China’s State Administration of Taxation issued guidance (Bulletin [2016] No. 29) on 11 May 2016 that clarifies the administration of the VAT exemption for cross-border taxable activities.

China’s VAT fully replaced the business tax on 1 May 2016, with the inclusion of the last four sectors (i.e. construction, real estate, financial services and lifestyle services) within the scope of VAT; VAT now applies across the country to all sectors of the economy. The main guideline for the VAT pilot reform, Circular Caishui [2016] No. 36, contains general guidance on the VAT exemption for cross-border services. Bulletin 29 now provides detailed administration rules on the exemption, as well as guidance on the registration process and the responsibilities of both taxpayers and the tax authorities in relation to the VAT exemption.

Highlights of Bulletin 29

Conditions to qualify for VAT exemption

Chinese entities and individuals carrying out cross-border taxable activities must satisfy all of the following conditions to qualify for VAT-exempt treatment: 

• The activity must fall within the scope of the 20 activities listed in Bulletin 29;

• The taxpayer must conclude a written contract with the counterparty for the supply of the cross-border services or intangible assets; and

• Where the taxpayer supplies services or intangible assets to overseas recipients, the income derived therefore must be received from overseas (note, however, that certain types of income are deemed to be received from overseas).

The 20 types of activities eligible for a VAT exemption can be classified into six categories (see appendix):

1)    Cross-border taxable activities that take place outside China;

2)    Services provided for exported goods;

3)    Services and intangible assets sold to overseas entities and wholly consumed outside China;

4)    Certain financial services;

5)    Certain international transportation services; and

6)    Taxable activities that are eligible for VAT zero-rated treatment, but for which the taxpayer pays VAT under the simplified method or has elected to relinquish zero-rated treatment and instead opt for VAT-exempt treatment.


Bulletin 29 further clarifies the administration of the VAT exemption for cross-border taxable activities, especially with respect to qualifying for the exemption. This should help improve certainty in the implementation of the rules. However, Bulletin 29 does not clarify certain concepts or address controversies related to such issues in practice.

This article was created on: 2017.09.20