Towards year end of 2008, the PRC Government announced the repeal of the tax incentive allowing for the importation of equipment free of duty and VAT for encouraged foreign investment enterprises (FIEs). At the same time, the refund available for VAT paid on domestic equipment purchases was also repealed. This was in conjunction with the reform of the VAT system, discussed in an earlier blog on this site.
The PRC government now has issued two notices grandfathering the old VAT benefits until the middle of this year, one for the imported equipment and one for the domestic equipment.
1. Caishui  No.176, jointly issued by the MOF and SAT, in respect of the VAT refunds for domestic equipment purchases.
According to this circular, an FIE can choose to file for the VAT refund if it purchases eligible domestically manufactured equipment up to June 30, 2009, if such FIE has obtained the Confirmation Letter on FIE Projects in Compliance with the National Industrial Policies on or before November 9, 2008 (the date that the VAT reform was announced), and has filed with the local tax authority by December 31, 2008.
2. 2008 Order 43, jointly issued by the MOF, SAT and Customs, in respect of imported equipment
According to this order, the old tax benefits of duty-free and import VAT-exempt shall continue to be available to eligible imported equipment where the Confirmation Letter on the Nationally Encouraged Domestic or Foreign Capital Projects has been obtained before November 10, 2008, and the equipment has been declared for importation before June 30, 2009. Declarations for importation on or after July 1, 2009 shall all attract import VAT, while Customs duties will continue to be exempted in compliance with the old duty exemption rules.
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