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Notice on Unifiying Criteria for Small-scale Taxpayer

Time: 28.04.2018

China Taxation
Notice on Unifying Criteria for Small-size Taxpayer

The Ministry of Finance (MoF) and State Administration of Taxation (SAT) of the People's Republic of China recently released a Circular about Unifying the Standards of Small VAT Taxpayers (Caishui (2018) No. 33), which expands the criteria for businesses to qualify as a small-scale VAT taxpayer. Small-scale VAT taxpayers are now defined as those whose annual sales are less than RMB5 million (approximately USD800,000).

In support of this announcement, the SAT issued two new circulars explaining the changes to the VAT system: SAT Announcement (2018) No. 18 and SAT Announcement (2018) No. 20. The announcements explain changes to the VAT system, offer timelines and guidance for implementation and clarifies certain issues in respect of tax rebate (exemption) results from the unifying the standards of small-scale taxpayer.

Current Thresholds

The criteria for VAT small-size taxpayer was set to annual taxable revenue being no more than RMB 500,000 for industrial enterprises, no more than RMB 800,000 for commercial enterprises, and no more than RMB 5 million for modern service enterprises. According to the latest released notices, the criteria for VAT small-size taxpayer shall be unified to annual VAT taxable revenue being no more than RMB 5 million.

Applicable Scope	Annual VAT Taxable Revenue
	Current Standard （RMB）	New Standard (RMB）
Taxpayer engaging in manufacturing goods or rendering taxable service	500,000 or below	5 million or below
Taxpayer whose main activity is manufacturing goods or rendering taxable service (the proportion is more than 50%), and also engages in wholesale or retail
Taxpayer engaging in wholesale or retail business and other taxpayer	800,000 or below
Taxpayer engaging in transportation industry and part of modern service industry	5 million or below

Adjusted Threshold

Effective from May 1, 2018, the recognition criteria for VAT general taxpayer shall be adjusted as below:

Applicable Scope	Annual VAT Taxable Revenue (RMB)
Taxpayer engaging in manufacturing goods or rendering taxable service	Above 5 million
Taxpayer engaging in wholesale or retail business and other taxpayer
Taxpayer engaging in transportation industry and part of modern service industry
Other taxpayers

Re-registration as Small-scale Taxpayer

VAT general taxpayer is eligible to re-register as small-size taxpayer when the following two criteria are met:

(1)	For taxpayer registered as VAT general taxpayer in accordance with "Interim Regulations of VAT" and "Detailed Rules for Implementation of Interim Regulations of VAT", its accumulated taxable sales for 12 consecutive months (for those file monthly tax return) or for 4 consecutive quarters (for those file quarterly tax return) before the transfer date shall not exceed RMB 5 million.
(2)	If the taxpayer hasn't commenced its business for 12 months or 4 quarters, the accumulated taxable sales for 12 consecutive months or for 4 consecutive quarters shall be calculated based on the monthly (or quarterly) average sales.

Criteria for re-register as VAT general taxpayer

(1)	If the taxpayer's accumulated taxable sales for consecutive 12 months or 4 quarters are exceeding RMB 5 million after transferring to VAT small-size taxpayer, it shall re-register as VAT general taxpayer according to relevant regulations.
(2)	The taxpayer re-registered as VAT general taxpayer shall apply for and claim export tax rebate (or exemption) as per an export enterprise or other unit that newly occurs export tax rebate (or exemption) business.
(3)	Taxpayer transferred to be as VAT small-size taxpayer and later re-registered as VAT general taxpayer as per relevant regulations shall not re-register as VAT small-size taxpayer again.

Transitional Arrangement

After the transferring of registration, VAT shall be calculated by adopting the simple tax method applicable to VAT small-size taxpayer from the next tax filing period (the following quarter for quarterly filing taxpayer, the following month for monthly filing taxpayer). VAT shall be calculated based on relevant regulations applicable to VAT general taxpayer in the same tax filing period of transferring.

Clients who are interested in issues regarding how to deal with sales allowance, termination or return occurred after transferring while the sales occurred when the taxpayer was still VAT general taxpayer, how to issue VAT Fapiao, and how to handle the export tax rebate (or exemption), please kindly refer to the attached tax regulation, or consult with our Kaizen professionals.

If you wish to obtain more information or assistance, please visit the official website of Kaizen CPA Limited at www.bycpa.com or contact us through the following and talk to our professionals:
Email: info@bycpa.com, enquiries@bycpa.com
Tel: +852 2341 1444
WhatsApp/Line/Wechat: +852 6114 9414, +86 1521 9432 644

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【Enclosures】

Appendix 1:	Notice on Unifying Criteria for Small-size Taxpayer Jointly released by Ministry of Finance State of Administration of Taxation Caishui【2018】 No.33
Appendix 2:	Announcement on VAT Issues relating to Unifying Criteria for Small-size Taxpayer State of Administration of Taxation 【SAT Announcement Year 2018 No.18】
Appendix 3:	Announcement on Export Tax Rebate (or Exemption) Relating to Unifying Criteria for Small-size Taxpayer State of Administration of Taxation 【SAT Announcement Year 2018 No.18】

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Notice on Unifiying Criteria for Small-scale Taxpayer

Time: 28.04.2018

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