September 01, 2010

Administrative Measures on Recognition of the Status of General Taxpayer of Value-Added Tax

Issuing Body: State Administration of Taxation
Issuing Date: February 10, 2010
Effective Date: March 20, 2010

Continuing the Chinese government's broad efforts to reform the country's Value-Added Tax (VAT) system, the State Administration of Taxation (SAT) recently amended the Measures on Recognition of the Application for General Taxpayer of Value-Added Tax (Old Recognition Rules) and issued the Administrative Measures on Recognition of the Status of General Taxpayer of Value-Added Tax (New Recognition Rules). The New Recognition Rules provide detailed guidelines and procedures for recognition as a VAT General Taxpayer under the amended VAT system, simplifying the recognition process and lowering the threshold for achieving General Taxpayer status.

Leading the reform effort, China's State Council amended the Provisional Regulations on Value-Added Taxes and the Implementing Rules for the Provisional Regulations on Value-Added Taxes in late 2008. They took effect on January 1, 2009. 

Who Can Apply for VAT General Taxpayer Status?

VAT taxpayers whose annual taxable sales exceed the criteria for Small-Scale VAT Taxpayers should apply for recognition as a VAT General Taxpayer with the relevant tax authority. The term "annual taxable sales" is clarified in the New Recognition Rules to mean cumulative sales revenues subject to VAT within a continuous period of 12 months or less, including revenues exempted from VAT. According to the Implementing Rules for the Provisional Regulations on Value-Added Taxes, the thresholds for Small-Scale Taxpayers are as follows:

  • VAT taxpayers that engage in the manufacturing of goods or the provision of taxable services, with annual taxable sales of less than RMB500,000.
  • VAT taxpayers that engage principally in the manufacturing of goods or the provision of taxable services and also in the wholesale or retail sale of goods, with annual taxable sales of less than RMB 500,000. ("Principally" is defined as deriving more than 50 percent of total revenue from the manufacturing of goods or the provision of taxable services.)
  • Taxpayers other than those specified above, with annual taxable sales of less than RMB800,000.

The following VAT taxpayers may apply for VAT General Taxpayer status with the relevant tax authority:

  • VAT taxpayers whose annual taxable sales do not exceed the criteria for Small-Scale VAT Taxpayers; and
  • Newly established VAT taxpayers.

Tax authorities should grant General Taxpayer status to the above VAT taxpayers if they (i) have a fixed place of business; and (ii) maintain accounting books and records in accordance with the national accounting system, calculate taxes based on legal and valid vouchers, and are able to provide accurate tax materials.

The following taxpayers cannot be granted VAT General Taxpayer status:

  • Individuals, other than individually owned businesses.
  • "Non-enterprises" (i.e., entities, such as administrative agencies and social organizations, which are not enterprises) that choose to pay value-added taxes as Small-Scale Taxpayers.
  • Enterprises with infrequent business activities subject to value-added taxes that choose to pay value-added taxes as Small-Scale Taxpayers.

Recognition Authority

State tax bureaus at the district or county level and branch tax bureaus at the same level have the power to grant recognition of VAT General Taxpayer status.

Procedures and Requirements for Recognition of VAT General Taxpayer Status

The New Recognition Rules simplify the procedures and documentation requirements for recognition of VAT General Taxpayer status. Under the Old Recognition Rules, before being granted VAT General Taxpayer status, taxpayers had to go through a number of steps, such as application, document review, spot verification, interviews (only applicable to commercial enterprises), and finally approval. The New Recognition Rules eliminate the interview requirement and delegate the power for deciding whether to perform spot verifications to tax authorities at the provincial level.

The New Recognition Rules provide some certainty in processing time for recognition by requiring tax authorities to make decisions about whether to grant VAT General Taxpayer status within 20 working days after accepting all application documents.

The New Recognition Rules do not require the submission of documents that have already been submitted to tax authorities for tax registration and that are not relevant to recognition as a VAT General Taxpayer.

Effective Date of VAT General Taxpayer Status

VAT General Taxpayer status takes effect the month after the status has been recognized. For a newly established VAT taxpayer, the status takes effect in the month when the application for General Taxpayer status is submitted.

Once a VAT taxpayer is recognized as a General Taxpayer, it cannot be converted into a Small-Scale Taxpayer, unless otherwise stipulated by SAT.

Supervisory Period for General Taxpayers

In order to ensure compliance by VAT General Taxpayers, tax authorities may implement a supervisory period of greater oversight for the following General Taxpayers:

  • Small trading and wholesale enterprises with annual taxable sales that do not exceed the criteria for Small-Scale Taxpayers.
  • Small trading and wholesale enterprises that are newly established.
  • Other General Taxpayers as stipulated by SAT.

Conclusion

As these New Recognition Rules lower the threshold for obtaining VAT General Taxpayer status, more small- and medium-sized enterprises could be recognized as General Taxpayers, enabling them to write off input value-added taxes and therefore reducing their tax burden. In addition, the New Recognition Rules streamline existing patchy rules and policies pertaining to recognition of VAT General Taxpayer status, which should prove helpful to tax authorities seeking to enforce rules as well as taxpayers who want to understand and comply with those rules.

 

 

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