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Value Added Tax(VAT) for Foreign Companies in China

Posted by: DongNi Jiang
Category: Business in China
VAT income tax

In China, the VAT system is equally applied to foreign and local companies working in the territory. Unfortunately, as foreigners, we don’t enjoy any benefit related to VAT rates. But, with the appropriate support a foreign company might gain some deductions.

Where does the VAT apply? 

VAT for foreign companies in China, as well as for Chinese companies in China, is applied on the sale of goods, repair and/or replacement of services, and on the import of items into China Mainland. Following the VAT reform in 2016, VAT is levied also on:

·        “Taxable Services”: sale of transportation services, postal and telecommunication services, construction services, financial services, modern services and lifestyle services;

·        Sale of intangible assets; and

·        Sale of real estate.

Beforehand it is important to understand the complexity of VAT concepts and issues starting from initial entry into China Mainland. Indeed, a foreign company should promptly apply for its tax certificate. This will give it the status of Small Tax Payer (STP) or of General Tax Payer (GTP).

Small VAT Payers & General VAT Payers in China

Normally, any company newly legally registered in the Chinese Mainland territory will be regarded by the Chinese tax bureau as a STP.  Nevertheless, a new set up company can directly apply for GTP without limitation. As GTP enjoys VAT deductions, is vital to make sure for which category your company qualifies. To gain the status of GTP, a company must reach the following threshold in its annual revenue, according to its legal status:

  • CNY 500,000 for manufacturing units; or
  • CNY 800,000 for trading companies; or
  • CNY 5,000,000 for service companies.

VAT Rates

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Author: DongNi Jiang

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