Policy Contents

According to the “Announcement on Clarifying the Policies on Value-Added Tax Exemptions for Small-Scale Taxpayers by the Ministry of Finance and State Taxation Administration”, from January 1, 2023 to December 31, 2023:

● Small-scale taxpayers of value-added tax (VAT) with monthly sales below 100,000 yuan (including the amount) are exempt from paying VAT.

● Small-scale taxpayers of VAT who are subject to the 3% tax rate on taxable sales revenue will have VAT collected at a reduced rate of 1%. For those who are subject to the 3% pre-tax rate for prepaid VAT projects, the prepaid VAT will be collected at a reduced rate of 1%.

● Productive service industry taxpayers are allowed to deduct an additional 5% from their deductible input tax credits when calculating their taxable amount. Productive service industry taxpayers refer to taxpayers whose sales of postal services, telecommunications services, modern services, and living services account for more than 50% of their total sales revenue.

● Life service industry taxpayers are allowed to deduct an additional 10% from their deductible input tax credits when calculating their taxable amount. Life service industry taxpayers refer to taxpayers whose sales of life services account for more than 50% of their total sales revenue.

Policy Background

The Central Economic Work Conference has made it clear that in 2023, an active fiscal policy will be implemented with greater force and efficiency.

Policy implementation regulations and case study

1. Sales revenue calculation

Taxpayers determine sales revenue based on two points: first, all VAT taxable sales activities (including sales of goods, labor, services, intangible assets, and real estate) are combined to calculate sales revenue to determine whether the exemption threshold is reached. To exclude the impact of occasional real estate sales, and to enable taxpayers to enjoy policies more fully, this announcement clarifies that for small-scale taxpayers, if the total monthly sales revenue exceeds RMB 100,000 (or RMB 300,000 for a quarter), but after deducting the sales revenue from the sale of real estate in the current period, the remaining sales revenue from goods, labor, services, and intangible assets obtained can also enjoy the exemption policy for small-scale taxpayers. Second, for those who apply the VAT margin tax policy, the remaining balance after the margin tax is the sales revenue to determine whether they can enjoy the small-scale taxpayer exemption policy.

Small-scale taxpayer A, who declares taxes quarterly, sold goods and earned RMB 100,000 in April 2023, provided construction services and earned RMB 200,000 in May, and paid subcontracting fees of RMB 120,000 to other construction companies. In June, A sold self-built real estate and earned RMB 2 million. Therefore, A's total sales revenue in the second quarter of 2023 (April-June) after the margin tax is RMB 2.18 million (= RMB 100,000 + RMB 200,000 - RMB 120,000 + RMB 2 million), exceeding RMB 300,000, but after deducting the RMB 2 million real estate sales revenue, the sales revenue after margin tax is RMB 180,000 (= RMB 100,000 + RMB 200,000 - RMB 120,000), which is within RMB 300,000, so A can enjoy the small-scale taxpayer exemption policy. At the same time, the sales of real estate of RMB 2 million by the taxpayer shall be taxed according to law.

1. One-time collection of rent for multiple months by individuals renting real estate

The State Administration of Taxation made it clear that for other individuals referred to in Article 9 of the Implementation Rules of the Interim Regulations of the People's Republic of China on Value-added Tax, if they adopt a one-time collection of rent (including prepayments) to rent out real estate and earn rent income, they can be averaged over the corresponding lease period. If the monthly rental income after averaging does not exceed the small-scale taxpayer exemption monthly sales revenue standard, they can enjoy the small-scale taxpayer exemption policy. In order to ensure that taxpayers can fully enjoy the policy and continue the relevant criteria previously issued, the small-scale taxpayer exemption monthly sales revenue standard is adjusted to RMB 100,000. Therefore, other individuals who adopt a one-time collection of rent to rent out real estate and earn rental income, and whose monthly rental income after averaging does not exceed RMB 100,000, can also enjoy the exemption from value-added tax.

1. Can small-scale taxpayers waive tax reduction and issue VAT special invoices?

Small-scale taxpayers who are exempt from value-added tax for monthly sales revenue of less than RMB 100,000 can choose to waive the exemption policy for part or all of their sales income and issue VAT special invoices. Small-scale taxpayers who are subject to a 3% tax rate and are taxed at a reduced rate of 1% for sales income can also choose to waive the tax reduction policy for part or all of their sales income and issue VAT special invoices.

1. Can small-scale taxpayers choose to report taxes monthly or quarterly according to their business needs?

Yes, small-scale taxpayers can choose their own tax period. However, the effectiveness of their tax exemption policies may vary depending on their chosen tax period. For example, if a small-scale taxpayer's sales in April and May do not exceed the monthly sales tax exemption threshold of 100,000 yuan, they can enjoy tax exemption for those months. However, if they choose to report taxes quarterly and their sales for the second quarter exceed the quarterly sales tax exemption threshold of 300,000 yuan, they will not be eligible for tax exemption for that quarter.

1. How should the tax exemption policy be applied to sales of real estate by small-scale taxpayers?

For small-scale taxpayers, whether they are a business entity or individual entrepreneurs selling real estate, their tax exemption policies depend on their sales volume and their chosen tax period. For example, if a small-scale taxpayer sells real estate with sales revenue of 280,000 yuan and chooses to report taxes monthly, they must prepay the VAT in the location of the real estate if the sales revenue exceeds the monthly tax exemption threshold of 100,000 yuan. However, if they choose to report taxes quarterly and their sales revenue for the quarter does not exceed the quarterly tax exemption threshold of 300,000 yuan, they will not need to prepay VAT in the location of the real estate. In addition, for individuals who occasionally sell real estate, the current policies will continue to be enforced, and VAT will be levied or exempted according to existing regulations.