Tax Update: New VAT Rates Starting From 1 May 2018

In the wake of China’s VAT reform, business has already benefited from savings worth 2.1 trillion RMB (270 billion EUR), according to the Chinese government.

On 28 March 2018, the State Council announced three measures, which aim at further reducing the financial burden for businesses that the VAT rates for certain sectors will be further reduced.

1. NEW VAT RATES FOR CERTAIN INDUSTRIES

First, starting from 1 May 2018, VAT rates will be reduced from 17% to 16% and from 11% to 10%. The following table shows the businesses areas affected by the changes:

Sales of goods/service Current Rate Rate after 1 May 2018
Sales and importation of goods 17% 16%
Leasing of tangible and movable property
Repair and processing services
Transportation services 11% 10%
Sales and leases of immovable property
Basic telecommunications services
Construction services
Postal services
Agricultural products
Water and gas supplies

 

2. MORE BUSINESSES WILL BE CONSIDERED AS SMALL-SCALE TAXPAYERS

In China, small-scale taxpayers benefit from a reduced VAT tax of 3%. Currently, all industrial and commercial businesses with an annual turnover of less than 5 Million RMB or 8 Million RMB respectively are considered as small-scale taxpayers. Now, these thresholds are both raised to 50 Million RMB. Also, businesses which have already registered as general taxpayers can apply, for a limited time, as a small-scale taxpayer.

3. ONE-TIME REFUND TO HIGH-TECH COMPANIES

High-Tech enterprises in advanced manufacturing, R & D, and other modern service industries, as well as power grid companies, can get a one-time refund of a not yet deducted input tax.

According to the government, these measures equal a tax reduction of over 50 billion EUR for both Chinese and foreign investment companies in China.

ADVICE FROM OUR ECOVIS BEIJING TAX CONSULTANTS

The new regulations will not only reduce the tax burden for businesses in China, it also offers a particular opportunity for businesses to save turnover costs.

Since Special VAT Fapiaos can be used to offset the output VAT with the Input VAT, the tax rate change can also be beneficial to companies, who structure their payments and receivables accordingly.

Grace Shi

Grace Shi is a partner at ECOVIS Beijing China. She has over 12 years of experience in accounting, auditing, and tax advisory services in both international accounting firms and large Chinese corporations. She has an international MBA and a US Global Finance Master’s degree.

Ecovis Beijing

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