(Source: https://pltfrm.com.cn)
The Value Added Tax (VAT) system in China is a significant part of the country’s tax structure and applies to both domestic and foreign businesses. As of my last update in April 2023, here’s a general overview of how the VAT system works for foreign businesses in China:
- VAT Rates: China has different VAT rates depending on the type of goods or services. The standard rates are 13% and 9%, but there are also reduced rates for specific sectors, like 6% for services including consulting and financial services. Some goods or services may be exempt from VAT.
- VAT Payers: Both domestic and foreign businesses engaged in the sale of goods, provision of processing, repair and replacement services, or importation of goods into China are subject to VAT.
- VAT Invoicing: Businesses must issue special VAT invoices (fapiao) for their sales. These invoices are essential for both accounting and tax purposes and are used to track the VAT paid and received by businesses.
- Input VAT Credit: Businesses can generally deduct the VAT they pay on purchases (input VAT) from the VAT they collect from sales (output VAT). If the input VAT exceeds the output VAT in a given tax period, the excess may be carried forward to offset future output VAT.
- VAT for Exporters: Exports are generally zero-rated, meaning that exporters can claim a refund for the input VAT paid. This policy is designed to encourage exports.
- VAT Filing and Payment: VAT taxpayers are required to file VAT returns and make VAT payments on a monthly or quarterly basis, depending on their size and type of business.
- Small-Scale vs. General Taxpayers: VAT payers in China are categorized as either small-scale or general taxpayers. Small-scale taxpayers, typically those with lower annual sales revenue, are subject to a simplified VAT regime with a lower rate (currently 3%) but cannot issue special VAT invoices or claim input VAT credits. General taxpayers, typically larger businesses, are subject to standard VAT rates but can issue special VAT invoices and claim input VAT credits.
- VAT on Imported Services: Foreign businesses providing services to Chinese entities may be subject to VAT on the services imported into China. The Chinese entity receiving the service is typically responsible for remitting the VAT to the Chinese tax authorities.
- Digital Services: Foreign companies providing digital services to customers in China may also be subject to VAT and may need to consider the tax implications of their business model in China.
- Registration Requirements: Foreign businesses engaged in taxable activities in China are generally required to register for VAT purposes.
The VAT system in China is complex, and its application can vary depending on specific circumstances and the nature of business activities. Therefore, foreign businesses operating in China should seek advice from local tax professionals to ensure compliance with VAT regulations and to understand how these rules apply to their specific situation.
PLTFRM is an international brand consulting agency that works with companies such as Red, Tiktok, Tmall, Baidu, and other well-known Chinese internet e-commerce platforms. We have been working with Chile Cherries for many years, reaching Chinese consumers in depth through different platforms and realizing that Chile Cherries exports in China account for 97% of the total exports in Asia. Contact us and we will help you find the best China e-commerce platform for you. Search pltfrm for a free consultation!
