Page 28 - Doing Business in China

TAXATION

Small-scale VAT taxpayers pay VAT at a rate of 3%, but there is no VAT input credit (i�e� this is a simplified VAT
calculation method)�

Under the VAT reform, the zero rate may be applied to R&D/design services for foreign entities and international
transportation services, while qualifying cross-border services may be VAT-exempt� Inputs VAT incurred for
zero-rated services may be refunded, but are not recoverable for VAT-exempt services�

VAT incurred on the purchase or construction of fixed assets (excluding immovable property) may be credited
against output VAT� However, Inputs VAT from the following items, cannot be deducted from the output VAT:
• Purchases of goods and services for exclusive use for non-VAT taxable, VAT-exempt projects or projects
subject to a simplified VAT calculation method, for welfare activities or individual consumption�
• The purchase of yachts, motorcycles and motor vehicles subject to consumption tax and intended for the
taxpayer’s own use�
• Purchased goods and relevant services that are lost in an unusual manner�
• Goods and relevant services purchased and consumed or used for products or finished goods that are lost
in an unusual manner�
• The purchase of passenger transportation services�

The export refund rate is adjusted to 13% for the export of goods and cross-border VAT taxable activities that
were originally subject to the VAT rate and the export refund rate of 16%� The export refund rate is adjusted to
9% for exports of goods and cross-border VAT taxable activities that were originally subject to the VAT rate
and the export refund rate of 10%�

d) Administration and regulations
A company must register with the local tax authorities at the time of incorporation in order to have its status
recognised as a general VAT payer or a small-scale VAT taxpayer�

VAT returns are generally filed for each calendar month and must be submitted before the 15th day of the
following month� A taxpayer importing goods must pay the tax within 15 days of the issuance of the tax
payment certificate by the customs authorities�

VAT SURCHARGES (CITY MAINTENANCE AND CONSTRUCTION TAX AND EDUCATION SURCHARGE)
The city maintenance and construction tax and education surcharge apply to entities and individuals subject to
VAT or consumption tax�

The rates for city maintenance and construction tax depend on the location of the taxpayer or withholding
agent: 7% for a location in a city, 5% for a county and town area, and 1% at other locations�

The national education surcharge is levied at a flat rate of 3%� The rate for the local education surcharge, whose
collection mechanism is nearly identical to that of the national education surcharge, can be applied at the
discretion of the local government� However, after the Ministry of Finance issued a notice in 2010 requesting all
local governments to set the local education surcharge at a flat rate of 2%, in order to standardise the application
of the surcharge across the country, many provinces have applied the 2% rate�

Doing Business in China 2023 | 27