To encourage and support the development of China’s animation industry, the Ministry of Finance (MOF) and  State Administration of Taxation (SAT) jointly disseminated the “Notice Concerning Value-Added Tax (VAT) and Business Tax (BT) Policies of Animation Industry” (Caishui [2013] No. 98, hereinafter referred to as “Circular 98”) in November, 2013. Circular 98 clarifies the preferential VAT and BT policies as they apply to animation enterprises, beginning retrospectively on January 1, 2013.

Preferential VAT Policies

Generally, animation enterprises are subject to a 17 percent VAT rate for the domestic sale of self-developed and manufactured animation software. Circular 98 stipulates that VAT in excess of 3 percent will enjoy an instant VAT refund. The export of animation software is also VAT exempted.

These policies are effective from January 1, 2013 to December 31, 2017.

Preferential Business Tax Policies

A 3 percent business tax (BT) rate applies to animation enterprises providing the following services:

• Animation script compilation
• Image design
• Background design
• Animation design
• Storyboard
• Animation production
• Filming
• Depicting
• Coloring
• Image synthesis
• Dubbing
• Background music
• Sound synthesis
• Film editing
• Subtitle production
• Compressing services
• Transcoding services (for the adaption of animation on internet and cellphone)
• Domestic transfer of animation copyright (including the authorization and reauthorization of the brand, image, or content of the animation)

To take advantage of the policy changes, animation enterprises should also be registered in Hebei, Shanxi, Inner Mongolia, Liaoning (including Dalian), Jilin, Heilongjiang, Jiangxi, Shandong (including Qingdao), Henan, Hunan, Guangxi, Hainan, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia or Xinjiang.

The preferential BT policies are only effective from January 1, 2013 to July 31, 2013 because the national adoption of  VAT pilot collection in lieu of BT has been implemented since August 1, 2013, and providing the services mentioned above is now subject to VAT instead of BT. Circular 98 explains that relevant preferential policies for pilot VAT taxpayers will be further released.

Animation enterprises should seek confirmation on their eligibility from the local office of the Ministry of Culture as a preliminary requirement for enjoying the preferential tax policies.

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