China clarifies: Forwarders booking international cargo VAT free

CHINA's Ministry of Finance has updated its VAT exemption policy for international forwarders in Notice [2013] No 106 published in December, saying that shipping and airline agents who make payments to international transport providers are entitled to a VAT exemption.

The initial notice seemed to imply that only agents directly making payments to international transport providers (airlines and shipping companies) can be exempted from VAT. This alarmed forwarders as most do not contact with international carriers, reported the BIFA (British International Freight Association) newsletter.

The ministry clarifies the situation for freight forwarders by stating that: in the definition of "international freight forwarding services" in Article 1 of Notice [2013] No.106, the wording of "agents" in "consignees" or their agents, consigners or their agents' includes both direct and indirect agents. 

The wording of "business operation related to cargo and shipping agency" includes making a cargo reservation, business liaison, container management, account settlement and other operations in relation to international transportation of goods. 

Taxpayers, whether they have direct business contact with international transport providers, are entitled to VAT exemption, according to the reform as long as they fall within this definition.