From the beginning, we remind that the value added tax (VAT) in China is a tax imposed on the sale and import of goods and the supply of certain services. The standard rate is applicable to most products and services, but a reduced rate is also available. The VAT is one of the most important taxes for companies in China and, when doing business here, companies must register for such tax to the authorities in charge. Our lawyers in China can help you register your company for VAT purposes, if it applies to your chosen form of business and the services you provide in the country.
Taxpayers in China
Companies with activities in China are considered taxpayers, and according to the tax structure in this state, there are two main categories of businesses which must apply for the general taxpayer status, such as:
- • general taxpayers with incomes ranging between USD 500,000 and 5 million;
- • small-scale taxpayers with incomes below USD 500,000.
It is good to know that there are also VAT exemptions for the export of goods, meaning that companies with operations in this area will not pay such tax.
Who needs to register for VAT in China?
Small entrepreneurs and companies in China need to register for VAT. Particular exports of goods from China, reprocessed products in China, the import of products in China and installations in China are subject to the value added tax. Companies dealing with the sale of goods and services in China must be registered for taxation, including for VAT. It is important to know that non-traders with activities in China cannot register for VAT as non-resident traders like it’s the case of European countries. This means that a legal representative with residency in China needs to be appointed in order to register for such a tax and to report the accounting obligations. A Wholly Foreign-Owned Enterprise is recommended for international investors in China, with the mention that registering for VAT will be possible. If you would like to open a company in China and to register for VAT in China, do not hesitate to talk to one of our company formation agents in China.
VAT registration threshold in China
The financial authorities agreed in 2018 for the new threshold for VAT registration in China, increased from CNY 30,000 to CNY 100,000, helping small companies in the country, for at least 2 years. This new tax rule is considered an important tax incentive to bolster the Chinese economy. Alongside this significant tax modification, the stamp duty has been eliminated, and the corporate income tax was reduced from 25% to 20% for small enterprises in China. Also, the reduction of local education taxes on businesses has been recently implemented in China. For complete information about the taxation system in China, you should talk to one of our company formation representatives in China.
VAT registration in China
Once the company is incorporated in China, the next step is to register for taxes and social contributions. The VAT is an important tax that needs to be observed and considered at the time the registration for taxation starts. The Certificate of Incorporation and the Articles of Association are among the needed documents for VAT registration in China. We remind that a company must appoint the legal representative to register for VAT in China. If all the documents are respected, the VAT Certificate is then issued by the financial authorities in China. Feel free to appoint one of our agents and let us handle the registration for tax purposes in China. You can also ask for accounting services in China and skip the formalities of setting up such a department in your firm.
The applicability of the VAT in China
The VAT in China
has a standard value of 17%
for the sale and import of goods
and also for providing services like processing, repairing and installation. A reduced rate of 13%
applies to certain products and goods, such as:
• essential foodstuffs;
• paper products;
• other goods essential for residential use.
Services imported in China from abroad are subject to VAT, however, a tax credit can reduce the cost for the buyer. The VAT in China is paid during the various steps of production, for example during the actual production, when the product is sold to the distributor and when it is resold to a trading company. Our attorneys in China can help you understand the process and manage your activities that include VAT.
Companies that perform export activities are entitled to VAT refund
for materials bought in China. Also, small Chinese companies
that have a turnover below the legal limit benefit from a reduced VAT rate
. Our Chinese lawyers
can help you with additional information about these legal benefits and other tax minimization options in China
Other taxes in China
applicable for registered taxpayers in China
• the business tax;
• the consumption tax;
• the urban real estate tax;
• the urban construction;
• maintenance tax;
• the education surcharge.
VAT returns in China
Depending on the goods and services, the VAT period return in China may vary. For instance, if the declaration of VAT is made on short-term periods, the VAT return can be settled in only five days. As for the quarterly declaration of VAT in China, the period might prolong to 15 days.
Reduced VAT in China
The 3% VAT rate in China
is imposed for small-scale taxpayers who deal with construction
services in the country. The 5% VAT rate
is applicable for particular real estate transactions in China
since 2016. The consulting, creative, technical, ancillary, film and television services in China
are taxed at a 6% VAT rate
. The same rate is available for accommodation, education, healthcare and insurance services in China
. An 11% VAT
rate is imposed on voice based telecommunications, postal and transportation services in mainland China
. It is good to know that certain exported goods have no VAT
imposed, such as agricultural products or contraceptive drugs and devices. One of our lawyers can tell you more about the VAT and also about how to obtain the EORI number.
What happens if you do not register for VAT purposes in China?
In cases when companies or businesses
do not register with the VAT in China
in 40 days from their first activity on the market, penalties will be imposed by the financial authorities. For instance, a fixed number of fines and the revocation of the business license
can be among penalties for not registering for VAT purposes in China
. We remind that a foreign company in China
that needs to register for VAT
must be established as a WFOE
(wholly foreign owned entity) or as a joint venture
If you want to know more about the taxes
for individuals and for companies in China
, you can contact
our law firm in China
. We can help you with essential information about the taxation in China
and about the legislation when opening a company in China