China Clarifies VAT General Taxpayer Recognition Under Nationwide Reform
Jun. 12 – China’s State Administration of Taxation (SAT) released the “Announcement on General Taxpayers Recognition under the Business Tax (BT) to Value-Added Tax (VAT) Pilot Conversion in the Transportation Industry and Some Modern Service Industries (Announcement  No. 28, hereinafter referred to as the ‘Announcement’)” on May 31, which clarifies several issues regarding VAT general taxpayer recognition under the nationwide VAT pilot reform program. Detailed information can be found below.
Issues Regarding VAT General Taxpayer Recognition
According to the Announcement, taxpayers with annual sales of taxable services exceeding RMB5 million prior to the implementation of the pilot project should apply to the competent state tax authorities for recognition as general taxpayers.
The annual sales amount for taxable services of pilot taxpayers prior to the implementation of the pilot project should be calculated as follows:
- Annual sales amount for taxable services = Total sales turnover generated in a period of no more than 12 consecutive months ÷ (1 + 3%).
The business turnover of taxable services shall be calculated based on the pre-deduction business turnover for pilot taxpayers whose business tax is levied on the balance in accordance with the current business tax policies.
Taxpayers do not need to reapply for recognition if they have already obtained general taxpayer status prior to the implementation of the pilot project and concurrently provide taxable services along with other services.
Taxpayers with annual sales of taxable services less than RMB5 million may apply to the competent taxation authorities for recognition as general taxpayers.
For pilot taxpayers who concurrently engage in the sales of goods, supply of processing, repair and replacement services, as well as taxable services, the sales amount of the taxable goods, labor services and taxable services shall be calculated separately.
For taxpayers that have already obtained general taxpayer status, if they engage in acts such as VAT evasion, tax rebate fraud, and issuance of false VAT deduction vouchers, the competent tax authorities can implement tax payment supervision against the taxpayers for no less than six months.
The Announcement also specifies that the general taxpayer recognition for all VAT pilot taxpayers shall be handled according to the Order No. 22 of the State Administration of Taxation after the implementation of the pilot program. Relevant recognition processes are as follows:
For taxpayers whose annual taxable sales amount is beyond RMB5 million prior to the implementation of the pilot project
- The taxpayer shall submit the “Application Form for Recognition of VAT General Taxpayer” to the competent taxation authority within 40 days following the end of the declaration period.
- The qualification-approving authority shall complete the recognition process for VAT general taxpayers within 20 days after the application has been accepted by the competent taxation authority, and the competent taxation authority shall formulate the “Notice of Tax Matters” and serve it to the taxpayer.
- Where the taxpayer fails to apply for the general taxpayer recognition within the prescribed time period, the competent taxation authority shall prepare and serve the “Notice of Tax Matters” within 20 days following the end of the prescribed time period to the taxpayer.
For taxpayers whose annual taxable sales amount is less than RMB5 million
The taxpayer shall fill out and submit the “Application Form for Recognition of General Taxpayers” to the competent taxation authority and provide the following materials:
- Copy of the Tax Registration Certificate
- Identity certificates and the copies thereof of personnel in charge of financial matters and the personnel handling tax matters
- Practicing qualifications of accounting personnel or the agreement on entrusted bookkeeping entered into with an intermediary and copies thereof
- Certificate of ownership or lease agreement of the business premises, or other certificates and copies thereof that are able to prove the eligibility to use such premises
- Other relevant materials required by the SAT
The competent taxation authority shall verify the application materials of the taxpayer on the spot. Where the application materials are consistent and complete and have been filled out in accordance with the relevant requirements, the said authority shall accept the application on the spot, formulate the Receipt of the Acceptance of Instruments, and return the originals of the relevant materials to the taxpayer.
Where the application materials are incomplete or have not been filled out in accordance with the relevant requirements, the competent taxation authority shall inform the taxpayer of all the contents that need to be supplemented or corrected on the spot. After its acceptance of applications from the taxpayer, the competent taxation authority shall carry out a field inspection according to the relevant needs, and formulate an inspection report.
The qualification-approving authority shall complete the recognition process for general taxpayers within 20 days after the application has been accepted by the competent taxation authority, and the competent taxation authority shall formulate the “Notice of Tax Matters” to inform and serve it to the taxpayer.
The Announcement is scheduled to take effect on August 1, 2013.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
You can stay up to date with the latest business and investment trends across China by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.
The China Tax Guide: Tax, Accounting and Audit (Sixth Edition)
This edition of the China Tax Guide, updated for 2013, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China operations.
Value-Added Tax Reform
VAT reform is a confusing transition for many and introduces a number of additional questions, such as exactly what types of input VAT are now deductible. Confusion about the new laws may also allow opportunistic companies to charge higher prices and blame the increase on the tax reform. To add some clarity to the issue – and VAT in general – this issue of China Briefing takes a look at a number of VAT-related questions.