1. Overview

The value-added tax (VAT) in China is an indirect tax levied on various transactions such as the manufacturing and sale of goods, provision of services, repairs, processing, and import/export activities, and it accounts for the largest share of China's tax revenue. In addition to the standard tax rate of 13%, reduced rates of 9% are applied to certain agricultural products and books, while a rate of 6% is applied to modern service industries and technology transfers. A simplified tax rate of 3% is applicable under the small taxpayer system, and input tax deductions are not allowed. Even foreign businesses are required to register for VAT if their taxable sales in China exceed a certain threshold, and a special registration system is established for electronic service providers.

2. Key Topics

Registration and General Taxpayer Certification

The necessity of VAT registration depends on the scale of sales and the type of business. Businesses with annual sales exceeding 5 million yuan (reference value) are recognized as general taxpayers and are required to issue invoices and deduct input tax. Foreign companies are also required to register if they have a permanent establishment or warehouse in China, or if they generate a certain amount of B2C sales from cross-border electronic services. For individual one-time transactions, the transactions within the same month must be aggregated to apply this standard, and splitting sales to enjoy tax exemption is not permitted.

Invoice System

The invoice system in China is accelerating its transition to electronic invoices (fully digital electronic invoices) that have been granted the same legal validity as paper invoices under the Value-Added Tax Law, which will be implemented in 2026. By the end of June 2026, paper invoices will be abolished in many regions, and tax authorities will shift to a "smart" management system that comprehensively tracks all data from issuance and transfer to bookkeeping and deductions. General taxpayers are required to enable the input tax deduction for purchasers through the electronic invoices they issue, and deductions will not be recognized without electronic invoices. This complete digitalization allows companies to benefit from faster tax audits and reduced management costs, while also necessitating attention to strict risk monitoring through big data analysis by tax authorities.

Taxation of Digital Services and Platforms

When foreign digital service providers offer apps, video streaming, online games, etc., to customers in China (especially individuals), VAT registration is required once a certain sales threshold is exceeded. In B2B transactions, the buyer is responsible for declaring and paying through reverse charge, while in B2C transactions, the supplier must calculate and declare VAT themselves. Additionally, starting in April 2025, a system will be introduced where B2C digital services involving 'designated platform operators' will consider the platform as the supplier, imposing tax declaration obligations on them. This will require overseas developers to provide information to the platform and organize tax-related data.

Declaration and Record Management

General taxpayers usually file monthly returns, and the tax amount is calculated based on invoices. The filing deadline is by the 15th of the following month, and delays may incur late fees or penalties. Strict management of special VAT invoices (paper or electronic) is mandatory, and obtaining or issuing fraudulent invoices is subject to criminal penalties. With the spread of digital invoices, the introduction of electronic invoice systems and the establishment of internal controls are essential.

Export transactions and refunds

中国から海外への輸出は、零税率または免税扱いとなります。国内仕入時に支払ったVAT（入力税額）は輸出還付として払い戻されるため、輸出業者にとって重要な収益源です。還付を受けるには、税関の輸出許可通知書、発票、契約書、支払証憑などの書類を整備し、税務当局への申請を行う必要があります。最近では、還付審査の厳格化により輸出申告の名義や通関単位が外国企業自身であることが重視されており、取引の実態と書類の整合性が求められます。

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