Announcement on Clearing Policies on Value-added Tax Exemptions and Reductions for Small-scale Taxpayers in China in 2023

The Ministry of Finance and the State Taxation Administration have issued the “Announcement on Clearing Policies on Value-added Tax Exemptions and Reductions for Small-scale Taxpayers”. The announcement proposes that from January 1, 2023, to December 31, 2023, small-scale taxpayers of value-added tax (VAT) with monthly sales of less than RMB 100,000 (inclusive) shall be exempted from paying VAT.

From January 1, 2023, to December 31, 2023, for small-scale taxpayers subject to a tax rate of 3% on taxable sales revenue, VAT shall be levied at a reduced rate of 1%; for the VAT items subject to a pre-payment rate of 3%, the pre-payment rate shall be reduced to 1%.

From January 1, 2023, to December 31, 2023, the policy of adding and deducting VAT shall be implemented according to the following provisions:

(1) Production-oriented service taxpayers are allowed to deduct 5% of the deductible input VAT from the payable tax amount in the current period. Production-oriented service taxpayers refer to taxpayers whose sales revenue from postal services, telecommunications services, modern services, and living services accounts for more than 50% of the total sales revenue.

(2) Living-oriented service taxpayers are allowed to deduct 10% of the deductible input VAT from the payable tax amount in the current period. Living-oriented service taxpayers refer to taxpayers whose sales revenue from living services accounts for more than 50% of the total sales revenue.

(3) Other matters related to the policy of adding and deducting VAT shall be implemented according to the relevant provisions of the “Announcement of the Ministry of Finance, the State Administration of Taxation, and the General Administration of Customs on Deepening the Reform of Value-added Tax” (Announcement No. 39 of 2019 of the Ministry of Finance, the State Administration of Taxation, and the General Administration of Customs) and the “Announcement of the Ministry of Finance and the State Administration of Taxation on Clearing Policies on Value-added Tax Deductions for Living-oriented Service Industry” (Announcement No. 87 of 2019 of the Ministry of Finance and the State Administration of Taxation).

The announcement clarifies that for the VAT that should be exempted or reduced according to this announcement, if it has already been collected before the issuance of this announcement, the taxpayer may use it to offset the tax payable in the subsequent tax period or apply for a refund.