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Value Added Tax (VAT) is a consumption tax levied on goods and services at each stage of the supply chain where value is added, from initial production to the point of sale.

The amount of VAT paid by the user is based on the product cost minus any material costs that have already been taxed in the previous stages. VAT is used in over 160 countries/regions globally, including China, Vietnam, Singapore, European Union and others, it is largely a European invention. It was introduced by French tax authority Maurice Lauré in 1954.

I.China VAT Application

In China, corporate tax invoices can be divided into general taxpayers (who can issue special invoices) and small-scale taxpayers (who issue ordinary invoices).

After a company is registered, it is generally default as a small-scale taxpayer. To qualify as a general taxpayer, a separate application is required. Only mainland companies with general taxpayer status can issue VAT special invoices that are eligible for a 13% deduction, and the application must meet the relevant qualification requirements of the tax authorities.

(From April 1st, 2019, the current 16% value-added tax rate on goods such as manufacturing will be reduced to 13%, the current 10% rate in industries such as transportation and construction will be reduced to 9%, and the 6% value-added tax rate will remain unchanged.)

II.General Taxpayer Qualification Criteria

  • For enterprises that have been in operation for one year, they should meet the following conditions and have an annual value-added tax sales volume that reaches or exceeds the following standards:

Industrial Enterprises

Annual taxable sales: more than 500,000 yuan.

Commercial Enterprise

Annual taxable sales: more than 800,000 yuan.

The tax authorities in charge should focus on monitoring the ability of newly established commercial enterprises directly identified as general taxpayers to handle value-added tax returns within the statutory time limit, and whether they engage in activities such as issuing or accepting fraudulent VAT deduction certificates during the follow-up management period.

A newly-established small business enterprise that is directly identified as a general taxpayer shall be converted into a general taxpayer during the guidance period from the 1st day of the month following the discovery of the problem if any of the following circumstances occurs during the six-month follow-up management period. The provisions of the “Urgent Notice on Strengthening the Administration of Value-Added Tax Collection of Newly-established Commercial Enterprises” and its supplementary notices are subject to the management of the counseling period.

III.Application Information for General Taxpayers

  • 1.General taxpayers will become the taxpayer under counseling period starting from the date of approval, and the counseling period is six months. After the counseling period, with the approval of the competent tax authority, the taxpayer can be converted to a formal general taxpayer and be managed according to the normal rules for general taxpayers.
  • 2.During the transitional period, the maximum amount of value-added tax special invoices that can be issued is limited to the thousand-yuan edition, and the number of invoices obtained at each time shall not exceed 25.
  • 3.If the number of purchases per time does not meet the business needs of the month, the enterprise can make another purchase, but before each additional purchase, they must prepay 4% of the value-added tax based on the sales amount of the previously issued special invoice.
  • 4.For newly registered companies, some newly established enterprises with larger investment scale, expected sales volume, stronger financial strength, and separately set up financial accounting departments may be temporarily recognized as general taxpayers. After the taxpayer has been in business for one year, they shall apply for formal recognition as a general taxpayer based on the actual annual taxable sales volume.

IV.What are the conditions for applying for the qualification certificate of a general taxpayer?

Other specific requirements (which may vary by region):

  • A taxpayer engaged in the production or provision of taxable value-added services shall have an annual taxable sales volume of over 500,000 yuan in the year.
  • A taxpayer engaged in the wholesale or retail of goods shall pay value-added tax if their annual taxable sales exceed 800,000 yuan in a calendar year.
  • Taxpayers engaged in the production of goods or provision of taxable value-added services as the main business, and also engaged in wholesale or retail of goods, with an annual taxable sales of over 500,000 yuan in a calendar year.
  • If the accounting system is sound and can accurately provide input and output tax amounts, the taxpayer can also be recognized as a general taxpayer. General taxpayers of value-added tax have corresponding rights, such as the right to request a value-added tax special invoice from the sales party when purchasing goods or taxable labor services from a general taxpayer, the right to purchase and use value-added tax special invoices according to regulations, and the right to deduct input tax according to regulations.
  • Inter Area with years of practical experience in business/accounting and taxation services in China, we have dedicated staff to handle the application for general taxpayer status. Inter Area is also committed to improving the standardization of accounting services and the communication SOP for financial information, optimizing resource allocation efficiency to reduce unnecessary time costs, thus eliminating the discrepancies and obstacles in cross-border tax information. We strive to enhance the efficiency and value of our services, providing customers with timely and accurate local tax and financial information and practical solutions to meet the needs of investors and other financial information users.

V. Singapore GST(Goods and Services Tax )

[wptb id=82989]

VI.Japanese consumption tax

  • Consumption tax (Value Added Tax, VAT) in Japan is imposed on the supply of goods, provision of services, and imports. The standard tax rate was originally 8% and was increased to 10% effective from October 1, 2019. Export transactions to non-residents and certain services are subject to a zero-rate, while specific transactions such as land sales, securities trading, and the provision of public services are exempt from taxation.
  • Consumption tax included in a corporation’s taxable income may be credited or refunded based on the consumption tax return, provided that it is properly recorded in the accounting books and supported by relevant receipts.
  • In conjunction with the increase of the consumption tax rate to 10% on October 1, 2019, a reduced tax rate system was introduced for certain goods. Furthermore, to accommodate multiple tax rates, the Invoice System was implemented on October 1, 2023. A four-year transitional period applies, during which various transitional measures are in place.
  • Food products (excluding restaurant dining) and newspaper subscriptions issued at least twice per week continue to be subject to the reduced tax rate of 8%. Consumption tax paid prior to the implementation of the Invoice System remains creditable under the existing transaction-tracking method, with the applicable tax rate indicated on the invoice.  To mitigate the increased administrative burden associated with tracking multiple tax rates, simplified methods for calculating input consumption tax are permitted.
  • Following the implementation of the Invoice System, businesses must retain qualified invoices issued by registered suppliers in order to claim input tax credits. Corporations (excluding tax-exempt entities) are required to apply to the tax authorities for registration to obtain the status of a qualified invoice issuer. Qualified invoices must include specific information such as the supplier’s registration number and the applicable tax rate.
  • Foreign service providers are also required to charge Japanese consumption tax on cross-border digital services, including e-books, music, and online advertising. For business-to-business (B2B) transactions, the reverse charge mechanism applies, while for business-to-consumer (B2C) transactions, foreign service providers may be required to register for consumption tax purposes.

      

VII.Sales and Service Tax in Malaysia (SST)

SST (Sales and Service Tax) consists of two parts

  • I.Sales Tax: A single-stage tax levied on locally manufactured and produced products as well as taxable goods imported into Malaysia.
  • II.Service Tax: A consumption tax levied on taxable services provided by registered service providers operating in Malaysia.

Sale Tax

  • Sales tax only applies to taxable goods manufactured or imported into Malaysia. 
  • Exported goods are excluded from the sales tax law.
  • The sales tax rate is 5%, 10%, or a specific tax rate or exemption. However, not all products require taxation. For this reason, unless exempted from sales tax is explicitly stated, the goods should be taxed.
  • Sales tax is a single-stage tax, collected only at one stage of the supply chain, either at the import or manufacturing stage.
  • Only manufacturers who have paid sales tax on their raw materials, components, and packaging materials are allowed exceptions.

Service tax

  • The service tax is levied on taxable persons providing specific services in Malaysia.
  • It is also a single-stage tax with a tax rate of 6%.
  • Imported or exported services are not subject to this tax.
  • The input tax credit mechanism does not apply to service tax.

Malaysia SST Rates

[wptb id=82998]

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