China’s Ministry of Finance (MOF) issued an announcement on January 9, 2023, clarifying some of its value-added tax incentives. As per the changes, the taxpayers in the production-oriented services industry can deduct an additional 5% of VAT, while those in the lifestyle services industry can deduct an additional 10% of VAT. In addition, small-scale taxpayers with monthly sales of less than RMB 100,000 will be exempt from VAT.
The VAT is one of the most important taxes for companies in China and, when doing business here, companies must register for such tax with the authorities in charge. Our Chinese lawyers can help you register for VAT in China if it applies to your chosen form of business and the services you provide in the country.
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VAT registration in China for residents and non-residents
The acquisition of the business license is quickly followed by tax registration when establishing a Chinese firm. According to the regulations, taxpayers who are engaged in the production or business operation must submit written applications. These should be submitted for tax registration to the appropriate tax authorities in the localities where the production or business operation is conducted. Or such applications can be submitted where the tax obligation occurs, no later than 30 days after receiving their business licenses. Small entrepreneurs and companies in China need to register for VAT. Particular exports of goods from China, reprocessed products in China, the import of products in China, and installations in China are subject to the value-added tax. Companies dealing with the sale of goods and services in China must be registered for taxation, including VAT.
It is important to know that non-resident traders with activities in China cannot register for VAT as non-resident traders. This means that a legal representative with residency in China needs to be appointed to register for such a tax and to report the accounting obligations. A Wholly Foreign-Owned Enterprise is recommended for international investors in China, with the mention that registering for VAT will be possible. If you would like to open a company in China and register for VAT in 2023, do not hesitate to talk to one of our lawyers in China.
VAT for foreign entities operating in China
The VAT system in China is an integral feature of the country’s tax system. The foreign entities operating in the country must fully understand and comply with it. Recent VAT system developments have made it easier and more efficient for businesses to operate. But it is critical to stay up to date on the latest changes and ensure full compliance. Our Chinese lawyers are here to help your foreign entities operating in China to adhere the requirements of the value-added tax. Because, these entities are an important source of revenue for the Chinese government, so, any non-compliance with their regulations may lead you to face penalties in the country.
Please keep in mind, China has two kinds of taxpayers, general and small-scale. Foreign entities operating in China are usually deemed as general taxpayers, and they are subject to a standard VAT rate of 17%. These entities must calculate, report, and pay VAT on their own and must keep accurate records of taxable transactions to facilitate VAT calculation.
Foreign entities must also ensure that they follow the relevant VAT regulations, including timely reporting and payment of VAT. Foreign entities should seek professional advice to make sure that they are completely complying with VAT regulations. If you have a foreign entity in China and facing difficulties in keeping its record, you can get in touch with our accountants. They can offer you detailed accounting services in China by helping you file taxes and tax refunds.
VAT registration procedure in China in 2023
Once the company is incorporated in China, the next step is to register for taxes and social contributions. The VAT is an important tax that needs to be considered at the time the registration for taxation starts. The Certificate of Incorporation and the Articles of Association are among the needed documents for VAT registration in China. We remind you that a company must appoint a legal representative to register for VAT in China. If all the documents are submitted, the VAT certificate is then issued by the financial authorities in China. According to new Vat regulations, financial product transactions refer to the transfer of ownership of financial goods that differ from general services. Feel free to appoint one of our agents and let us handle the registration for tax purposes in China. You can also ask for accounting services in China and skip the formalities of setting up such a department in your firm.
When you should register for VAT?
It is crucial to know when you can apply for VAT registration in China. Our Chinese lawyers can provide you with detailed information about the applicable threshold for the registration for VAT in China. The annual sales threshold for general VAT taxpayers has been standardized at RMB 5 million. Accordingly, all businesses with yearly sales of RMB 5 million or more will be considered general taxpayers. However, those with sales below that amount would be considered small-scale taxpayers. Businesses and people who import into mainland China or who provide taxable items and related processing services are subject to VAT. In China, there are two different VAT registration categories: for a small business and for a general business. Situations where a Chinese VAT registration is necessary typically include:
- the import of products into China;
- when items are manufactured in China;
- if products are processed or modified in China;
- Chinese installations;
- certain products that China exports.
You should know that according to the current VAT regulations, non-business activities such as administrative fees and government funds are not taxable. To learn more, you are welcome to get in touch with our lawyers in China. They can offer you practical assistance regarding your VAT registration in China.
Types of taxpayers in China
Companies with activities in China are considered taxpayers, and according to the tax structure in this state, there are two main categories of businesses that must apply for the general taxpayer status, such as:
- general taxpayers with incomes ranging between USD 500,000 and 5 million;
- small-scale taxpayers with incomes below USD 500,000.
It is good to know that there are also VAT exemptions for the export of goods, meaning that companies with operations in this area will not pay such a tax. Besides this, as a foreigner if you are interested in immigration to China, you can address to our lawyers.
Threshold for VAT registration in China
The financial authorities agreed in 2018 to the new threshold for VAT registration in China, which increased from CNY 30,000 to CNY 100,000, helping small companies in the country, for at least 2 years. This new tax rule is considered an important tax incentive to boost the Chinese economy. Alongside this significant tax modification, the stamp duty has been eliminated, and the corporate income tax was reduced from 25% to 20% for small enterprises in China. Also, the reduction of local education taxes on businesses has been recently implemented in China. For complete information about the taxation system in China and the updates for 2023, you should talk to one of our company formation representatives in China.
The applicability of the VAT in China
The VAT in China has a standard value of 13% for the sale and import of goods and also for providing services like processing, repairing, and installation. Services imported in China from abroad are subject to VAT, however, a tax credit can reduce the cost for the buyer. The VAT in China is paid during the various steps of production, for example during the actual production, when the product is sold to the distributor, and when it is resold to a trading company. Our attorneys in China can help you understand the process and manage your activities that include VAT.
Companies that perform export activities are entitled to a VAT refund for materials bought in China. Also, small Chinese companies that have a turnover below the legal limit benefit from a reduced VAT rate. Our Chinese lawyers can help you with additional information about these legal benefits and other tax minimization options in China.
New rules of VAT exemption/deduction for small-scale taxpayers
The Value-Added Tax benefits are intended to assist needy businesses in overcoming the challenges of the Covid-19 pandemic. In recent years, China has implemented a wide range of tax incentives in order to promote and boost economic growth. China’s Ministry of Finance and State Administration of Taxation, and Ministry of Science and Technology have made an announcement for the exemption and deduction of value-added tax in China for the year 2023. These amendments shall be enforced in the country from January 1, 203 to December 31, 2023. Previously, the small scale-scale taxpayers were bound to pay 3% VAT, whereas, from the beginning of 2023, the VAT rate has been reduced to 1%. This percentage also applies to prepaid VAT items. If you are thinking about taking benefit from this reduced VAT rate, your monthly sales should be less than CYN 100,000.
For lifestyle and production-oriented services, China has introduced additional VAT deduction policies in 2023, which are shown below:
|Taxpayers in production-oriented services||Enjoy 5% additional VAT deductions|
|Taxpayers in the lifestyle services industry||Enjoy 10% additional VAT deductions|
To learn more about these additional VAT deduction policies, you can interact with our lawyers. Furthermore, if you are interested in trademark registration in China, the services of our lawyers are at your disposal. As an ex-pat in China, looking to get trademark registration for your products and services might be tricky for you. So, instead of facing unnecessary delay and application denials, you are recommended to avail of legal services. With the assistance of our lawyers in China, you will be able to register your trademark without hassle.
An overview of VAT in China
The VAT system in China is often regarded as being highly complicated. It has undergone developments over the past several years and will continue to do so in an endeavor to be a progressive tax system. Due to the differences between Chinese and Western accounting methods, it is critical for companies doing business in China to fully comprehend how the Chinese tax system operates to ensure that they abide by all applicable tax laws. Since the economy was opened up, China’s Value Added Tax (VAT) legislation has undergone several changes. The Interim Regulations of the People’s Republic of China on Value-Added Tax (GuoWuYuan Ling No. 134) were published by the government in 1993 and continue to serve as the foundation for current regulations.
On November 5, 2008, new interim regulations were approved, and they became effective on January 1, 2009. The government made additional changes to the VAT regulations at the end of 2018 and at the beginning of 2019. These amendments include lowering the applicable VAT rates for specific goods and services, and, raising the threshold for small-scale taxpayers. VAT exemption, expanding the use of VAT credits, and putting pilot programs for VAT refunds into place were also part of those changes. The current VAT structure is governed by temporary legislation. Although the existing rules have not yet been made official by legislation, it is anticipated that the government will do so soon. If you still have any questions about the Chinese VAT, you are welcome to consult with the lawyers at our law firm in China.
Other taxes in China
China has signed tax treaties with many other countries, which can provide tax relief and eliminate double taxation for foreigners who work in China. These treaties generally establish rules for determining which country has the right to tax certain types of income, and can also provide for reduced tax rates or exemptions in certain circumstances. To learn about active treaties in 2023, get in touch with our lawyers.
Other taxes applicable for registered taxpayers in China are:
- the business tax;
- the consumption tax;
- the urban real estate tax;
- the urban construction;
- maintenance tax;
- the education surcharge.
If you want to know more about the taxes you need to pay after the immigration to China, you can get in touch with our specialists.
VAT returns in China
Depending on the goods and services, the VAT period return in China may vary. For instance, if the declaration of VAT is made on short-term periods, the VATreturn can be settled in only five days. As for the quarterly declaration of VAT in China, the period might prolong to 15 days.
Reduced VAT in China
In China, the standard VAT rate is 13%. The majority of goods and services are included. 9% and 6% are the two reduced VAT rates. China also produces some items that are charged with 0% VAT. However, even if no VAT is applied, the sale of these items must still be disclosed on your VAT return.
In addition to this, if you are wondering how to submit an application for the Chinese citizenship, our lawyers can assist you.
VAT non-registration consequences in China
In cases when companies or businesses do not register with the VAT in China within 40 days from their first activity on the market, penalties will be imposed by the financial authorities. For instance, a fixed number of fines and the revocation of the business license can be among the penalties for not registering for VAT purposes in China. We remind you that a foreign company in China that needs to register for VAT and it must be established as a WFOE (wholly foreign-owned entity) or as a joint venture.
If you want to know more about the taxes for individuals and companies in China, you can get in touch with our Chinese law firm. We can help you with essential information about taxation in China in 2023, about the legislation when opening a company, or getting residency in this country.
How can a taxpayer select VAT categories?
Companies must disclose their taxpayer status as part of the incorporation procedure right away during the company registration process. Many international businesses that are not familiar with the Chinese tax system may find that their major concern is deciding between a VAT small-scale taxpayer and a VAT general taxpayer. The following is a list of the significant variations:
- While small-scale taxpayers cannot, general taxpayers can deduct their input VAT from their output VAT at a given rate;
- Small-scale taxpayers are subject to a lower VAT rate of 3%, while regular taxpayers are charged higher VAT rates of 13%, 9%, and 6%;
- The company must register as a general VAT taxpayer and receive a specific VAT invoice to claim input VAT credits in China;
- Foreign investors must therefore make decisions based on the anticipated business profits while taking into account the needs of clients who might explicitly ask for a particular VAT invoice. Remember that unless the tax authorities grant an exception, regular VAT taxpayers cannot be converted into small-scale VAT taxpayers.
Generally speaking, a company will be regarded as a general taxpayer if its yearly tax revenue exceeds the threshold of 5 million RMB. Companies with yearly revenues below the cap and those just starting the business, however, are free to voluntarily seek to become general taxpayers as long as they can build up a real, valid, and accurate bookkeeping system. So, it is significant to pick between these two VAT categories wisely. You can contact our expert lawyers located at our law firm in China. They can describe the advantages and disadvantages of both kinds and you can pick the proper one as per your choice.
Besides this, you can also consult our lawyers if you are planning to buy a property in this country.