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Local Education Fee Levied from 1 January 2011 Impacting Daily Operations

18 Mar 2011

Following the regulation issued by the State Administration of Taxation and the Ministry of Finance in November 2010 to levy Unbar Maintenance Construction Tax and Education Fee on foreign investment enterprises ("FIEs") effective 1 December 2010, the Shanghai Municipal Government released the Circular starting to levy Local Education Fee from 1 January 2011. Taxand China discusses the impact of the increase in tax by all enterprises.

According to the regulation, all units and individuals (including FIEs, foreign enterprises and foreign individuals) that are subject to payment of turnover taxes (VAT, consumption tax and / or business tax) within the administrative division of Shanghai shall pay a local educational surcharge in accordance with the provisions in the Circular, in addition to paying educational surcharge in accordance with the regulations of the State.

The aggregate turnover tax surcharge burden for Shanghai taxpayers increases to 13% if registered in the urban area, compared to 1% before December 2010. In other words, if the turnover tax payable is 100, the local surcharge was 1 before December 2010 and will rise to 13 in 2011.

For all cities in China the increase is similar.

Taxand's Take

These Circulars imply that the government is now trying to gradually cancel distinctive preferential financial policies provided to FIEs. However, the increase in tax burden will need to be considered by all enterprises in their day to day operations.

Your Taxand contact for further queries is:
Kevin Wang
T. +86 21 6447 7878 ext. 526

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Taxand's Take Author