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Among regulatory changes nurturing China’s economy in the last few months, the further reduction of VAT rates is definitely gaining most of the attention as it involves a wide base of taxable items and industries.
This innovative rule was firstly introduced by Premier Li Keqiang on March 5th during the Government Report 2019. This change of China VAT rate was included in CNY 2 trillion cost package, as Chinese government wants to enhance the economic developments and lighten the overall tax burden.
The Ministry of Finance, the State Taxation Administration, and the China Customs Head Office jointly announced April 1st 2019 as date for the entrance into force of the new measures.
Summary of adjusted China VAT rate
According to the new statement, there is no adjustment within the tax items this year. Any China VAT taxable sales or imported goods that use the rate of 16% and 10% in the past should be adjusted to 13% and 9% from the effective date, respectively. Service sectors which applies to 6% remain the same.
| Tax items | New Rates (2019) |
| Sales/ Imported goods, Labor services, Tangible personal property leasing services | 13% |
| Sales/ Imported goods (Special items) 1.Food and other agricultural products, edible vegetable oil, and edible salt 2.Tap water, heating, air conditioning, hot water, gas, liquefied petroleum gas, natural gas, dimethyl ether, biogas, coal products for residential use 3.Books, newspapers, magazines, audio-visual products, electronic publications 4.Feed, fertilizer, pesticide, agricultural machinery, agricultural film 5.Other goods specified by the state council |
9% |
| Transportation, Postal, Basic Telecommunications services, Construction, Real estate Leasing Services, Transfer of Land use right, and Sale of Real Property | 9% |
| Service sectors | 6% |
| Small-Scale Taxpayers | 3% |
In addition to the reduction of China VAT rate above, general taxpayers who are in the service sectors can enjoy an additional 10% deduction.
Small-scale taxpayers can even enjoy the benefit of tax exemption.
China VAT taxpayers
The China VAT taxpayers are those individuals and enterprises that engaged in taxable services within the territory of the People’s Republic of China.
There are two types of VAT taxpayers:
- General Taxpayers
- Small Scale Taxpayers
The new additional 10% deduction (only limited to General Taxpayers)
During the period from 1/04/2019 to 31/12/2021, taxpayers within the following four service sector can enjoy 10% additional input VAT deduction to offset the VAT payable if their sales revenue from main businesses is beyond 50% of the total sales revenue.
| Main Businesses |
Definitions |
Including |
| Postal Services |
Refer to business activities that China Post Group and its subordinate postal enterprises provide. Basic postal services are mail delivery, postal remittance, and classified mail correspondence. |
1. Universal postal services 2. Special postal service 3. Other postal services |
| Telecommunications Services | Refer to business activities that provide voice communication service by using wired or wireless electromagnetic or optoelectronic system to transmit, receive (or apply) images & short messages, and other electronic data information. | 1. Basic telecommunications services 2. Value-added telecommunications services |
| Modern Services |
Refer to the business activities that provide technical and informative services in respect of manufacturing, cultural industries, and modern logistics industry |
1. Research and development and technical services 2. Information technology services 3. Cultural creativity services 4. Logistics supporting services 5. Leasing services 6. Attestation consulting services 7. Radio, film and television services 8. Commercial supporting services 9. and other modern services |
| Life Services | Refer to various service activities that meet daily life demands for urban and rural residents | 1. Cultural and sports services 2. Education and medical services 3. Tourism and entertainment services 4. Catering and accommodation services 5. Daily services for residents 6. Other life services |
If those taxpayers were established before March 31th 2019, the sales revenue mentioned above shall refer to the sales revenue recorded during the period from April 2018 to March 2019. In case the operating period is shorter than 12 months, the application rule will depend on the sales revenue within the actual operating period of the enterprise.
For taxpayers incorporated after April 1st 2019, the above sales revenues criteria refer to data registered during the three months following April 2019 deadline.
China Tax Exemption (Limited to small-scale taxpayers)
Conforming to the latest regulations of the Circular of the Ministry of Finance and the State Administration of Taxation on Implementing the Inclusive Tax Deduction Policy for Small and Micro Enterprises (TAX [2019] No. 13), small-scale taxpayers involved in VAT taxable behavior with a total monthly sales less than 100,000 Yuan (quarterly sales of less than 300,000 Yuan), can be exempted from China VAT.
The tax exemption increase from 30,000 Yuan to 100,000 Yuan, enlarging the scope of VAT benefits to a wider number of small-scale companies as showed in the below table:
| Taxpayer | Sales revenue (RMB) | VAT |
| General Taxpayers | Monthly sale ≤ 100,000 (Quarterly sales ≤ 300,000) | Taxed |
| Small-Scale Taxpayers | Monthly sale ≤ 100,000 (Quarterly sales ≤ 300,000) | Exempted |
VAT Rates vs. Export VAT Refund Rates
Exported goods that used to follow the China VAT rate of 16% and with an export tax refund rate equal to 16% shall adjust to the new rate for manufactured and traded goods set at 13% now.
Exported goods and cross-border taxable services that used to be assigned to the 10% VAT rate and with export tax refund rate set at 10%, shall adjust to the new 9% VAT rate as of June 30th, 2019:
For Trading Company
| Export Goods | |||
| VAT Rate of Purchase | Invoice | Actual Refund Rate | |
| Before 06/30/2019 | 16% (10%) | 16% (10%) | 16% (10%) |
| 13% (9%) | 13% (9%) | 13% (9%) | |
| After 06/30/2019 | 16% (10%) | 16% (10%) | 13% (9%) |
| 13% (9%) | 13% (9%) | 13% (9%) | |
For Manufacturing Company
Goods export before 2019/06/30, the refund rate shall be subject to the export tax refund rate 16% (or 10%)
Goods export after 2019/06/30, the refund rate shall be subject to the adjusted export tax refund rate 13% (or 9%)
*The 30/06/2019 deadline refers to the export date on the customs declaration report
*In case the goods are exported from or through a bonded zone, the 30/06/2019 deadline refers to the export date on the record list of outbound goods issued by the customs at the time of departure.
On 17 March 2020, China’s Ministry of Finance and the State Taxation Administration (STA) issued Bulletin 15 which increases VAT refund rates for 1,084 goods up to 13% and for 380 goods up to 9% as from 20 March 2020 in order to reduce VAT costs for exporters. The new rates implemented in Bulletin 15 are 13%, 9%, and 0%. As before, for the 0% rate, no refund is allowed.
The rate increases affect a broad range of sectors such as agriculture, animal husbandry, food processing, chemicals, plastic and rubber, paper, ceramics, iron and steel, and non-ferrous metal. (Source: State Taxation Administration)
Refund of overpaid China VAT
Taxpayers simultaneously meeting the conditions of all the below requirements are now entitled to enjoy a refund for overpaid China VAT;
- From the beginning of the fiscal period (April 2019), the increased overpaid VAT is more than 0 RMB for six consecutive months and more than 500,000 yuan on the sixth month.
- The taxpayer’s tax credit rating is either A or B;
- Before applying for the refund of overpaid VAT, there is no case of defrauding overpaid VAT refunds, exporting VAT refunds or wrongdoings in issuing special VAT invoices within 36 months.
- No notice of tax evasion/avoidance by the Bureau in the previous 36 months.
Wrapping Up
All of the above significant actions brought by the Chinese Authorities have come to effective for more than two weeks. These changes would not only benefit a wide range of businesses and industries but also consumers and their demand supporting and stimulating the Chinese internal economy.
Most importantly, the VAT reshaping in place since few years will assist Chinese manufactures struggling with tariffs disputes with the US, a slowing global demand and domestic debt exposure.
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