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Value-Added Tax

As a type of turnover tax, value-added tax (VAT) is levied on the increased value of commodities at different stages of production or circulation, or on the value-added of commodities. All enterprises and individuals engaged in the sale or import of goods or the provision of processing, repair or maintenance services in China have to pay VAT.

Taxpayer

In China, VAT payers are divided into general taxpayers and small-scale taxpayers on the basis of their operation scale and accounting systems, with different methods of tax computation.

Small-scale taxpayers are taxpayers without sound accounting systems whose annual taxable value of sales is below the prescribed standards, namely Rmb500,000 for taxpayers engaged in the production of goods or the provision of taxable services; and less than Rmb800,000 for those engaged in wholesaling or retailing business.

General taxpayers mainly refer to enterprises whose annual taxable sales value exceeds that of small-scale taxpayers. Small production enterprises with a sound accounting and auditing system may be classified as general taxpayers. However, individuals, non-enterprise units, and enterprises that do not regularly engage in taxable operations are classified as small-scale taxpayers even if their annual taxable sales value exceeds the standards for small-scale taxpayers.

Method of Computation

Small-scale taxpayer

VAT payable by small-scale taxpayers is calculated by a simple method on the basis of the sales value and the tax rate without offset or deduction for input VAT. The applicable rate is 3%. The formula for the computation of VAT is as follows:

    Tax payable = sales value x tax rate (3%)

General taxpayer

The actual amount of VAT payable by general taxpayers is the excess amount of output VAT over input VAT. The formula for the computation of the tax payable is as follows:

    Tax payable = current output VAT - current input VAT

    Output VAT = sales value x applicable tax rate

If the current output VAT is smaller than the current input VAT, the amount that cannot be fully set off or deducted may be carried over to the following tax period.

Imported goods

VAT on goods imported by taxpayers is computed on the basis of the composite assessable value and the applicable tax rate without offset or deduction for input VAT. The formula for the computation of the tax payable is as follows:

    Tax payable = composite assessable value x applicable tax rate

    Composite assessable value = customs dutiable value + customs duty

For taxpayers importing taxable consumer goods, the consumption tax payable will be added to the composite assessable value.

Tax Rates

There are two VAT rates in China, a basic rate of 17% and a lower rate of 13%. The sale and import of the following commodities are subject to VAT at the lower rate of 13%: grains, edible vegetable oil, drinking water, heating, air-conditioning, hot water, coal gas, liquefied petroleum gas, natural gas, methane, coal products for domestic use; books, newspapers and magazines; feedstuffs, chemical fertilisers, pesticides, agricultural machinery, agricultural plastic sheeting; and other goods as specified by the State Council.

Special VAT Invoice

General taxpayers may purchase special VAT invoices from the tax authorities. Small-scale taxpayers and non-VAT taxpayers may not purchase or use such invoices.

General taxpayers selling taxable items must issue special VAT invoices to the buyer. However, for the sale of taxable items to consumers and the sale of duty-free goods or goods for export, no special VAT invoices have to be issued. It is also not mandatory to issue special VAT invoices for the sale of taxable items to small-scale taxpayers. Special VAT invoices that are not up to specifications may not be used to claim deduction or exemption for input VAT.

Place for Paying VAT

In respect of the place for filing VAT returns and paying VAT, the following applies: 

  • For businesses with fixed premises, they should file tax returns and pay taxes to the local tax authority at the place where they are located. If the head office and its branch offices are located in different cities or counties, they should file tax returns and pay taxes separately to the tax authorities at the place where they are located. Subject to approval granted by the finance and tax departments under the State Council or their authorised finance and tax authorities, the head office may file consolidated tax returns and pay taxes in a consolidated manner to the tax authority at the place where the head office is located.
  • For businesses with fixed premises selling goods or providing taxable labour services in another city or county, they should apply to the local tax authority for a Tax Administration Certificate for Outbound Operation (outbound certificate), and file tax returns and pay taxes to the local tax authority. For businesses without the outbound certificate, they should file tax returns and pay taxes to the tax authority at the place of sale of goods or provision of labour. For businesses not filing tax returns or paying taxes to the tax authority at the place of sale of goods or provision of labour, the tax authority at the place where they are located will collect taxes from them in arrears.
  • For businesses with no fixed premises engaging in the sale of goods or provision of taxable labour services, they should file tax returns and pay taxes to the tax authority at the place of sale of goods or provision of labour. For businesses not filing tax returns or paying taxes to the tax authority at the place of sale of goods or provision of labour, the tax authority at the place where they are located will collect taxes from them in arrears.
  • For imported goods, tax returns should be filed and taxes paid to the customs office where the customs declaration is made.

Period for Payment of VAT

The period for payment of VAT may be one day, three days, five days, 10 days, 15 days, one month or one quarter, to be determined by the competent tax authorities on the basis of the amount of tax payable. Those who are not able to pay tax according to the fixed time schedule may pay tax on a transaction-by-transaction basis.

For taxpayers who pay tax on a monthly or quarterly basis, they should file tax returns and pay tax within 15 days from the end of the payment period. For taxpayers who pay tax every one day, three days, five days, 10 days or 15 days, they should pay tax in advance within five days from the end of the payment period, and should, within the first 15 days of the following month, file tax returns and settle any outstanding tax payments from the previous month.

Taxpayers importing goods should pay tax within 15 days after Customs has issued the Customs Import VAT Special Payment Notice.

Content provided by Hong Kong Trade Development Council
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