In China, taxpayers are divided into general taxpayers and small-scale taxpayers in accordance with the regulations of the Ministry of Finance and the State Administration of Taxation. Taxpayers whose annual taxable sales amount subject to VAT exceeds the standard as prescribed by the Ministry of Finance and the State Administration of Taxation are defined as general taxpayers, and taxpayers whose annual taxable sales amount does not exceed the said standard are defined as small-scale taxpayers.
Difference between Small-scale Taxpayers and General Taxpayers
1. General taxpayers
Apply to a basic tax rate of 17% and variable levy. The output tax-input tax is the tax amount. The sellers of goods can make out VAT special invoices or VAT general invoices. The VAT special invoices made out by the sellers of goods can be verified and deducted within 180 days by the other party. General taxpayers are also subject to tax rates of 5%, 6%, 11% and 13%.
General Taxpayer are on current monthly basis. For a newly established company, it is strongly recommended to apply this status right away after its establishment.
2. Small-scale taxpayers
Apply to 3% VAT rate. The sellers of goods can only make out VAT general invoices and collect them in full (Monthly tax-exclusive sales amount of RMB 30,000, quarterly tax-free sales amount of RMB 90,000), and the above VAT general invoices cannot be deducted by the other party. Small-scale taxpayers cannot deduct the input tax yet can only use the costs to deduct the income tax payable.
Small-scale Taxpayer’s tax filings are on quarterly basis, subject to a lower uniform VAT rate of three percent, not like General Taxpayer on current monthly basis. For Small-scale Taxpayers without any income in current quarter, VAT nil filing is still required, but the sub-charge taxes filing are no longer required.
Can a General Taxpayer be Converted to a Small-scale Taxpayer?
In accordance with provisions as provided for in Article 33 of the Detailed Rule for the Implementation of the Provisional Regulation on Value-Added Tax, once a taxpayer has been identified as a general taxpayer, it shall not be converted to a small-scale taxpayer, except as otherwise provided for by the State Administration of Taxation.
Therefore, enterprises should be cautious when applying to become general taxpayers. Once they become general taxpayers and then intend to switch back to small-scale taxpayers, they will not be switched back.
How to Become a General Taxpayer?
According to the law in China, every foreign business that is set up in the country will be identified as a Small-scale Taxpayer at the time of its establishment, which can be upgraded to the status of General VAT Taxpayer afterwards. To qualify to be a VAT general taxpayer, a company must pass the relevant estimated annual taxable turnover threshold, meet stipulated requirements.
Applying to become a VAT general taxpayer includes an application form, interview and site inspection, a VAT general taxpayer verification form, and fapiao purchase license. Depending on the tax officer and local practice, there is typically a probation period of two to four months before obtaining general taxpayer status and, after obtaining this status, there is an annual review of a company’s eligibility as a VAT general taxpayer.
Tannet’s finance and tax team is equipped with CPAs and experienced accountants. We can cope with company accounting, tax filing, auditing, payroll management, etc. Our consultants are fluent in English. Therefore, you do not need to worry about the language barrier. We will facilitate you every step of the process.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143512, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
Previous：Tax Brackets In Hong Kong
Next：Fapiao in China (Invoice)