KNOWLEDGE|
1. |
Definition of VAT |
|||||||||||||||||||||||||||||
|
|
Value Added Tax (VAT) is levied on all units and individuals engaged in the sale of goods, the provision of processing, repairs and replacement of services, sales of services, intangible assets, real estate and imported goods within the territory of the People’s Republic of China. |
|||||||||||||||||||||||||||||
|
2. |
Tax Rates |
|||||||||||||||||||||||||||||
|
|
For the different taxable items of China's value-added tax (VAT) and different types of taxpayers, we classify the VAT rate into the following four categories and list the taxable items of the four categories and the corresponding tax rates respectively. (1) VAT rate applicable to VAT general taxpayers for sales or import of goods, sales of taxable services. (2) VAT rate applicable to all taxpayers for export of goods, services or intangible assets. (3) VAT deducted rate applicable to VAT general taxpayers for purchase of agricultural products. (4) VAT leviable rate applicable to small-scale taxpayers or VAT general taxpayers who allowed to use the simple tax computation method.
|
|||||||||||||||||||||||||||||
|
3. |
Tax Payable |
|||||||||||||||||||||||||||||
|
|
There are two types of VAT taxpayers: general taxpayers and small-scale taxpayers. (1) Tax payable formula for small-scale taxpayers Tax payable formula for small-scale taxpayer is very simple. The input VAT is not deductible and any VAT paid on purchase would become the cost of goods of small-scale taxpayers. Tax payable = sales income x tax rate (3% with effect from 1 January 2009) (2) Tax payable formula for general taxpayers VAT payable = output VAT - input VAT (3) Input VAT Input VAT is the VAT paid or borne by taxpayers who purchase goods or receive processing, repairs and replacement labor services and services, purchase intangible assets and real estates. Normally, input VAT amount is stipulated in the VAT invoices when the general taxpayer buys goods from its domestic suppliers; or shown on the custom duty payment certificates when the taxpayer imports goods from overseas suppliers. Under some circumstances, input VAT is not creditable. The circumstances include:
(4) Output VAT Output tax is the VAT payable by taxpayers who sell goods, render processing, repairs and replacement labor services and services, and sell intangible assets and real estates. The formula for output VAT is as follows: Output VAT = turnover or sales x tax rate The turnover or sales include all the price and additional fees charged by the taxpayers for taxable sales. |
|||||||||||||||||||||||||||||
|
4. |
Calculation of VAT Rebates for Exports - "Exempt, Credit, Refund" ("ECR") Method |
|||||||||||||||||||||||||||||
|
|
The tax refund basis for export goods is very complicated. VAT refund for exported goods refers to a system of refunding the VAT already paid or payable in China to the exporter or granting VAT exemption to the exporter. This kind of VAT refund system is called the "Exempt, Credit, Refund" ("ECR") method. In brief, the VAT payable of a general taxpayer under the ECR method is determined by applying the following formula: VAT payable = Output VAT on domestic sales - [Total input VAT - Non-exempted and non-creditable VAT] Non-exempted and non-creditable VAT = (Export sales - bonded imports) x (VAT rate - applicable refund rate)] Bonded imports refer to those imports of raw materials or merchandise which would be used for the manufacture of exported goods. Generally speaking, no customs duties and import VAT would be levied on bonded imports. The prevailing VAT rate for general taxpayers is 13% whereas the applicable refund rates vary for different products. From the above formula, if an enterprise exports merchandises which enjoy higher VAT rebates, it will lead to a lower amount of Non-exempted and non-creditable VAT. This will result in a lower VAT payable. If the VAT payable is negative, this is a chance for applying for VAT refunds, subject to the applicable thresholds. Please note that, in practice, the calculation of ECR is more complicated than the above formula as enterprises may conduct factory transfers or indirect export sales under which the merchandises are deemed exports for customs purposes whilst the same are physically transferred to another entity in China for further processing. From the administrative standpoint, the application of export VAT refunds needs to comply with the related PRC customs, tax and foreign exchange regulations as well as obtain the requisite documents. Otherwise, even though the merchandises have been physically exported, no export VAT refund is eligible. |
|||||||||||||||||||||||||||||
|
Disclaimer All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage. |
Language
close
