China VAT Tax Rate 2020 | you need to know it for your business in China

GEI > News > China VAT Tax Rate 2020 | you need to know it for your business in China

Introduction

You might want to know more about China VAT tax rate 2020. The reason is VAT is one of the most common taxes required for business in China.

So, it’s important to take VAT into account for calculating the cost of your business in China.

And with a professional tax consultant, you can save money by paying less tax in a legal way. Here’s the shortcut for your inquiry for a tax plan.

Find more about VAT in China by the following content.

What is VAT?

VAT refers to Value-Added Tax.

A value-added tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed.

More than 160 countries around the world use value-added taxation, according to Investopedia

Too hard to understand? No worries. Here’s the easier version.

Generally, the VAT is the tax to pay for most sales and labour that brings you more money. For example, you sold a watch with a price of 16,000 CNY/RMB. And you earned 6,000 CNY/RMB, as you paid 10,000 to get it. Then, you are going to pay for a VAT based on the profit of 6,000 CNY/RMB.

Wondering what the tax rate is? We’re going to talk about it later in this article. And the specific VAT tax rate varies from one industry to another. So, keep reading and you will find the answer.

As we said before, the VAT is not only for sales but also for labour helping you make money. Thus, another instance. Your business is a consulting service, so to speak. A customer paid you 8,000 CNY/RMB for the service you offered. And the cost you spent to complete the service is 6,000 CNY/RMB. So, you earned 2,000 CNY/RMB for the order. Then, you will need to pay for a VAT on the basis of the 2,000 CNY/RMB.

We believe you know what a VAT is now.

Who/what needs to pay VAT in China?

So, does every business activity requires a VAT? The answer is YES for most cases.

However, if sell your goods/service with a price not larger than your cost. You don’t have to pay for the VAT for those goods/service then.

But that rarely happens because profit is the purpose of most business. It’s quite common to see some business lose money at the beginning though. If it ends up with no profit or negative balance, then it’s possibly more of a charity than a business.

So simply, if you earn money with your business activities, you’ll need to pay VAT for your profit.

Although the tax rates are not always the same in the case of different industries. Scroll down to the topic of China VAT tax rate 2020 for details now.

China VAT tax rate 2020

Since the China VAT tax rate is different by industries, it’s necessary to discuss the topic by industries.

In the meantime, the scale of the enterprise also has an effect on the VAT tax rate. And the scale comes prior to the industries.

So, according to the business scale, there are 2 types of taxpayers: small-scale taxpayers and general taxpayers.

For small-scale taxpayers (typically small and medium enterprises)

  • 5% for real estate agencies and rental businesses.

  • 3% for other general industries.

For general taxpayers (the product/service category listed on the invoice determine the specific VAT tax rate)

6% for the following items

  • sales of intangible assets, including: transfer of additional cultivated land indicators, technology, trademark, copyright, goodwill, and natural resources. And the right to use or ownership of other equity intangible assets

  • value-added telecommunications services, including: R&D and technical services, information technology services, cultural and creative services, logistics support services, and assurance consulting services. Plus, radio and television services, business support services, and other modern services as well.

  • financial services

  • modern service

  • domestic services, including: cultural and sports services, education services, tourism and entertainment services. Plus, catering and accommodation services, residents’ daily services, and other life services.

9% for the following items

  • sales for real estates

  • rental service for real estates

  • transfer the rights for land use

  • construction service

  • post service

  • transportation service

  • basic telecommunications services

  • grain and other agricultural products

  • edible vegetable oil

  • salt

  • feed

  • fertilizer

  • pesticide

  • agricultural machinery

  • agricultural film

  • books

  • newspaper

  • magazine

  • audiovisual products

  • electronic publication

  • tap water

  • heating

  • air conditioner

  • hot water

  • gas

  • LPG

  • natural gas

  • dimethyl ether

  • biogas

  • coal products for residential use

  • other goods specified by the State Council

13% for the following items

  • commercial sales and imported goods

  • sales services

  • tangible movable property rental service

Preferences for China VAT tax rate 2020 extended to the end of the year

As we all know, the epidemic situation has cast a great impact on our life and every business.

Fortunately, the situation has become much better in China now.

And the Chinese government has paid a lot of effort to recover the economies. You can tell that by the preferable policies and measurements.

The government has imposed a series of policies to lower the burden of many VAT taxpayers since last year. And the applicable period has extended to the end of the year 2020 now.

You can find the evidence on the latest news, for example,

Reducing the VAT tax rate for small-scale taxpayers

Remitting the VAT for the following services: food and accommodation, tourism and entertainment, culture and sports, and etc.

More favourable policies by the Chinese government

Favourable tax policies for goods and services related to the epidemic of COVID-19:

  1. If a manufacturing enterprise purchases to expand their production for an epidemic reason, the government allows it to deduct the cost at a time. In other words, the enterprise will pay less tax after that.

  2. If a taxpayer gets income by transporting the goods related to the epidemic, no VAT is required for that part.

  3. For the loss in 2020 caused by the epidemic situation, the enterprises can repay the loss in 8 years. An extension of 3 years from 5 years previously.

  4. The government requires no VAT for the following income: public transportation service, life service and post service. The post service is for offering necessities to the citizens, though.

  5. If an enterprise or individual donates their money or goods for the epidemic, they can pay less VAT. And they just need to make sure the donation is via charities or governments above the county level. Then, their VAT is deductable proportionally by the amount of the donation.

  6. If donators donate their goods to the hospitals specified by the governments, they can also enjoy a proportional VAT deduction by the amount of their donation.

  7. Individual industrial and commercial households can donate their goods for the epidemic for free. In return, they will enjoy an exemption of a series of tax. That includes VAT, consumption tax, city maintenance and construction tax, education surcharge, and local education surcharge. They will just need to make sure donating via charities or governments above the county level. Or they can donate directly to the specified hospitals by the government.

And the above policies are effective until the end of 2020 as well.

How to declare and pay for VAT in China?

Now that we’ve known more of VAT in China, we will need to pay for it as a responsible enterprise.

So, how can we do that?

Generally, there are 3 ways to declare and pay our VAT in China.

  • On-site declaration and payment. Taxpayers can go to the offices of tax regulators, and complete the declaration and payment process on-site.

  • Online declaration and payment. This can save us a lot of time jumping from here to there on the road. Once approved by the regulators, taxpayers can do their declaration and payment by several clicks on the website.

  • Declaration by mail. Mailing is another way to declare the VAT in China. And the date on the postmark from the sending place is the date of declaration.

Other taxes required besides VAT

As you might know, doing business involves more taxes besides VAT. And the situation is similar in China.

And there are 18 types of taxes by the Chinese regulators currently. However, you don’t always have to pay all of them as some are applicable case by case.

Still, we would like to let you know the types in case you will need them later.

So, find the list below

  1. VAT (value-added tax)

  2. Excise Tax

  3. Vehicle Purchase Tax

  4. Customs Duty

  5. Enterprise Income Tax

  6. Individual Income Tax

  7. Land Appreciation Tax

  8. Real Estate Tax

  9. Urban and Township Land Use Tax

  10. Farmland Occupation Tax

  11. Deed Tax

  12. Resource Tax

  13. Vehicle and Vessel Tax

  14. Stamp Tax

  15. Urban Maintenance and Construction Tax

  16. Tobacco Tax

  17. Vessel Tonnage Tax

  18. Environmental Protection Tax

If you’re interested in this topic, also read China Tax Policy for Foreign Companies – The Common Q&A

Conclusion

A quick review of the content we talked about today.

  • The meaning of VAT. It refers to the value-added Tax.

  • Who and what will need to pay VAT in China? Simply, as you earn money with your business activities, you’ll need to pay VAT for your profit.

  • The China vat tax rate 2020. It depends on the scale of your business and product/service categories.

  • The Chinese government has carried out a bunch of preferable policies to lower the burden of various taxpayers.

  • 3 ways to declare and pay for the VAT in China: on-site, online, and mailing.

  • Other taxes required by the regulators besides VAT. There are 18 types of taxes in China including the VAT. You don’t always have to pay for them all though.

If you like this article, don’t hesitate to share it with your friends. And keep following our latest news. You’ll find more useful tips and news for investment in China. And tips on how to manage your business and make more money in China as well.

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