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China's Transition to a VAT System

By Stanley Kolodziejczak and Nancy Regan
October 23, 2012

Over the past 12 months, China has begun to transition from a business tax (“BT”) system to a Value Added Tax (“VAT”) system using Business to Value Added (“B2V”) pilot programs. These B2V pilot programs have been introduced in Beijing and Shanghai for certain industries, including legal consulting services. If the VAT applies, then the 5% BT does not apply. Seven other provinces and municipalities are scheduled to join the B2V pilot program by the end of 2012.

While the Shanghai pilot program is not yet mandatory, it is expected that participation in the other B2V pilot programs will be mandatory for targeted industries. The Beijing VAT pilot program became effective on Sept. 1, 2012. Legal consulting revenue generated by all Beijing Registered Offices (“BRO”) of foreign law firms should now be subject to VAT instead of BT.

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