- Type of tax invoices
issued depends on the taxpayer's status
- Transactions for which
VAT special tax invoices are not to be used
- Sales amount, VAT, and
invoiced value for business quotes
- Qualification for being
recognized as VAT general taxpayer
- Computation of VAT
payable
- Comparing general VAT
payer and small scale taxpayer
- Comparing tax
burdens
- VAT Liability vs. Tax
Invoice
- Scope of VAT and
Business Tax
- Function of tax
invoices
- Unlawful acts of
handling tax invoices
- Unlawful acts for
issuing invoices
- Tax invoices -
Internal control issues
- Rules and penalty for
lost or stolen tax invoices
- Time for Issuing Tax
Invoice
(Part of the contents is applicable to payers of business
tax)
Type of tax invoices issued
depends on the taxpayer's status
|
General VAT payer |
Small scale VAT payer |
| VAT special invoice |
Issue invoice on its own?
Yes |
Cannot issue invoice
(Must be done
at tax office) |
| Ordinary invoice |
Issue invoice on its own?
Yes |
Issue invoice on its own?
Yes |
Transactions for which VAT special
tax invoices are not to be used
- Small taxpayer supplies goods or taxable services
- Sales of VAT-exempt goods
- Supply of goods or taxable services to consumers
- Supply of specific goods (cosmetics, cigarettes, and
vehicles, etc)
- The buyer is a payer of business tax (such as property
developer, construction company, advertising or
transportation companies).
- The sale of export goods
- Goods are to be used for collective or personal
consumption
- The giving out of goods at no consideration
Sales amount, VAT, and invoiced
value for business quotes Given
that invoiced value including VAT is 100.
General taxpayer
VAT = 100 / 1.17 x 17% = 14.53
Sales amount = 100 / 1.17 = 85.47
Small scale taxpayer
VAT = 100 / 1.06 x 6% =
5.67 (production enterprise)
Sales amount = 100 / 1.06 =
94.33
VAT = 100 / 1.04 x 4% = 3.85 (Commercial
enterprise)
Qualification for being recognized
as VAT general taxpayer
- Annual sales reaching 1 million or above (production
type) or 1.8 Million (non-production)
- Taxpayer should submit application,
- Accounting staff holding a license and the books kept in
accordance with PRC accounting rules
- Maintaining a sound accounting system to enable tax
officials to ascertain the output VAT and input VAT.
- Tax invoices are properly kept in accordance with legal
rules.
Computation of VAT
payable
|
Method |
VAT payable |
| I |
Simple computation
(Small
scale taxpayer) |
Sales amount x levy rate
(Note: no
input credit) |
| II |
General computation
(General
taxpayer) |
Output VAT -
Input VAT
(Purchase invoice must be certified by tax
bureau |
Comparing general VAT payer and
small scale taxpayer Example 1
General VAT payer
- Sales 1,000; (VAT17% = 170)
- Purchase 900; (VAT17% = 153)
- VAT = (1,000-900) x 17% = 170 - 153 = 17
Small-scale taxpayer
- VAT = 1,170/1.06 x 6% = 66.23 (Production)
- VAT = 1,170/1.04 x 4% = 45 (Commercial Enterprise)
Example 2
General VAT payer
- Sales 1,000; (VAT17% = 170)
- Purchase 100; (VAT17% = 17)
- VAT = (1,000-100) x 17% = 170 - 17=153
Small-scale taxpayer
- VAT is the same as example one above.
Comparing tax burdens
The percentage of added value in
example one is low, the tax burden is lower; the percentage of
added value in example two is high, the tax burden is higher.
- Percentage of value added = (Sales - Purchase) / Sales x
100%
- Percentage of Value Added and Tax Rate are not
necessarily the same.
- For general taxpayer, VAT is computed on the value
added; for small taxpayer, VAT is computed on the sales
amount.
VAT Liability vs. Tax Invoice
- VAT liability is independent of the type of tax invoices
used.
Scope of VAT and Business
Tax
| Type |
Scope of tax |
Including |
| VAT |
Sale of goods; importation of goods
|
Providing processing, repairing and
replacement service |
| Business Tax |
Supply of
taxable services; transfer of intangible
assets |
Sale of
immovable property |
Function of tax
invoices
- Sales recognition
- Original document for accounting use
- Tax computation
- Receipt for payment
Unlawful acts of handling tax
invoices (applicable to VAT and business tax
payer)
- Purchasing tax invoices from other party than the tax
bureau
- Sales or transfer of blank tax invoices for a profit
- Providing tax invoices for, or borrowing tax invoices
from, other parties
- Using receipts in lieu of tax invoices
Unlawful acts for issuing
invoices
- Failure to issue invoices for taxable transaction
- Issue invoices on behalf of third party or request 3rd
party to issue invoice
- Issuing invoices for fictitious transactions
- Goods not matched with details in invoices issued
- Invoice issued for transactions falling outside VAT
scope
Tax invoices - Internal control
issues (applicable to VAT and business tax
payer)
- Designated person keeping blank tax invoices
- Using safe for keeping unused tax invoices
- Division of duty between custody and issue of invoices
- Division of duty between keeping invoice stamp and using
stamp for invoicing purposes
Rules and penalty for lost or
stolen tax invoices (applicable to VAT and business tax
payer)
- Reporting losses to tax bureau immediately
- Application for public notice of Declaration of lost
invoices
- Paying the publication fee
- Taxpayer failing to keep tax invoices in good custody is
liable for an administrative fine not exceeding RMB10,000,
and is not allowed to purchase tax invoices from the tax
authority for a period not exceeding 6 months.
- If it is found that the tax invoices have been used
fraudulently, taxpayer shall assume legal responsibility for
tax evasion jointly and severally.
Time for Issuing Tax
Invoice
- Sales on cash-and-carry terms: day of receiving payment;
- Credit sales: payment day as provided in agreement;
- Consigned sales: day of receiving statement of consigned
sales;
- Advanced deposit: day upon the delivery of goods (For
property developers, the day of receiving pre-sale payment);
- Provision of services: day on receiving sales payment or
check for the services completed.
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