STA Interpretation: Management Measures for VAT Refund on International Transport Vessels (2020)

关于《国家税务总局关于发布〈国际运输船舶增值税退税管理办法〉的公告》政策解读

Source (Chinese): STA Policy Database — 政策解读 (STA General Office, December 2, 2020)

English translation: Independent translation. Not an official government translation.

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In accordance with the Notice of the Ministry of Finance, the Ministry of Transport, and the State Taxation Administration on VAT Policies for International Transport Vessels in the Hainan Free Trade Port (Cai Shui [2020] No. 41) and the Notice of the Ministry of Finance, the Ministry of Transport, and the State Taxation Administration on VAT Policies for International Transport Vessels in the Lingang New Area of the China (Shanghai) Pilot Free Trade Zone (Cai Shui [2020] No. 52), the State Taxation Administration has issued the Management Measures for VAT Refund on International Transport Vessels (hereinafter the "Measures"). The interpretation is as follows:

Part I: Background of the Measures

To support the development of the Hainan Free Trade Port and the Lingang New Area of the Shanghai Pilot Free Trade Zone, the Ministry of Finance, together with the Ministry of Transport and the State Taxation Administration, successively issued the Notice on VAT Policies for International Transport Vessels in the Hainan Free Trade Port (Cai Shui [2020] No. 41) and the Notice on VAT Policies for International Transport Vessels in the Lingang New Area of the China (Shanghai) Pilot Free Trade Zone (Cai Shui [2020] No. 52), specifying that a VAT refund policy (hereinafter "vessel VAT refund") shall apply to vessels purchased by international transport enterprises from domestic shipbuilding enterprises and registered at Hainan Yangpu Port or Shanghai Yangshan Port. To ensure the effective implementation of the vessel VAT refund policy, the State Taxation Administration issued the Measures, clarifying matters related to vessel VAT refund registration, processing, and post-refund management.

Part II: Interpretation of the Main Contents of the Measures

Section 1: Specific Scope of Application of the Measures

Article 2 of the Measures specifies that where a transport enterprise purchases a vessel meeting the conditions set forth in Article 1 of Cai Shui [2020] No. 41 or Article 1 of Cai Shui [2020] No. 52, the vessel VAT refund shall be processed in accordance with the Measures.

Section 2: How is the refund amount for vessel VAT refund determined?

Article 2 of the Measures specifies that the VAT amount refunded under the vessel VAT refund policy is the tax amount stated on the special VAT invoice (fapiao) obtained by the transport enterprise for the purchase of the vessel.

Section 3: How does a transport enterprise eligible for the vessel VAT refund policy complete the vessel VAT refund registration?

Article 4 of the Measures specifies that a transport enterprise eligible for the vessel VAT refund policy shall, at the time of its first vessel VAT refund declaration, complete the vessel VAT refund registration with the competent tax authority by submitting the following materials: first, a truthfully and completely filled-out Export Tax Refund/Exemption Registration Form together with its electronic data; second, copies of the documentary proof that the transport enterprise is engaged in international transport or Hong Kong/Macau/Taiwan transport operations. To facilitate enterprises, the Measures specify that the above materials may be submitted electronically.

Section 4: When filling out the Export Tax Refund/Exemption Registration Form, what should the transport enterprise pay particular attention to?

Article 4 of the Measures specifies that when filling out the Export Tax Refund/Exemption Registration Form, the transport enterprise eligible for the vessel VAT refund policy shall: enter "Yes" in the "Whether providing zero-rated taxable services" field; enter "01 (International Transport Services)" in the "Zero-rated taxable service code" field; enter "Vessel VAT Refund Transport Enterprise" in the "Export tax refund/exemption management type" field; and fill in other fields in accordance with the form instructions.

Section 5: Where a transport enterprise that has not previously completed export tax refund/exemption registration is eligible for the vessel VAT refund policy and also engages in export of goods and services, how should the export tax refund/exemption registration be completed?

Article 5 of the Measures specifies that where a transport enterprise eligible for the vessel VAT refund policy also exports goods and services but has not previously completed export tax refund/exemption registration, in addition to the materials required for vessel VAT refund registration, the enterprise shall also submit, in accordance with current regulations, a copy of the Registration Form for Foreign Trade Business Operators bearing the special registration seal, or the Approval Certificate for Foreign-Invested Enterprises of the People's Republic of China, as well as the Registration Certificate for Customs Declaration Units of the People's Republic of China and other relevant materials.

Section 6: If a transport enterprise that has completed vessel VAT refund registration ceases to engage in international transport operations, does it need to process a registration change with the tax authority? How should this be done?

Yes, a registration change is required. Article 7 of the Measures specifies that where a transport enterprise that has completed vessel VAT refund registration experiences a change in vessel ownership, a change in port of registry, or cessation of international transport (or Hong Kong/Macau/Taiwan transport) operations, and consequently no longer meets the refund conditions specified in Cai Shui [2020] No. 41 or Cai Shui [2020] No. 52, the enterprise shall, within 30 days from the date the change occurs, submit the relevant materials to the competent tax authority to process the registration change. From the date of the change in conditions, the enterprise shall cease to be eligible for the vessel VAT refund policy.

Section 7: How should a transport enterprise eligible for the vessel VAT refund policy declare and process the vessel VAT refund?

Article 9 of the Measures (referred to in the Announcement) specifies that when applying to the competent tax authority for a vessel VAT refund, the transport enterprise shall provide the following materials and electronic information: first, copies of the materials specified in Items 1 and 2 of Article 3 of Cai Shui [2020] No. 41 or Cai Shui [2020] No. 52 (where previously provided to the competent tax authority with no changes, the enterprise need not provide them again); second, the Declaration Form for Refund of Tax on Purchased Self-Use Goods together with its electronic information, with "CBTS" entered in the business type field and "Vessel VAT Refund" entered in the remarks field; third, the special VAT invoice issued by the domestic shipbuilding enterprise together with its electronic information; fourth, other materials required by the competent tax authority. To facilitate enterprises, the Measures specify that the above materials may be submitted electronically.

Section 8: When a transport enterprise declares a vessel VAT refund using a special VAT invoice issued by the domestic shipbuilding enterprise, are there any special requirements for such invoice?

Article 9 of the Measures specifies that the special VAT invoice for the vessel purchased by the transport enterprise must have been confirmed through the Integrated VAT Invoice Service Platform with its purpose designated as "For export tax refund."

Section 9: Where a vessel for which a VAT refund has been processed no longer meets the conditions specified in Cai Shui [2020] No. 41 or Cai Shui [2020] No. 52 due to a change in vessel ownership, a change in port of registry, or cessation of international transport (or Hong Kong/Macau/Taiwan transport) operations, must the transport enterprise repay the refunded tax?

Yes, repayment is required. Article 12 of the Measures specifies that where a vessel for which a VAT refund has been processed experiences a change in vessel ownership, a change in port of registry, or cessation of international transport (or Hong Kong/Macau/Taiwan transport) operations, and no longer meets the refund conditions specified in Cai Shui [2020] No. 41 or Cai Shui [2020] No. 52, the transport enterprise shall repay the refunded tax to the competent tax authority during the tax filing period of the month following the change in conditions. The amount of tax to be repaid shall be calculated using the following formula:

Tax to be repaid = Tax amount stated on the special VAT invoice for the purchased vessel x (Net value / Original value)

Net value = Original value - Accumulated depreciation

Section 10: How should a transport enterprise that commits fraudulent vessel VAT refund or other illegal or non-compliant acts be dealt with?

Article 14 of the Measures specifies that where a transport enterprise commits fraud in obtaining a vessel VAT refund, the competent tax authority shall recover the refunded tax and handle the matter in accordance with the relevant provisions of the Law on the Administration of Tax Collection.

Part III: Implementation Period

Cai Shui [2020] No. 41 specifies that the implementation period for the Hainan vessel VAT refund policy is from October 1, 2020 to December 31, 2024. Cai Shui [2020] No. 52 specifies that the implementation period for the Shanghai vessel VAT refund policy is from November 1, 2020 to December 31, 2024. In both cases, the implementation period is determined based on the date of issuance of the Certificate of Vessel Ownership Registration. Accordingly, after the promulgation of the Measures, any vessel whose Certificate of Vessel Ownership Registration was issued during the above policy implementation periods may apply for a vessel VAT refund in accordance with the Measures.