Value Added Tax
What is the scope covered by value added tax?
All sales of good attract value added tax. Service provision is not covered by value added tax in China but by turnover tax.
How about a mixed sales of goods and service provision contract?
Turnover tax and value added tax cover distinct scope. One needs only to pay for one. One do not need to split the contract into two parts and the Administration of Taxes does not welcome such a split. Hence, one should choose whether to make a contract a contract of sales or a contract of service.
Does a foreign company need to pay Value Added Tax?
A foreign company do not to pay value added tax when they sell products to China. However, when the local buyer imports the goods into China, the importer will have to pay value added tax together with custom duties.
Can I claim back Value Added Tax paid by my raw material supplier?
It depends. There are two tax rate, around 5% for small businesses without proper accounting and 17% for normal companies. You can claim back the amount paid by your supplier when the supplier pays the full rate. You can tell by the taxed invoice you receive from your supplier. If full value added tax is paid, the amount of tax paid will be reflected in the invoice. The invoice itself is special too.
Is there any concession to Value Added Tax?
For profitable organization, the answer is no. Some local governments claim that they will impose value added tax or impose value added tax at a reduced rate. It is not legal and one day, some central government officials will step in and recover the full amount.