Small vs General Taxpayers in China: A Comparison Guide

If you are doing busi­ness in Chi­na, you need to know how to deal with val­ue-added tax (VAT), which is a major source of tax rev­enue for the Chi­nese gov­ern­ment. VAT is an indi­rect tax that is levied on the val­ue added at each stage of the pro­duc­tion and dis­tri­b­u­tion of goods and ser­vices. Depend­ing on your annu­al rev­enue and account­ing sys­tem, you may be clas­si­fied as either a small-scale tax­pay­er or a gen­er­al tax­pay­er, which will affect your VAT rate, cal­cu­la­tion method, and fil­ing pro­ce­dure. In this arti­cle, we will com­pare the dif­fer­ences between small-scale and gen­er­al tax­pay­ers in Chi­na and help you under­stand which type suits your busi­ness better.

What are small-scale and general taxpayers in China?

Small-scale and gen­er­al tax­pay­ers are two types of VAT tax­pay­ers in Chi­na, which are dis­tin­guished by their annu­al rev­enue and account­ing sys­tem. Accord­ing to the VAT Law of the Peo­ple’s Repub­lic of Chi­na, small-scale tax­pay­ers are those whose annu­al tax­able sales amount does not exceed RMB 5 mil­lion or who do not have a sound account­ing sys­tem. Gen­er­al tax­pay­ers are those whose annu­al tax­able sales amount exceeds RMB 5 mil­lion or who have a sound account­ing system.

The type of VAT tax­pay­er deter­mines the applic­a­ble VAT rate, cal­cu­la­tion method, and fil­ing pro­ce­dure. Gen­er­al­ly speak­ing, small-scale tax­pay­ers enjoy a low­er VAT rate of 3% (or 5% for some indus­tries), but they can­not deduct their input VAT (the VAT paid on pur­chas­es) from their out­put VAT (the VAT col­lect­ed on sales). Gen­er­al tax­pay­ers are sub­ject to dif­fer­ent VAT rates of 13%, 9%, or 6% (or 0% for some exports), depend­ing on the type of goods or ser­vices they pro­vide, but they can deduct their input VAT from their out­put VAT. The table below sum­ma­rizes the main dif­fer­ences between small-scale and gen­er­al tax­pay­ers in China:

Type	Annu­al Rev­enue	Account­ing Sys­tem	VAT Rate	VAT Cal­cu­la­tion Method
Small-scale tax­pay­er	<= RMB 5 million	Not required or not sound	3% (or 5% for some industries)	Sim­ple method: Out­put VAT – Exempt­ed amount = Payable VAT (Input VAT can­not be deducted)
Gen­er­al taxpayer	> RMB 5 million	Required and sound	13%, 9%, or 6% (or 0% for some exports)	Gen­er­al method: Out­put VAT – Input VAT = Payable VAT (Input VAT can be deducted)

How to choose between small-scale and general taxpayers in China?

If you are a new busi­ness in Chi­na or your annu­al rev­enue does not exceed RMB 5 mil­lion, you can choose to reg­is­ter as either a small-scale tax­pay­er or a gen­er­al tax­pay­er, depend­ing on your busi­ness sit­u­a­tion and pref­er­ence. How­ev­er, once you reg­is­ter as a gen­er­al tax­pay­er, you can­not change back to a small-scale tax­pay­er unless you meet cer­tain con­di­tions. There­fore, you should care­ful­ly weigh the pros and cons of each type before mak­ing your decision.

Some of the fac­tors that you should con­sid­er when choos­ing between small-scale and gen­er­al tax­pay­ers in Chi­na are:

• The VAT rate: Small-scale tax­pay­ers enjoy a low­er VAT rate of 3% (or 5% for some indus­tries), which can reduce their tax bur­den and increase their prof­it mar­gin. How­ev­er, if your busi­ness involves export­ing goods or ser­vices that are sub­ject to a 0% VAT rate, you may ben­e­fit more from being a gen­er­al tax­pay­er, as you can claim a refund of the input VAT that you paid.
• The VAT cal­cu­la­tion method: Small-scale tax­pay­ers use a sim­ple method to cal­cu­late their VAT, which is eas­i­er and faster than the gen­er­al method used by gen­er­al tax­pay­ers. How­ev­er, small-scale tax­pay­ers can­not deduct their input VAT from their out­put VAT, which means that they can­not recov­er the tax cost of their pur­chas­es. Gen­er­al tax­pay­ers can deduct their input VAT from their out­put VAT, which can low­er their effec­tive tax rate and improve their cash flow.
• The account­ing sys­tem: Small-scale tax­pay­ers do not need to have a sound account­ing sys­tem, which can save them the time and expense of main­tain­ing prop­er books and records. How­ev­er, this also means that they may have less con­trol and trans­paren­cy over their finan­cial sit­u­a­tion and per­for­mance. Gen­er­al tax­pay­ers need to have a sound account­ing sys­tem, which can help them mon­i­tor and man­age their busi­ness oper­a­tions and com­ply with the tax regulations.
• The busi­ness rep­u­ta­tion: Small-scale tax­pay­ers may have a low­er busi­ness rep­u­ta­tion than gen­er­al tax­pay­ers, as they may be per­ceived as less pro­fes­sion­al or trust­wor­thy by their cus­tomers, sup­pli­ers, or part­ners. This may affect their abil­i­ty to attract and retain busi­ness oppor­tu­ni­ties and rela­tion­ships. Gen­er­al tax­pay­ers may have a high­er busi­ness rep­u­ta­tion than small-scale tax­pay­ers, as they may be seen as more cred­i­ble or reli­able by their stake­hold­ers. This may enhance their com­pet­i­tive advan­tage and mar­ket position.

In sum­ma­ry, small-scale tax­pay­ers may be more suit­able for busi­ness­es that have low rev­enue, low input VAT, sim­ple trans­ac­tions, and less con­cern about their busi­ness rep­u­ta­tion. Gen­er­al tax­pay­ers may be more suit­able for busi­ness­es that have high rev­enue, high input VAT, com­plex trans­ac­tions, and more con­cern about their busi­ness reputation.

How to register as a small-scale or general taxpayer in China?

To reg­is­ter as a small-scale or gen­er­al tax­pay­er in Chi­na, you need to fol­low these steps:

1. Obtain a busi­ness license from the local Admin­is­tra­tion for Mar­ket Reg­u­la­tion (AMR) by pro­vid­ing the required doc­u­ments and infor­ma­tion, such as your com­pa­ny name, address, legal rep­re­sen­ta­tive, reg­is­tered cap­i­tal, busi­ness scope, etc.
2. Apply for a tax reg­is­tra­tion cer­tifi­cate from the local tax bureau by pro­vid­ing your busi­ness license and oth­er required doc­u­ments and infor­ma­tion, such as your bank account, invoice infor­ma­tion, etc.
3. Choose your VAT tax­pay­er type and sub­mit the rel­e­vant appli­ca­tion form and sup­port­ing doc­u­ments to the local tax bureau. If you choose to be a small-scale tax­pay­er, you need to sub­mit the Appli­ca­tion Form for Small-scale VAT Tax­pay­er Sta­tus. If you choose to be a gen­er­al tax­pay­er, you need to sub­mit the Appli­ca­tion Form for Gen­er­al VAT Tax­pay­er Sta­tus, as well as oth­er doc­u­ments such as your finan­cial state­ments, account­ing vouch­ers, invoic­es, etc.
4. Wait for the approval of your VAT tax­pay­er type from the local tax bureau. If you are approved as a small-scale tax­pay­er, you will receive a Con­fir­ma­tion Let­ter for Small-scale VAT Tax­pay­er Sta­tus. If you are approved as a gen­er­al tax­pay­er, you will receive a Con­fir­ma­tion Let­ter for Gen­er­al VAT Tax­pay­er Sta­tus. The approval process may take about 10–20 work­ing days.
5. Apply for VAT invoic­es from the local tax bureau by pro­vid­ing your tax reg­is­tra­tion cer­tifi­cate, con­fir­ma­tion let­ter, and oth­er required doc­u­ments and infor­ma­tion. You can choose to apply for paper invoic­es or elec­tron­ic invoic­es. You can also apply for spe­cial VAT invoic­es if you are a gen­er­al tax­pay­er and need to issue them to your customers.

After reg­is­ter­ing as a small-scale or gen­er­al tax­pay­er in Chi­na, you need to file and pay your VAT on a month­ly or quar­ter­ly basis accord­ing to the pre­scribed dead­lines and pro­ce­dures. You also need to keep track of your annu­al rev­enue and report any changes of your VAT tax­pay­er type to the local tax bureau in a time­ly manner.

Frequently Asked Questions

Here are some com­mon ques­tions and answers relat­ed to small-scale and gen­er­al tax­pay­ers in China:

Sources:

1. State Tax­a­tion Admin­is­tra­tion | VAT Law of the Peo­ple’s Repub­lic of China
2. Ser­vice Sys­tem for For­eign­ers Work­ing in Chi­na | Home
3. Chi­nese Gov­ern­ment Web­site | Home
4. Hori­zons | Under­stand­ing VAT small-scale and gen­er­al tax­pay­ers in China
5. Chi­na Brief­ing | Chi­na’s VAT Reform 2019: What You Need to Know
6. State Tax­a­tion Admin­is­tra­tion | Imple­men­ta­tion Reg­u­la­tions of the VAT Law of the Peo­ple’s Repub­lic of China
7. Online Tax Ser­vice Sys­tem | Home
8. Online Tax Ser­vice App | Home