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VAT Tax in China

Updated:2018-3-29 11:14:07    Source:www.tannet-group.comViews:224

VAT tax in China is one of the major taxation in mainland China, which also include corporate income tax, consumption tax, customs duty, individual income tax, real estate tax, land value added tax, and stamp duty. A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of general consumption tax that is collected incrementally, based on the increase in value of a product or service at each stage of production or distribution.

According to a State Council executive meeting chaired by Premier Li Keqiang, China will cut value-added tax rates as part of a tax reduction package. The tax rate for manufacturing will be lowered from 17 percent to 16 percent, and for transportation, construction, basic telecommunications services and farm produce from 11 percent to 10 percent. All the tax cuts will take effect on May 1, 2018.

Types of Taxpayer 
Under the VAT, taxpayers fall into one of two categories based on their annual taxable sales amount: general taxpayers or small-scale taxpayers.

Taxpayers with annual taxable sales exceeding the annual sales ceiling set for small-scale taxpayers must apply for general taxpayer status. A company must obtain VAT general taxpayer status in order to issue fapiao, which is a key requirement for conducting business. The sales ceilings are:

(1) RMB 500,000 (US $75,400) for industrial taxpayers (i.e., enterprises primarily engaged in the manufacture of goods or provision of taxable services);
(2) RMB 800,000 (US $120,570) for commercial taxpayers (i.e., enterprises engaged in the wholesale or retail of goods); and,
(3) RMB 5 million (US$754,000) for VAT reform taxpayers.

Taxpayers who have annual taxable sales below the ceiling, as well as taxpayers who have recently established a new business, can voluntarily apply for general taxpayer recognition, provided they are capable of setting up legitimate, valid, and accurate bookkeeping.

Computation of Tax Payable
1. Tax Payable by General Taxpayers = Tax Payable on Sales in Current Period - Tax Payable on Purchase in Current Period;
2. Tax Payable on Sales means the VAT computed received from the purchasers by the taxpayers selling goods or providing taxable services according to stipulated VAT rate;
3. Tax Payable on Purchase means the VAT paid by the taxpayers purchasing goods or accepting taxable services, which in comparison with the foregoing Tax Payable on Sales received by the sellers, is paid by the purchasers;
4. Tax Payable by Small-scale Taxpayers = Tax-including Sales Amount ÷ (1+Tax Rate)× Tax Rate;
5. Tax Payable by Taxpayers Exporting Goods = (Dutiable Value +Tariff+Excise Tax) × Tax Rate.

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