VAT Tax Exemption available to Small-Scale Taxpayers in Q2 - Q4 2022
Taxpayers are advised to evaluate the Tax Impact to their buyers in applying VAT Tax Exemption
The VAT Tax Relief applies to income subject to 3% Tax Rate for Small-Scale Taxpayers in Mainland China (No Relief is available to Income subject to 5% Tax Rate). Since the outbreak of COVID-19, the Mainland Government has already announced that the applicable income would only be subject to 1% Tax Rate and such policy continued in Q1 of Year 2022.
In March 2022, the State Taxation Administration has further announced that, for Q2 to Q4 of Year 2022, the applicable income is now exempt from VAT. Income subject to Prepayment of 3% VAT Tax Rate can now holdover from VAT Payment as well. Provided that VAT is payable no matter a company derives a profit or not, the Tax Exemption is going to provide big relief to the Small-Scale Taxpayers during the economic recession.
Points to note:
As a recap, Small-Scale Taxpayers generally refer to Taxpayers with Annual Sales of RMB 5 Million of below in Mainland China. They are eligible to enjoy the VAT Tax Exemption for Q2 to Q4 of Year 2022.
Having said that, upon request from customers, Small-Scale Taxpayers may still need to issue Special VAT Invoice to their customers so that such invoice can be used by their customers to set off against their VAT Liabilities. In such case, the Small-Scale Taxpayers are still subject to 1% VAT Tax Rate.
The Relief allows a taxpayer to select part of its income to apply for VAT Tax Exemption, while other part of income to withdraw from VAT Tax Exemption due to customers request. To apply for Tax Exemption, taxpayers should issue Tax-Exempt VAT Invoice (免税的普通发票). Taxpayers have to select “Tax-Exempt” in the return, rather than selecting Tax Rate of 3% / 1% or 0%. While for those income withdrawn from VAT Exemption, taxpayers should issue Special VAT Invoice.
Taxpayers should always consider their business situation and relationship with its business partners to decide whether a Tax Relief should be selected as some Tax Relief may not turn out to be beneficial to all Taxpayers.
Reference: http://www.chinatax.gov.cn/chinatax/n810351/n810906/c5174222/content.html
