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    1. Tweet33's Avatar
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      #1

      How does the VAT work in China?

      Can anyone tell me how the value-added tax works in China? Iíve been using exporters as a source in other countries for a while now (mostly Canada and the UK), but I really like what this Chinese supplier can offer me. Need a brief primer on what to expect as expenses.
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      #2
      China’s VAT rate is on-par with that of most countries (which run from 15% to 20%), but can still be a bureaucratic headache to navigate. Basically, you’re looking at -

      ● The current legislation establishing China’s VAT, as far as I’m aware is, "The Provisional Regulation of the People's Republic of China on Value Added Tax", and was established in late 1993.
      ● VAT in China is collected by customs on behalf of the State Administration of Taxation, and shared between state and local governments (a 4:1 split), and is a major source of revenue for the Chinese government, especially central government.
      ● According to the 1993 legislation, China’s VAT should be paid by enterprises/individuals that sell merchandise, provide processing, repairing, or assembling service, or import goods inside the People's Republic of China or its territories on the added value derived from their production, selling merchandise, providing industrial repairing or assembling service.
      ● The VAT flat rates for various line-items is as follows--

      Exportation of goods(except otherwise stimulated by the state) - 0%

      Agriculture, forestry, products of animal husbandry, aquatic products; Edible vegetable and grain duplicates;
      Tap water, heating, cooling, hot air supplying, hot water, gas, liquefied petroleum gas, natural gas, coal/charcoal products for household use; Book, newspapers, magazines(excluding the newspapers and magazines distributed by the post department)
      Feeds, chemical fertilizers, agricultural chemicals, agricultural machinery and plastic converting film for farming;
      Selected metal mineral products, Selected non-metal mineral products, coal - 13%

      Crude oil, mine salt and goods other than those listed above; Taxable services - 17%
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      #3
      Don’t forget that there are two categories of taxpayers when it comes to the VAT--

      ● Small Taxpayer (defined as a businesses with a turn-over of less than RMB 0.5m/$75,207 or a retailer/wholesaler whose annual turnover does not exceed RMB 0.8m/$120,331), who pays a specialized VAT rate of Sales amount◊3%

      ● The Normal Taxpayer (everyone else), who pays essentially what @Clarke_2223 posted.
      Specifically, subtract the Output tax payable from the Input tax payable, or (current period’s sales volume x tax rate) - (sales amount x tax rate)

      Of course, Small Taxpayers can’t claim any VAT paid at this lower rate to offset costs, and you won’t be likely to qualify for any VAT refunds.

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      #4
      I’m also a Small Taxpayer. Nowhere near the Normal-level turnover!

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      #5
      China VAT refund policies are handled in this thread I researched a little while ago. Check it out!

      http://www.wholesaleforum.com/discus...policies-3743/. That’s required reading just to stay in the loop, though you won’t be as concerned about the refund at the rate of turnaround you get.

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      #6
      4.1.1 Value-Added Tax

      As a type of turnover tax, value-added tax (VAT) is levied on the increased value of commodities at different stages of production or circulation, or on the value-added of commodities. All enterprises and individuals engaged in the sale or import of goods or the provision of processing, repair or maintenance services in China have to pay VAT.

      (a) Taxpayer

      In China, VAT payers are divided into general taxpayers and small-scale taxpayers on the basis of their operation scale and accounting and auditing system, with different methods of tax computation.

      Small-scale taxpayers are taxpayers without a sound accounting and auditing system whose taxable value of sales is below the prescribed standards, namely Rmb1 million for taxpayers engaged in the production of goods or the provision of taxable services, and less than Rmb1.8 million for those engaged in wholesaling or retailing business.

      General taxpayers mainly refer to enterprises whose annual taxable sales value exceeds that of small-scale taxpayers. Small production enterprises with a sound accounting and auditing system may be classified as general taxpayers. However, individuals, non-enterprise units, and enterprises that do not regularly engage in taxable operations are classified as small-scale taxpayers even if their annual taxable sales value exceeds the standards for small-scale taxpayers.


      (b) Method of Computation

      *
      Small-scale taxpayer

      VAT payable by small-scale taxpayers is calculated by a simple method on the basis of the sales value and the tax rate without offset or deduction for input VAT. The applicable rate is 4% for commercial enterprises and 6% for other operations. The formula for the computation of VAT is as follows:

      Tax payable = sales value x tax rate (4% or 6%)

      VAT on consignment sale, sale of unredeemed goods by pawn shops and retail sale of duty-free goods by approved duty-free shops, is levied at a rate of 4% using the above simple method of computation regardless of whether it is paid by a small-scale taxpayer. For the sale of second-hand goods, VAT is levied at half of the tax rate of 4%.

      *
      General taxpayer

      The actual amount of VAT payable by general taxpayers is the excess amount of output VAT over input VAT. The formula for the computation of the tax payable is as follows:

      Tax payable = current output VAT - current input VAT

      Output VAT = sales value x applicable tax rate

      If the current output VAT is smaller than the current input VAT, the amount that cannot be fully set off or deducted may be carried over to the following tax period.

      *
      VAT on imported goods

      VAT on goods imported by taxpayers is computed on the basis of the composite assessable value and the applicable tax rate without offset or deduction for input VAT. The formula for the computation of the tax payable is as follows:

      Tax payable = composite assessable value x applicable tax rate

      Composite assessable value = customs dutiable value + customs duty

      For taxpayers importing taxable consumer goods, the consumption tax payable will be added to the composite assessable value.

      (c) Taxable Items and Tax Rates

      There are two VAT rates in China, a basic rate of 17% and a lower rate of 13%. The sale and import of the following commodities are subject to VAT at the lower rate of 13%: grains, edible vegetable oil, drinking water, heating, air-conditioning, hot water, coal gas, liquefied petroleum gas, natural gas, methane, coal products for domestic use; books, newspapers and magazines; feedstuffs, chemical fertilisers, pesticides, agricultural machinery, agricultural plastic sheeting; and other commodities as specified by the state.

      (d) Export Tax Exemption and Rebate

      China implements a zero tax rate on exports. There is no export-related tax. Subject to the types of products, tax payments made in respect of the stages preceding export will be partly or fully refunded.

      (e) Special VAT Invoice

      *
      General taxpayers may purchase special VAT invoices from the tax authorities. Small-scale taxpayers and non-VAT taxpayers may not purchase or use such invoices.

      *
      General taxpayers selling taxable items must issue special VAT invoices to the buyer. However, for the sale of taxable items to consumers and the sale of duty-free goods or goods for export, no special VAT invoices have to be issued. It is also not mandatory to issue special VAT invoices for the sale of taxable items to small-scale taxpayers.

      * Special VAT invoices that are not up to specifications may not be used to claim deduction or exemption for input VAT.

      (f) Tax Liability and Payment Period

      In the supply of goods or taxable services, the VAT liability arises on the day the taxpayer receives full payment for the transaction or obtains a payment voucher for the transaction. In the case of import goods, VAT liability arises on the day of customs declaration.

      The payment period may be one day, three days, five days, ten days, fifteen days or one month, to be determined by the competent tax authorities based on the amount of VAT payable by the taxpayer.

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