With the intention to encourage and support all sectors to resume production and operation, the Tax Bureau is now allowing Chinese General TaxPayers to be registered as Chinese Small Scale TaxPayers, given they are eligible to apply.
What are the differences?
One of the decisions for investors when setting up a business in China is whether to classify the new entity as a Small-scale or General Taxpayer.
Here are some quick facts of both categories
- Small-scale Taxpayers are exempt from income tax given the business revenue is less than RMB 100,000. The corporate income tax rate applicable is 5%. 3% of value-added tax (VAT) applies to them in ALL business transactions. This VAT rate was just reduced to 1% for Small-scale Taxpayers for all sales that occurred between 1st March to 31st December 2020. (VAT is a similar concept to GST（goods and services tax）in certain countries.)
- ·6% VAT applies to the General Taxpayer, which could be claimed back from the tax bureau during the annual tax refund. For enterprises with a revenue figure between 1 million to 3 million RMB, the corporate tax rate applicable is 10%.
- ·Business owners have the freedom to stay in the category of Small-scale Taxpayers until the accumulated business revenue exceeding five million RMB.
- Once business owners declared themselves as General Taxpayers, the option of being a Small-scale Taxpayer is no longer viable to them.
There is no absolute advantage of being either. Depending on the circumstance and the need of the business owners, one might be more attractive than the other.
Who are eligible to apply?
- Investors from certain sectors could only be registered as General Taxpayers (e.g. patrol station). Applicants from all other industries are eligible to apply, assuming all the other criteria are satisfied.
- The accumulated revenue of applying enterprise shall not exceed 5 million RMB during the past consecutive 12 months.
- The application deadline is 31st December 2020. However, the enterprise had applied to be General Taxpayer in 2020 are not to be re-registered, small Scale Taxpayer.
How is the VAT invoice (Fapiao）being issued during the transition?
The VAT invoices should be issued on all taxable sales as Small-Scaled Taxpayers from the application lodge date. Taxable sales occurred before the lodgment date; the VAT invoice shall be issued as General Taxpayer.
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