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Ministry of Finance Clarifies VAT Policy on Finance, Real Estate

China’s Ministry of Finance and State Administration of Taxation have jointly released a circular clarifying value-added Tax (VAT) policy on finance, real estate development and education services (Cai Shui No.140 [2016]). The circular makes clear that "returns on principal protected products, remuneration, fees for the use of funds, and compensation" stated in a circular issued earlier (Cai Shui No.36 [2016]) refers to investment income which is expressly provided in the contract, and where the principal will be fully recovered upon maturity. “Returns from holding non-principal protected products (including holding until maturity)” is not interest or interest income, and shall not be subject to VAT.

Circular No.140 clarifies that the purchase by taxpayers of funds, trusts, financial products and other asset management products held to maturity does not fall within the scope of the transfer of financial products stated in Circular No.36.

According to the Circular No.140, for loans granted by securities companies, insurance companies, financial leasing companies, securities fund management companies, securities investment funds and other entities established with approval either from the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission or China Insurance Regulatory Commission to engage in finance and insurance business, accrued interest receivable incurred within 90 days of interest settlement day shall be subject to VAT under the existing provisions, whereas, accrued interest receivable incurred after 90 days of interest settlement day shall not be subject to VAT for the time being until the actual receipt of interest and VAT payment made in accordance with the provisions.

For details of Circular No.140 in Chinese, please see:


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