Recently, China’s Premier announced that China will exempt small scale taxpayers from Value Added Tax (VAT) for a period of time to help enterprises in 2022 Government Work Report.  The Ministry of Finance and the State Administration of Taxation of the PRC subsequently issued an announcement on 24 March 2022 to clarify the implementation time and rules of the relevant policies, which mainly includes:

1. Exemption Period
   
   The exemption period of VAT is starting from 1 April 2022 to 31 December 2022. If the obligation of tax payment occurs before 31 March 2022, the VAT shall be paid in accordance with relevant regulations.
   
   
2. Scope of Application
   
   VAT exemption is only applicable to the taxable sales income with a 3% levy rate obtained by small scale VAT taxpayers. The taxable sales income subject to other levy rate is not exempted from VAT. General VAT taxpayers are not entitled to enjoy the VAT exemption policy.
   
   
3. Issuance of Tax Invoice (Fapiao)
   
   Small scale VAT taxpayers shall issue tax-free ordinary invoices (Fapiao) in accordance with the regulations if the taxable sales income is exempted from VAT. If a taxpayer chooses to waive VAT exemption and issue a special VAT invoice (Fapiao), it shall issue a special VAT invoice (Fapiao) with a 3% levy rate and pay the VAT accordingly.

NOTE: Small scale VAT taxpayers here normally refer to taxpayers whose annual VAT taxable sales income does not exceed RMB5 million.

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