China VAT Rate Cut and Small-scale Tax Payer Reform

24 April 2018

New Guidance

On April 4th, 2018, two sets of guidance on tax reduction (Caishui [2018] No. 32 and 33 (Circular 32 and 33)) were issued by China's Ministry of Finance (MOF) and the State Administration of Taxation (SAT). The key highlights are as follows:

For general VAT taxpayers

With effect from 1 May 2018, the tax rate will be lowered from 17% to 16% and from 11% to 10% for certain industries (including but not limited to the categories below).

Main Categories Current rate New rate
  • Importation or Sales of goods
  • Leasing of tangible movable property
  • Repair and processing services
17% 16%
  • Transportation services
  • Construction services
  • Postal services
  • Basic telecommunications services
  • Sales and leases of immovable property
  • Agricultural products
  • Water and (some) gas supplies
  • Some others
11% 10%

For small-scale VAT taxpayers

China has standardised the qualifying criteria of a small-scale VAT taxpayer to an annual turnover of less than RMB 5 million compared to its previous definition of less than RMB 500,000 and RMB 800,000 for manufacturing and trading companies respectively. Any business below this new threshold will be able to register as a small-scale VAT taxpayer and enjoy a preferential VAT rate of 3%.

Under this update, general VAT taxpayers can now choose to convert to a small-scale VAT taxpayer before 31 December 2018 if they comply with the criteria. This was previously not possible once general VAT taxpayer status was obtained.

In China, a dedicated team with local expertise helps foreign companies enter China market and do business here including company formation, accounting & tax compliance, HR advisory, payroll and company secretarial services. For more information on China tax updates or doing business in China, please your local account manager or Jack Wu.