VAT is a probably the most significant tax to consider for organizations engaged in trade in China. The following are the critical laws and regulations currently in force in relation to VAT:

• Interim Regulation of the People’s Republic of China on Value Added Tax;
• Detailed Rules for the Implementation of the Interim Regulation of the People’s Republic of China on Value Added Tax.

 Liability for VAT

VAT is a tax on all entities and individuals in relation to the sale of goods, the supply of processing repair and replacement services and the import of goods where such matters occur within the People’s Republic of China (“PRC”). “Goods” is defined as all tangible movables, including electric power, heating power and gas. “Processing” is defined as the business of processing goods upon commission. This definition obviously requires further clarification and helpfully the detailed rules provide an example – a contractor producing goods with raw materials and other main materials for an employer according to set requirements, although processing and repair services provided by an employee of an entity of individual are specifically excluded. “Sale of goods” refers to the paid transfer of the ownership of goods.