China: VAT measures to tackle business contraction

To boost the momentum of work and production, the Chinese government has rolled out further VAT incentives and relief to support business operators who are considered vulnerable to business contraction.

Larger VAT incentive scope

The details of the VAT incentives are as follows:

1. Per the tax announcement, Notice ([2021] No.11), the minimum business volume subject to VAT for small-scale VAT payers has increased from RMB 100,000 (approx. EUR 14,375) to RMB 150,000 (approx. EUR 21,566) per month effective from 1 April 2021 to 31 Dec 2022;
2. As per the tax announcement, Notice ([2022] No.15), all small-scale VAT payers who used to be subject to VAT at 3% are exempt from VAT effective from 1 April 2022 to 31 Dec 2022.
    

More VAT bonus

The Chinese tax authority has offered more VAT credit bonuses to servicing sectors by postponing the policy deadline to a later date through to the end of this year.

Old regulations:

• Production-supporting servicing sectors are offered 10% extra VAT credit in each filing;
• Consumption-supporting servicing sectors are offered 15% extra input VAT credit in each filing.
   

New regulations:

• According to the tax announcement, Notice ([2022] No.11), the effectiveness of the said two VAT credit incentives have been prolonged until 31 December 2022.
   

More VAT refunds

The latest policy has enabled more businesses to benefit from the VAT credit refund, which has seen a continuous increase in its beneficiary scope in the recent three rounds, as shown below:

• Scope expansion: the scope of beneficiaries has been expanded from advanced manufacturing to a variety of industries, covering manufacturing and others.
• Criteria relaxation: a taxpayer is no longer required to have a positive VAT credit balance when applying for VAT credit refunds.

Deferral of VAT payments

As a tax relief, VAT payments are allowed by the latest policies to be deferred for as long as six months, covering the VAT filings in the last quarter of 2021, and the first two quarters of this year for small, medium and micro enterprises in manufacturing.

Implications

It is expected that China’s economy will continue to be impacted by the enduring pandemic. Most of the latest tax incentives or reliefs are believed to be short-lived though relaxed, but are still somehow limited in scope and period. Prompt review and due application is the key to enjoying the maximum benefit, especially in easing short-term cash flow stress.

Read the WTS Global VAT Newsletter here.