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Post by Sapphire Capital on Sept 25, 2008 4:46:45 GMT 4
China extends VAT relief for software products
Source: ITR
China has extended VAT relief for sales of embedded software in an attempt to encourage the development of high and new technology industries in the country.
The Ministry of Finance (MOF) and the State Administration of Taxation (SAT) have clarified the policy and methodology for computing a VAT refund to ensure that software developers benefit from a tax incentive that targets the industry.
In 1999 the MOF and SAT issued a circular allowing taxpayers who developed and sold their own software to obtain a VAT refund. For software sold together with computer networks, computer hardware, machines and equipment, the sales of hardware and software had to be accounted for and booked separately to benefit from the VAT refund.
In 2006 another circular said that the VAT refund should also apply to self-developed software products that are embedded in computer networks, computer hardware, machines and equipment as an indivisible component, and the costs of the sale could be calculated separately. But the VAT refund for the embedded software products sales was calculated according to the percentage of costs on the total costs of sales not according to the respective sales. The calculation was inconsistent with the 1999 VAT refund calculation.
The new circular benefits the taxpayer as it changes the methodology for calculating the VAT refund. It says that for taxpayers that develop and sell their own hardware, machines and equipment, the VAT refund for the embedded software sales is calculated according to sales if the sales of the software and hardware products can be accounted for separately.
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