Calculation Of VAT & Surcharges In China

Do you know the calculation of VAT (Value Added Tax)  and surcharges in China? ECOVIS Beijing explains how each of these taxes is calculated and how it affects your price calculation.

SMALL-SCALE & GENERAL VAT TAXPAYERS

Companies are divided into general taxpayers, small-scale taxpayers and companies there work in industries there have a VAT exemption or a zero rate. Find the different tax rates:

Turnover Tax

Taxes on Turnover

WHY ARE CHINESE SURCHARGES SO HARD TO CALCULATE?

Surcharges are 12% of the VAT in Beijing (in other regions, the rates might be different). The 12% surcharges are used for the following purposes:

– 7% for local urban infrastructure

– 3% for state education

– 2% for local education

In contrast to Europe, the surcharges in China are calculated backward in order to be more precisely because of the many decimals. This means that the seller of a product will not attain the estimated or expected net price.

It is important to note that the more expensive the product offered or service delivered the less possible it is to split the product price from the surcharges, so both amounts add up as expected.

VAT, SURCHARGES, AND PRICE CALCULATION

This example shows how price, VAT, and the surcharges are calculated in China:

calculation

VAT & Surcharges small scale tax payer

ADVICE FROM OUR ECOVIS BEIJING TAX CONSULTANTS

Foreign companies which are doing business in China should be aware of the specific tax rules. The expected product price and the official tax rate fixed by the State Administration of Taxation(SAT), is not the actual rate after the declaration of the taxes on the fapiao. This means that the company will only get 99,997931% of the expected price in the above example.

Get more tips on VAT & surcharges – call our office at +86 10 6561 6609 or write us an email to service@ecovis-beijing.com

 

Richard Hoffmann

Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: richard.hoffmann@ecovis-beijing.com

Ecovis Beijing

Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 10-65616609 or contact us directly via service@ecovis-beijing.com.