Recently, small and micro China enterprises saw preferential tax relief under the promulgation of the Notice on Implementing the Policy of Inclusive Tax Relief for Small Profit Enterprises Circular, Caishui No. 13 [2019] (Circular 13). What’s more, provisions in Circular 13 further exempt small-scale taxpayers from value-added taxes, provided their monthly sales fall below RMB 100,000 or RMB 300,000 quarterly.
Small-scale taxpayers were introduced into the 2016 VAT reforms, which included expanding VAT to the sale and importation of all goods and provision of services in or to China. This allowed registered VAT taxpayers to claim input VAT credits for the services they consume from those sectors that are VAT taxpayers.
In the latest VAT reforms, small-scale taxpayers may either continue to utilise and offset VAT with special VAT invoices or enjoy VAT exemptions, provided, once again, that monthly sales revenues are below RMB 100,000 or RMB 300,000 quarterly.
In the Announcement of the State Administration of Taxation on Issues concerning Tax Collection and Administration under the Value-added Tax Exemption Policy for Small-scale Taxpayers (Announcement), further provisions are provided to allow more companies to benefit from these VAT exemptions. Below, we list the two key takeaways benefitting companies in their VAT calculations.
Sale of real estate exemptions
Companies engaged in the sale of real estate may be VAT exempted from the sale of goods, labour services, services and intangible assets provided the total amount of the items is less than RMB 100,000. Although it is important to note that VAT on the sale of real estate is not exempted.
Change of general taxpayer to small-scale taxpayers
Companies currently registered as general taxpayers may be recategorised as small-scale taxpayers. To be considered a small-scale taxpayer, companies are required to have cumulative sales of RMB 5 million or below for 12 consecutive months (in which case the company is subject to monthly tax periods) or four consecutive quarters (in which case the company is subject to quarterly tax periods prior to the date on which the company is recategorised as a small-scale taxpayer.
Regarding the above, a general taxpayer may only change to a small-scale taxpayer once and cannot seek to recategorise itself as a small-scale taxpayer where it has previously been recategorised.
Since the VAT exemptions are effective from 1 January, companies should review the effects within their accountancy and update calculations as soon as possible. Particularly, companies may be eligible for VAT returns in the first tax period provided the conditions are met.
If you would like more information about Chinesevalue added tax or other related corporate matters, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.
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