B2V reform (I) – Opportunities and challenges to the real estate and construction sectors
On 24 March 2016, the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) jointly released Caishui [2016] No. 36 on the Comprehensive Roll-out of the B2V Transformation Pilot Program (“Circular 36”), under which the real estate and the construction industry will be transformed from business tax (BT) to value-added tax (VAT) (“B2V Reform”) starting on May 1st 2016 (“expansion date”). The key points of the notice include: qualified old construction projects can elect the simplified VAT method; selling or renting immovable property and the construction industry are subject to the general VAT method with a tax rate of 11%; a real estate development general VAT taxpayer selling an old self-developed real estate project can elect the simplified VAT method; qualified land acquisition price can be deducted from the sales amount; taxpayers can claim input VAT credit on VAT incurred on the purchase of immovable property with valid invoices; pilot taxpayers providing overseas construction service are eligible for VAT exemption.
Pilot taxpayers should be familiar with Circular 36, deal with the treatment of the VAT properly during the transition period, understand the regulations of VAT timely, pay attention to subsequent follow-up measures of the B2V Reform, and analyse the impact and react accordingly.
We analysed the overall objectives, layout and directions of the B2V Reform in our News Flash entitled ” B2V Expansion Measures Released – VAT is now completed for All Industries” published on 24 March 2016. We will not be repeating this again, but are providing our view and observation on the practical issues faced by the real estate and construction industry during the initial stage of this final round of B2V Reform.
