Starting from 1 January 2012, China has launched a pilot business tax (“BT”) / value added tax (“VAT”) reform with Shanghai as the first pilot area. The purpose of such reform is to shift certain types of services from the BT system to the VAT system. The main difference between the two tax systems is that the VAT system has an input-output credit mechanism while the BT system does not. This means that BT is generally not recoverable while VAT is. Over the past year, the BT/VAT reform has been gradually extended to more regions such as Beijing, Tianjin, Anhui Province, Zhejiang Province, Fujian Province, Hubei Province and Guangdong Province.
On 27 May 2013, the PRC Ministry of Finance (“MoF”) and the State Administration of Taxation (“SAT”) issued the Tax Circular Caishui  No. 37 (“Circular 37”) to extend the BT/VAT reform to all over the country starting from 1 August 2013. This Tax Circular incorporates and replaces the past circulars issued for the purpose of the pilot reform and also brings some additional amendments.
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