Posted by PTL Group
PTL Group
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on Friday, 29 June 2018
in Business in China

China Reduces Value Added Tax Rates and Adjusts Threshold

In line with last month announcement of implementing major value added tax (VAT) reform in 2018, China announced the first step in this reform process was enacted on the 1st of May. Two major changes are expected following this announcement: the first being a 1% VAT rate reduction for general tax payer and the second being an increase in the threshold for compulsory registration as general tax payer. These measures will apply to both domestic and foreign-funded companies (joint ventures, WOFE…) which is good news for all business entities in China. We delve a bit deeper to explore the impact of this announcement.

1% VAT Rate Reduction

Over the VAT three-tiered rate structure (17%, 11% & 6% rates), the 17% and 11% rates will be decreased to respectively 16% and 10%. The statement did not indicate any changes to the 6% VAT rate. 

Thus, the VAT reduction should concern the following sectors:

VAT Threshold Increase

Currently, small-to-medium companies’ whose [value added taxable revenue] Taxable revenue is lower than the threshold of RMB 500,000 (USD 79,700) for the manufacturing and service industries, and RMB 800,000 (USD 127,500) for trading companies, can be registered as small-scale tax payers to enjoy a 3% taxation rate – under certain conditions. 

Starting May 1st, these thresholds were merged to create a new threshold of RMB 5 million (USD 797,000) for both categories, meaning that more SME companies will have the opportunity to be considered as small-scale tax payers and will receive the 3% taxation rate.

Such measures demonstrate the will of the government to lighten tax burden on businesses and aim to boost entrepreneurship and the creation of new forms of business. Even though micro and small businesses should be the first beneficiaries, a wide range of sectors will be positively affected, as expressed by China International Capital Corporation (CICC) statement that “lower VAT rates will help reduce the prices of products and services in a number of competitive sectors, benefiting households and other sectors”. 

Still baffled about how these changes affect you and your business? Want to learn more? Do not hesitate to contact PTL with any lingering questions or worries. We are here to provide solutions for all your business quandaries. 

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