(Yicai Global) Dec. 22 -- China's 3 percent value-added tax imposed on asset management products from Jan. 1 will end the era of tax-free earnings in the sector.

Large and medium asset management agencies have prepared accordingly, but small firms have not, a partner at Ernst & Young China noted. Asset management companies have already negotiated with their investors on tax-sharing. If the burden shifts to investors, however, earnings from many asset management products will drop.

 Although the country slapped a 5 percent business tax on such earnings as part of its business tax, loopholes persisted.

China started to replace its business tax with VAT nationwide from May 1 last year. The national tax authorities proposed last December the introduction of a 6 percent VAT on the proceeds from managed assets to stop up these tax gaps. A final draft then issued in July mandating a 3 percent VAT provisionally from Jan. 1 to safeguard the stable operation of asset management firms in the transitional period.

Asset management products include the wealth management products of banks, trust products, fund products and sundry other asset management plans, the revenue agency advised.