Monday, 02 April 2018 06:14

VAT changes in China starting from May

Shanghai, China Shanghai, China

Good news about the Chinese VAT tax rate since the Chinese State Council, during the meeting chaired by Premier Li Keqiang and held on 28 March 2018, announced that China will cut VAT tax rates related to some industrial sectors. The State Council decision is part of a tax reduction plan amounting to 400 billion yuan ($63.58 billion) to drive high-quality industries development.

Indeed, the meeting pointed out that in China the tax reduction over the past five years has reached the amount of 2.1 trillion yuan.

In accordance with the deployment of the CPC Central Committee and the State Council, the reduction aim to improve the tax system and support the development of the manufacturing and small enterprise. From the 1st of May 2018 the manufacturing industries (sales of goods, importation of goods, leasing of tangible movable property, repair and processing services) VAT rate will be reduced from 17% to 16%, and the transportation, construction, basic telecommunications services industry, postal services, agricultural goods and water and gas supplies value-added tax rate will be reduced from 11% to 10%. It is estimated that the tax cut amount for this tax year will be over 240 billion Yuan.

Moreover, China’s State Council announced an increase of threshold for small-scale taxpayer status from CNY 500,000 for manufacturing and CNY 800,000 for retail and wholesale, to CNY 5 million for all sectors, while allowing companies currently registered as general taxpayers to register as small-scale taxpayers in a certain time period if qualifying as a result of the change (small-scale status taxpayers pay a flat 3% VAT without the deduction of input VAT).

In addition, enterprises related to advanced manufacturing such as equipment manufacturing, R&D and other modern service industries, and power grid enterprises will be entitled to a one-off refund of excess input VAT credits accumulated over a specific period.

The new VAT rate will be applied to:

Current rate

New rate from 1 May 2018

Sales of goods, importation of goods, leasing of tangible movable property, repair and processing services



Transportation services, sales and leases of immovable property, basic telecommunications services, construction services, postal services, agricultural products and water and gas supplies



During the meeting, Premier Li Keqiang highlighted that all the businesses registered in China - domestic and foreign enterprises - will benefit from the VAT cuts, so this measure will involve also Joint Ventures and the Wholly Foreign Owned Companies (WFOE).

These decisions mark a little step of a huger plan. Premier Li pointed out that no industry will see its tax burden increase in the course of these VAT reform. Indeed, the Chinese government has announced that more measures will be implemented to improve the national VAT system and stimulate the vitality of the market.

In conclusion, these measures shall lighten the tax burden for the process of good production and circulation, and innovation enterprises. They will help the transformation of the economic structure but, in order to analyze the concrete results, we need to wait for its implementation.

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