On September 30th 2016 the State Administration of Taxation (SAT) and the Ministry of Finance of the People’s Republic of China (MOF) jointly issued Circular 103 regarding the consumption tax on cosmetic products. The Circular became effective on October 1st 2016 and requires cosmetic companies to take the following major changes into consideration:
1. The update issued makes changes to the name of the consumption tax category – whereas it used to be called “cosmetic products” the new category name is “high-end cosmetic products”.
2. The taxable scope of “beauty products, perfumes” was adjusted, meaning that general cosmetic and modified cosmetic products were removed from the scope and included in the overall scope of “high-end cosmetic and modified cosmetic products, as well as high-end skin care and complete set of cosmetics products”.
3. The applicable consumption tax rate for “high-end cosmetic products” was lowered by 50%. As a conclusion the reduced rate is now 15% instead of the previously taxed 30%.
4. Circular 103 states that the term “high-end cosmetic and modified cosmetic products and high-end skin care and complete set of cosmetics products” refers only to products with a manufacturer or importation selling price (VAT exclusive) that is higher than CNY 10 per ml for liquid/solid products or CNY 15 per piece for facemasks. All cosmetic products outside of the high-end cosmetics scope shall therefore no longer be subject to consumption tax.
In order to comply with the newly issued circular we advise cosmetic companies to identify their products that fall into the taxable scope and to potentially revisit the pricing strategy of those products to see whether there is any room to be out of the taxable scope for certain products. Lastly, we recommend companies to properly record and file the CT return and to keep in mind that the discussion regarding further Consumption Tax Reforms for Cosmetic products is still ongoing – so the above mentioned changes are only first steps.
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