Explore the requirements and rules that apply to indirect taxes in China.
13 percent (VAT), though other rates of 3 percent, 6 percent and 9 percent commonly apply.
What supplies are liable to the standard rate?
Are there any reduced rates, zero- rates or exemptions and if so, what do they apply to?
The Special Administrative Regions of Hong Kong and Macau do not have VAT or equivalent indirect taxes.
Business taxpayers may register as ‘general VAT taxpayers’, which entitles them to claim input VAT credits and issue VAT special invoices. All other businesses are classified as ‘small-scale taxpayers’ and pay VAT at 3 percent, with no eligibility for input tax credits on purchases and in principle no eligibility to issue VAT special invoices (which are needed for business recipients to claim input VAT credits). Registration as a general VAT taxpayer is compulsory if the annual turnover exceeds CNY5 million.
The VAT liability threshold for individuals registering as 'small-scale taxpayers’ varies between regions and ranges from sales of CNY5,000 to CNY20,000 per month or CNY300 to CNY500 per transaction.
Is voluntary registration possible?
It is possible for taxpayers that would otherwise be below the thresholds to register as ‘general VAT taxpayers.’ They need to demonstrate a sound accounting system and provide accurate tax information as well as have a fixed place of business in China and be approved by the tax authority.
Is voluntary registration available for an overseas company or a fiscal representative?
No, overseas companies are not generally permitted to register for Chinese VAT purposes.
There are a number of restrictions on the recovery of input tax credits. The most significant of which is that only general VAT taxpayers are potentially eligible to claims supported by VAT special invoices. As such, assuming the taxpayer is a ‘general VAT taxpayer’ and holds a special VAT invoice, then further restrictions include an inability to claim for:
For completeness, it should also be noted that many exports of goods do not result in the full recovery of input VAT. That is, there may be a leakage in export VAT recovery, which varies depending on the HS Customs code of the goods being exported.
Can an overseas company recover VAT if it is not registered?
How long does it typically take to obtain a VAT refund following a return filing?
Where input tax exceeds output tax in any given period, generally the excess input tax credit must be carried forward (potentially indefinitely).
The main exceptions to this are for exported goods and certain exported services which are zero-rated.
There is no prescribed timeline in relation to the refunds of input VAT for such zero-rated exported goods and services. First-time providers can be required to wait 6 months or longer before they receive the refund.
Furthermore, since 1 April 2019, a VAT refund mechanism on a ‘trial basis’ has been introduced to allow other businesses (i.e. not those exporting) to claim refunds of excess input tax credits where certain conditions are met.
China operates the ‘Golden Tax System’, which is a highly regulated invoicing system. VAT invoices (known as special VAT invoices) must be issued on government-issued and regulated machines using government-issued and numbered invoicing paper. Businesses must obtain a special VAT invoice and verify it before an input VAT credit can be claimed.
As of 1 April 2019, businesses are generally entitled to claim input tax credits on domestic passenger transportation expenses on the basis of certain alternative travel documents, provided that certain details (e.g. passenger name and ID) are included on those documents.
Other indirect taxes include the following:
All information within this guide is provided by KPMG professionals in China and based on information available as of September 2019.