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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?
- 1.Companies must have at least five employees enrolled in social insurance, including one accountant holding an accounting certificate.
- 2. Must have a fixed operating location, with a registered address area of at least 70 square meters, and sign a lease contract for a certain period of time.
- 3. The bank must have a certain amount of liquid capital, which is determined based on the registered capital.
- 4. Sales contracts and purchase/sales contracts with a value of 800,000 RMB or more.
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 )
Goods and Services Tax (GST) in Singapore is a broad-based consumption tax imposed on almost all goods and services supplied in Singapore, including imported goods (collected by Singapore Customs). Some services are exempt from GST, such as the provision of financial services, supply of digital payment tokens, sale and leasing of residential properties, and import and local supply of investment precious metals. Exported goods and international services are zero-rated.
Companies that supply taxable goods or services exceeding SGD 1 million annually must apply for GST registration and submit GST returns promptly. Additionally, Singapore allows companies to voluntarily register for GST (even if their turnover is below the SGD 1 million threshold).
Type | Standard Rate (8% GST) | Tax Rate(0% GST) |
Commodity | Most local sales fall into this category. For example, an overseas online retailer sells tennis rackets to Singapore customers for $330, excluding shipping and insurance fees. | |
Services | Most of the services provided locally fall into this category. For example, providing spa services and import services to customers in Singapore. For instance, purchasing marketing services from overseas service providers. | Services classified as international services. |
VI.Japanese consumption tax
Consumption tax (Value Added Tax ) is levied on commercial enterprises when transferring goods, providing services, or importing goods to Japan. The original tax rate was 8%. From October 1, 2019, the rate was increased to 10%. 0% tax rate is applied to exports to non-residents and certain services. Certain transactions, such as the sale or lease of land, sale of securities, and provision of public services, are exempt from taxation.
The consumption tax paid by enterprises, which belongs to the taxable income, is deductible/refundable within the scope of accounting books recording and retaining relevant invoices based on the consumption tax return form.
In response to the increase of the consumption tax rate to 10% from October 1, 2019, lower consumption tax rates have been applied to certain goods. In addition, an invoicing system will be introduced from October 1, 2023, to cope with multiple tax rates. Various measures will be taken during the four-year transition period of the invoicing system.
The lower consumption tax rate of 8% still applies to food (excluding those purchased at restaurants) and newspaper subscriptions issued at least twice a week. Prior to the introduction of the invoicing system, the offset of the paid consumption tax will be carried out based on the current tracking method, and the lower tax rate applicable items should be indicated on the invoice. As the management cost of tracking different tax rates increases, simplified methods for determining paid consumption tax will be allowed.
After the new invoicing system is implemented, qualified invoices issued by registered enterprises must be retained for the deduction of the paid consumption tax. Enterprises (except for tax-exempt entities) will need to apply to their tax authorities to obtain the qualification to issue qualified invoices, with detailed information such as the enterprise registration number and applicable tax rate indicated on the invoice.
Note that foreign service providers also levy consumption tax on cross-border provision of digital services (such as e-books, music, and advertisements). In this regard, a reverse charge mechanism applies to business-to-business (B2B) transactions, and foreign service providers may need to register for the consumption tax purpose for business-to-consumer (B2C) transactions.
VII.Sales and Service Tax in Malaysia (SST)
Malaysia has implemented the Sales and Services Tax (SST) which was officially reintroduced on September 1, 2018, replacing the Goods and Services Tax (GST) which was suspended on June 1, 2018. The SST affects all domestic and imported goods and is managed by the Royal Malaysian Customs Department (RMCD).
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
Tax Rate | Type | Goods or services |
10% | Standard | The Goods and Services Tax (SST) is collected from the end consumer throughout the entire B2B chain and cannot be deducted by taxpayers. This includes responsibility for imported goods, which may be subject to low-value exemptions. |
6% | Standard | The service SST only applies when provided to non-tax registered final consumers. The taxable services include: restaurants; hotels and accommodations; car rental, leasing, and repairs; domestic flights; insurance; credit cards; legal and accounting; business consultancy; electricity; telecommunications, pay TV; digital goods; and exemptions on import and export services. |
5% | Deduction | Basic food items, petroleum, building materials, IT, telecommunications and printing hardware, materials, and watches are exempted from SST. Petroleum and petroleum products are subject to a quantity-based tax rate. |
