China - Custom Tax, VAT Tax Handling

Question

Hi SAP friends
I have the problem of Import custom tax and VAT tax for puchasing.
It is Domestic Sales scenario. Need to purchase material from oversea vendor.
Oversea vendor sell mateiral to China company RMB 100 per PC.
Mainland company needs to pay custom for custom tax 20% and the custom tax is non-deductible. Custom tax is 100*(20%) = RMB 20.
Then, Mainland company needs to pay China government VAT tax(17%),
VAT tax is 100(1+custom tax)(VAT tax)-100 = 100(1.2)(1.17) - 100 = 40.4
So, VAT tax amount = Material price * custom tax * VAT tax
In PO, I use ZOA1 custom condition type to input Cutom tax amount for Custom tax and input Tax code for VAT tax.
When good receipt, RMB 120 post to Material stock account. RMB 100 post to GR/IR. RMB20 post to custom account
It still be fine.
When do LIV, RMB 100 clear GR/IR. RMB 17 post to VAT tax account becasue it use RMB 100 as base amount to calculate VAT tax. RMB117 post to AP vendor account.
Actually, mainland company only pays RMB100 to oversea vendor and the Tax amount should be include Custom amount. Corrrect VAT tax amount is 100(1.2)(1.17) - 100 = 40.4 (use RMB120 as base amount to calculate VAT tax), but not only RMB 17 . But, in LIV payment to vendor now is RMB120. It is not fulfill the requirement of mainland company.
Do anyone have experience about China Import purchasing material. And, would share how to settle the payment of vendor and how to make use (Material price + Custom tax amount) as base amount to calculate VAT tax amount?
Thanks a lot for your help!
Mag

Answer 1

It may helpful hint before going to configure.....abt the tax codes..
Value Added Tax (VAT) was implemented in China in 1984. Initially, the tax was levied on 24 specified
items. The need for constructing a socialist market economy system in China resulted in the proclamation
of 'The Provisional Regulation of the People's Republic of China on Value Added Tax' on January 1, 1994.
Value Added Tax in China is one of the important sources of fiscal revenues for the government,
especially the central government. The implementation of VAT is done by the State Administration of
Taxation while the customs collects the import VAT.
..******note this point it may helpful*********
The revenue earned from VAT is divided between the central (75%) and local government (25%).
The list of VAT taxable items and the rates in China can be understood from the following:
Coverage of Collection
Rate
Exportation of goods
Edible vegetable and grain duplicates
Agriculture, forestry, aquatic products, products of animal husbandry
Book, magazines, newspapers
Tap water, cooling, heating, hot air supplying, gas, hot water, natural gas, liquefied petroleum gas,
coal/charcoal products for household use
Selected non-metal mineral products, Selected metal mineral products, coal
Chemical fertilizers, feeds, agricultural machinery, agricultural chemicals, plastic converting film for
farming 13%
Crude oil, mine salt and other goods and services not listed above
17%
VAT in China is payable by individuals as well as enterprises who are associated with selling
merchandise, providing services related to processing, repairing and assembling and import of goods.
VAT Taxpayers in China are categorized into two sections, normal taxpayer and small taxpayer, depending
on the turnover of the goods and services on sale and the accounting system condition.
The amount of VAT payable by the normal taxpayer can be calculated by the following:
Output tax payable for the current period u2013 Input tax payable for the current period = Tax payable
The amount of VAT payable by the small taxpayer is as follows:
Sales amount x Applicable rate = Tax payable
(The applicable rate is 4% for commercial sectors and 6% for others)
Certain items and services are exempted from VAT. These include the following:
u2022  Instruments and equipment imported for direct use in scientific research, experiment and education
u2022  the agricultural production materials as ruled, the self-produced primary agricultural products sold by
Agricultural producing units and individuals
u2022  Imported materials and equipment granted, gifted by foreign governments or international organizations
u2022  Contraceptive medicines and devices
u2022  Articles imported directly by organizations for the disabled for exclusive use by the disabled
u2022  Materials imported directly to support the poverty relief and charity cause donated freely by overseas
natural persons, legal persons and other organizations
u2022  The taxable services provided by individual disabled laborers
u2022  Antique books purchased from the public
Certain reforms have been implemented in particular areas of China in 2004 with regard to the VAT.
chk the website http://www.cabc.org.cn/news/2006-1-19/2006119145600.html