On 30 June 2017, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly issued Caishui  No.56, Notice on VAT issues relating to Asset Management Products (hereinafter referred to as “Circular 56”), to clarify certain VAT issues in the asset management sector, and for the first time list out the scope of asset management product managers (hereinafter referred to as “asset managers”) and asset management products which are temporarily eligible for the simplified VAT calculation method at the rate of 3% in a tax circular. According to Circular 56, VAT taxable activities occurred during the operation of asset management products shall be temporarily subject to the simplified VAT calculation method at the rate of 3% and separated from the other operation activities of the asset managers. Meanwhile, asset managers can choose to separate or combine the sales and VAT payable amount occurred during the operation of their asset management products in filing their VAT returns. However it is surprise to see that Circular 56 has again postponed the effective date to 1 January 2018 and VAT taxable activities occurred during the operation of the asset management product and before 1 January 2018 will not be subject to VAT.
The release of Circular 56 has, to a certain extent, clarified certain long outstanding controversial VAT issues in the asset management sector. It will be helpful to assets managers in complying with their tax filing obligation, and to both assets managers and investors in calculating the income distribution from the investment. Meanwhile, the half year transition period will provide sufficient preparation time for all participants in the asset management sector. However, as some of the practical issues are still not covered in Circular 56, further attention should be paid to the actual policy implementation and any follow-up tax circulars. In this issue of Tax News Flash, we will analyse Circular 56 in detail, including its impacts on all participants in the asset management sector and provide our observations.
Funds Audit Partner, PwC China Private Equity Group
Tel: + (10) 6533 2599
Tel: + (10) 6533 3129
Puay Khoon Lee
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