer or vehicle shop and marketaverage price in practice. In this case, the minimum taxable price should beused to calculate VPT. According to “announcement of VPT reduce for vehiclewith an engine displacement of no more than 1600 cubic centimeters ” fromChinese state administration of taxation, for every sold new vehicle with anengine displacement of no more than 1600 cubic centimeters in the period fromJan.1st to Dec.31th 2017 the VPT rate will be reduced to 7.5%. Andfrom Jan.1st 2018 on it will be returned back to 10%. Clean-energyvehicle which is mentioned in “announcement No.53 of 2014” from Chineseministry of finance, Chinese state administration of taxation and Chineseministry of industry and information technology can get a VPT tax exemption forthe period from Sep.1st 2014 to Dec.31th 2017. So it is necessary toverify with car salesman whether the purchased vehicle has got a VPT taxexemption if it really belongs to the vehicle category above mentioned.

l  Vehicle and Vessel Usage Tax (VaVUT)

According to “vehicle and vessel usage tax law”, every vehicle is obliged to pay VaVUT eachyear. There is regional difference between the VaVUT standard of each Chineseprovince, just take Shanghai’s VaVUT standard for 2016-2017 as example:

Engine Displacement

Yearly VaVUT  per vehicle

No  more than 1000ccm

RMB  180


RMB  360


RMB  450


RMB  720


RMB  1500


RMB  3000

More  than 4000ccm

RMB  4500

VaVUT=(yearly VaVUT/12)*numberof taxable months. For instance a company purchased a vehicle with an enginedisplacement of 1600ccm in July 2016 in Shanghai, then the VaVUT = (360/12)*6 =RMB 180. Normally yearly VaVUT will be withhold and remitted to tax authorityby vehicle insurance company at the same time when compulsory traffic accident liabilityInsurance is paid byinsured. Please notice that VPT and VaVUT are not allowed to be deducted bycompany’s monthly tax declaration.

AdditionalCharges and Fees

Additional charges andfees charged by vehicle shop contain service fee for getting license plate,storage fee etc.

l  Follow-Up Cost

Every year VaVUT andvehicle insurance should be paid. Vehicle check and maintenance after every5000 km or every half a year will usually be recommended by vehicle shop.

l  Import Vehicles

If an import vehicle ispurchased, then an invoice will be issued, normally the related import duty andconsumption tax are already including in the vehicle price without VAT on thisinvoice, and The VAT can be deducted as input VAT by company’s monthly taxdeclaration within 180 days after issuing of this invoice. According to“regulation of levying vehicle purchase tax” released by Chinese stateadministration of taxation, the calculation of VPT of import vehicle should bethe same as it of Chinese-made vehicle, but the taxable price = (cost, insurance and freight (CIF) + import duty + consumption tax)*10%. Therefore it isobviously that VPT of import vehicle is higher than it of Chinese-made vehicleif the vehicle type is the same. Regarding VaVUT of import vehicle, just referto the regional VaVUT standard of Chinese-made vehicle according to “vehicle and vessel usage tax law”. Apart from that, the vehicle insurance andadditional maintenance cost of import vehicle are usually higher than them ofChinese-made vehicle.

Accounting of purchase of company vehicle

l  Bookkeeping

According to Chineseaccounting standard, the vehicle price without VAT on the invoice should bebooked together with the related taxes and other charges as company’s fixedasset. The related taxes and other charges usually include VPT, additionalcharges and fees etc. VaVUT and vehicle insurance should be booked directly ascost. The depreciation begins from the next month, and the depreciation periodshould not be less than 4 years. The VAT can be deducted as input VAT bycompany’s monthly tax declaration within 180 days after issuing of the invoiceaccording to Chinese tax law.

l  Offer for Sale

According to the latestpolicy of tax law, in case a company sells old used company vehicle, if the VATon the purchase invoice has already been deducted, then the company shouldissue a VAT invoice with the tax rate 17% on the buyer; if the VAT on thepurchase invoice was not allowed to be deducted according to old taxationpolicy before 2010, then the company should issue a VAT invoice with tax rate3% reduced to 2% according to a special taxation method.

If you need furtherinformation or support on the topic, please contact: marketing@ecovis.cn .

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