Chinas VAT and the Golden Tax System
Chinas VAT and the ‘Golden Tax system’
The indirect tax regime in China, consists of VAT, Business tax (BT) and Consumption tax (CT)
As the most important tax in China, the VAT is a circulation tax levied on the added value at each phase of a product’s typical life cycle. It obtains the deduction phase by phase so that the final tax is equal to the sum of the taxes on each production phase.
At the time of writing, the standard rate of VAT is 17%, they also have a reduced rates of 13%, 11%, 6%, and a zero rate. Companies are obliged to register in order to qualify as regular VAT taxpayers that can issue VAT invoices. Businesses, registered as VAT payers, must pay VAT when selling or importing goods or providing services in China. The refund on Zero rated goods is often less than tax paid as the VAT is calculated on the specific goods and if this is less than the VAT rate then the difference is non recoverable, at present, the refund rates consist of 3%, 4%, 6%, 13% and 17%.
Business Tax rates are 3% or 5% for most services, although a 5% to 20% rate applies to entertainment. Once a taxpayer’s tax status has been approved by the tax authorities, the company should register as a Business Tax payer.
Consumption Tax: CT rates differ based upon the stage of production at which the sale occurs, type, weight, or capacity. The application of CT is both limited and specific to the type of goods being sold.
Golden Tax System
The Golden tax project is a nationwide VAT monitoring system, it was first introduced as a pilot scheme, in Shanghai and other major cities, in 2012 but was rolled out nationwide by mid-2013. It currently consists of 1 network and 4 software systems. It is legally required for businesses to issue Golden tax invoices using government certified tax software (known as the Golden tax system). This system is a centralized monitoring system under the control of the tax authorities to reduce the incident of fraud.
All businesses must issue VAT invoices through the Golden Tax system (GTS) Invoice information is entered in GTS and then printed on the pre-formatted form through a special printer. Aisino Corporation is the only certified provider of Golden Tax software in China. Tax payers must submit written applications for invoice printing from the tax authority. This means it is not possible for self-billing. For invoices submitted electronically they must be done via machines brought from the tax authority.
These Special VAT invoices, known as “fapiaos”, may only be issued by general VAT taxpayers, and even then, only through the government issued and regulated anti-counterfeit electronic systems and numbered invoicing paper, ‘the Golden Tax System’.
To be valid, special VAT invoices must also comply with the following:
• All items in the invoice must be completed consistently with the terms of what was actually supplied.
• Letters in the VAT invoice must be legible and completed properly.
• The invoice must be issued at the time the VAT liability arises.
Additionally, these invoices can only be issued in Chinese Yuan/Renmimbi (“CNY” or “RMB”), not in any other currency.