China - VAT reduction and exemption extended for small-scale taxpayers

To further support the development of micro and small enterprises and individual businesses, China’s Ministry of Finance and the State Taxation Administration issued an announcement (Announcement [2023] No. 19) on 1 August 2023 that extends the VAT rate cut for small-scale VAT taxpayers for four years from 1 January 2023 through 31 December 2027. The VAT benefits were due to expire at the end of 2023.

Based on the August announcement:

  • Small-scale VAT taxpayers with monthly sales of CNY 100,000 or less are exempt from VAT; and
  • Small-scale VAT taxpayers whose taxable sales revenue are normally subject to the 3% VAT rate will be eligible for a 1% rate.

BDO insights

With the extension of the VAT exemption policy for taxpayers with monthly sales under CNY 100,000, the tax authorities likely will strictly monitor taxpayers’ accounting reporting, especially sales income. Affected taxpayers may wish to consider undertaking a compliance review of their bookkeeping and tax reporting to minimise potential risks.

Additionally, as the current policy around VAT calculation methods differs for small-scale taxpayers and general taxpayers, taxpayers may consider obtaining professional advice to help determine whether to be a small-scale taxpayer or a general taxpayer.

Gordon Gao
Jack Shen
BDO in China