**Twitter**YouTube**RSS

HomeContact

Competition and Integrity for America’s Ocean Supply Chain

- Home
- About the FMC    - The Commission      - Chairman Daniel B. Maffei
    - Commissioner Rebecca F. Dye
    - Commissioner Louis E. Sola
    - Commissioner Carl W. Bentzel
    - Commissioner Max Vekich 
  - Bureaus & Offices
  - FMC Regulations & Statutes
  - Meeting Schedule
  - Organizational Chart
  - Strategies, Budgets, and Performance
  - Governmentwide Laws & Regulations
  - Employment Opportunities
  - Our History
  - Contact Us 
- News & Events    - News Releases
  - FMC Events
  - Commissioner News Items      - Chairman Daniel B. Maffei
    - Commissioner Rebecca F. Dye
    - Commissioner Louis E. Sola
    - Commissioner Carl W. Bentzel
    - Commissioner Max Vekich 
- Law & Regulation    - FMC Regulations & Statutes
  - Ocean Shipping Reform Act of 2022 (OSRA) Implementation
  - Regulations by Audience      - Ocean Transportation Intermediaries
    - Vessel-Operating Common Carriers
    - Passenger Vessel Operators
    - Marine Terminal Operators 
  - Office of Enforcement
  - Filing a Shipping Complaint 
- Databases & Services    - SERVCON      - Service Contracts Statistics 
  - Agreement Library      - eAgreements Filing System 
  - List of FMC Licensed & Bonded OTIs      - OTI License Status Changes
    - Foreign NVOCC Registration Status Changes 
  - VOCC and NVOCC Tariff List      - Non-Compliant NVOCCs 
  - Controlled Carrier List
  - Containerized Freight Statistics
  - Consumer Affairs & Dispute Resolution Services      - Protect Your International Move
    - Cargo Shipment Assistance
    - Cruise Passenger Assistance 
  - Summary of Fees
  - Law & Reference Library 
- Licensing & Certification    - Apply for or make changes to a License or Request a Foreign Registration      - Form FMC-18 Login 
  - OTI License Status Changes      - Foreign NVOCC Registration Status Changes
    - Non-Compliant NVOCCs 
  - OTI Bonds      - Information for Truckers on NVOCC Bonds 
  - How to Apply for a PVO Certificate
  - Bureau of Certification and Licensing 
- Documents & Proceedings    - FMC Proceedings and Reports
  - FMC Reading Room      - Proceedings Search
    - Documents Search 
  - Forms and Applications
  - Industry Studies & Notices
  - Information for Attorneys & Litigants
  - Historical Federal Maritime Commission Reports 
- Industry Oversight    - SERVCON
  - Forms and Applications
  - How To Guides and Resources      - How to File Service Contracts
    - Apply for or make changes to a License or Request a Foreign Registration
    - How to Apply for a PVO Certificate 
  - How to File an Agreement with Agreement Examples      - Preparing and Filing Ocean Common Carrier and Marine Terminal Agreements
    - Agreement Monitoring
    - Agreement Library
    - eAgreements Filing System 
  - Filing a Shipping Complaint
  - Detention and Demurrage      - Vessel-Operating Common Carrier (VOCC) Audit Program 
  - Resources by Audience      - Ocean Transportation Intermediaries
    - Vessel-Operating Common Carriers
    - Passenger Vessel Operators        - Marine Terminal Operators 
  - National Shipper Advisory Committee
  - Maritime Transportation Data Initiative 

# China Issues Circular 106 to Clarify its Recently Implemented Value Added Tax Measures

Contact: Karen V. Gregory, Secretary (202) 523-5725

In August, the National Industrial Transportation League, among others, asked the FMC to seek clarity on carriers charging shippers a fee for handling the VAT. At the Commission’s September 2013 meeting, the FMC announced that it would look into ways to obtain further clarity on how China was implementing the tax. Commissioner Doyle ensured that the VAT was on the agenda and discussed at this year’s Annual U.S. Bilateral Maritime Consultation Meetings with the People’s Republic of China. The Bilateral Consultations took place in Chicago on October 28, 2013.

The FMC has worked with the State Department and the U.S. Embassy in Beijing interpreting and summarizing Circular 106 (along with private sector guidance from KPMG and Dezan Shira & Associates).

The FMC and State Department are continuing to consult with Chinese officials and industry stakeholders to understand the provisions of the Chinese language circular.

Below is an unofficial interpretation of Circular 106:

*The China Ministry of Finance (MOF) and the State Administration of Taxation (SAT) have now jointly agreed to exempt shipping transportation from their recently implemented VAT law. It is understood the exemption will be retroactive to 1 August 2013 when the current arrangements first came into effect. A joint circular (Caishui 2013 No 106) has been issued by the MOF and SAT explaining the exemption.*

*Circular 106 removes the unequal tax treatment of foreign shipping companies. Chinese law requires foreign shipping companies to use either wholly-owned subsidiaries or third-party agents to collect ocean freight, while Chinese shipping companies can charge shippers directly without engaging a freight forwarder. Under the previous Business Tax regime, freight forwarders were allowed to deduct international freight from their taxable income. However, under Circular 37, this deduction is no longer permitted. Instead, starting from August 1, 2013, they are required to pay a 6 percent VAT charge, as well as local surcharges (including the urban maintenance and construction tax, education levy and local education levy) on gross proceeds collected from clients, which means the foreign shipping companies end up bearing more tax burden than Chinese shipping companies.*

*In attachment 2 of Circular 106, the deduction of international freight from the taxable income of freight forwarders is allowed, which draws the cost of foreign shipping companies back to the same level as domestic shipping companies.*

*Appendix III of Circular 106 provides exemption for International Cargo Transportation Agency services. It requires all the settlements shall be done via financial institutions. The agencies can issue the VAT normal invoices in full amount to their clients. The rule is retrospectively effective from 1 August 2013. However, if the agencies already issued VAT special invoices, it needs to collect all the special invoices back before it can enjoy such exemption treatment.*

*Appendix II of Circular 106 provides the definition of International Cargo Transportation Agency services. It also provides the net basis method which allows the deduction of the international transportation fee payable to international transportation service providers from the total service fee to calculate the VAT. International cargo transportation agency service shall refer to the business activities in which the agents, as entrusted by the consignee of goods or its agent, the consignor of goods or its agent, owner of the transportation vehicle, charterer of the transportation vehicle or operator of the transportation vehicle, in the name of the entrusting parties or in their own name, under the prerequisite of not directly providing goods transportation services, carry out businesses relating to goods and shipping agency such as international transportation of goods, transportation vehicle moving to and out of the port, arranging pilotage, berthing, loading and unloading, etc for the entrusting parties.*

**Federal Maritime Commission**

**ensure a competitive and reliable international ocean transportation supply system**

- Site Policies
- Inspector General
- U.S. Office of Special Counsel
- FOIA
- Open Government at the FMC
- USA.gov
- Contact Us

*This site is an official U.S. Government Website.*