Recent rules promulgated by the state and local tax administrations in China pave the way for exempting cross-border services from value added tax ("VAT"). These new rules include Circular 521, and two sets of Implementation Rules, one for Shanghai and one for Beijing.2

This welcome development should facilitate more growth in services trade generally, and indirectly simplify selection of and payment for services sourced from China. The process for obtaining this new VAT exemption is relatively straightforward. Although some upfront paperwork is involved, the procedures are taking shape, and we expect they will shortly become routine. This Haiwen Alert summarizes the basic requirements for the exemption and the procedures for obtaining an exemption.

Scope of cross-border services eligible for a VAT exemption

Not all cross-border services are eligible for a VAT exemption. Circular 52 sets forth nine categories of services that can qualify for a VAT exemption. Certain types of services, such as distribution of movies and TV programs, must be performed outside China. For certain other types of services, such as consultancy services and production of movies and TV programs, the recipients must be overseas entities. Accordingly, as a first step, professional advice should be sought to determine whether Circular 52 and the Implementation Rules are applicable to a particular transaction.

Qualifying for a VAT exemption

The basic criteria are:

  • taxpayers must enter into written contracts with service recipients with respect to cross-border services;
  • for cross-border services provided to overseas recipients, all revenue shall be received from overseas; and
  • taxpayers must make the record filings with the relevant authorities in a timely manner to enjoy the exemption.

Please note that Circular 52 and the Implementation Rules also provide specific criteria for certain types of cross-border services. Again, a case-by-case analysis is required.

Application procedures

To obtain a VAT exemption, Circular 52 calls for filing "for the record". In other words, no advance approval from the tax authorities is required. In Beijing, the Implementation Rules require the tax authorities to complete the filing on submission by the taxpayer if the materials are complete and satisfy the relevant requirements. By contrast, in Shanghai, the Implementation Rules state that the tax authorities must complete the filing within 14 working days following submission by the taxpayer of all relevant materials. In general, it appears from early practice that the tax authorities in both Beijing and Shanghai are completing these types of filings expeditiously.

Under Circular 52, the documents submitted to the tax authorities primarily include:

  • a prescribed form for use in connection with a "for the record" filing for a VAT tax exemption in respect of cross-border taxable services;
  • the original and photocopies of the cross-border services contract;
  • evidence showing that the services were performed outside China (if required by the terms of Circular 52); and
  • evidence showing that the recipient of the services is a non-Chinese entity (if required by the terms of Circular 52).

When preparing the filing materials, taxpayers should strictly follow the instructions set out in the Implementation Rules, which include specific requirements regarding the form and content of the filing materials.

Please note that although Circular 52 took effect on August 1, 2013, the VAT exemption may be obtained for cross-border services provided prior to that date.


Circular 52 clarifies the scope and types of cross-border services that can be exempted from VAT. The Implementation Rules in Shanghai and Beijing have also resolved a number of practical issues relating to the filing process, and our experience to date has been positive. These developments point to accelerated growth of cross-border services, and contribute to the simplification of providing and making payment in transactions of this sort.


1 Administrative Measures on Exemption of Value-added Tax for Cross-border Taxable Services in the Collection of Value-Added Tax in Lieu of Business Tax (For Trial Implementation), promulgated by the State Administration of Taxation in September 2013.

2 Announcement on Record Filing of Value-Added Tax Exemption for Cross-border Taxable Services in the Collection of Value-Added Tax in Lieu of Business Tax and Tax Settlement Related Issues at the Pilot Stage issued by the Shanghai Municipal Offices of State Administration of Taxation in October 2013, and Announcement on Issues Concerning the Administration of Exemption of Value-Added Tax on Cross-Border Taxable Services in the Collection of Value-Added Tax in Lieu of Business Tax issued by the Beijing Municipal Office of the State Administration of Taxation in November 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.