China Drops VAT for Small Businesses

July 25, 2013 Taxation in China

ChinaBEIING – The government of China is looking to boost economic activity by offering significant tax breaks to more than six million of the smallest businesses in the country.

In a statement issued on July 24th the State Council of China announced that from August 1st all businesses with monthly turnovers below RMB 20 000 will not be required to pay Value Added Tax (VAT) or business tax.

At the moment business tax is levied on the monthly turnovers of enterprises involved in the supply of non-tangible goods and service, and is charged at up to 20 percent, while the VAT is applied to the supply of tangible goods, and is set at up to 17 percent.

It is expected that the newly announced move will positively effect more than six million small companies around the country, with the economic benefits also trickling down to the estimated 20 million people employed in such small operations.

Small businesses are an integral element of the Chinese economy, and the Council believes that removing the VAT and business tax obligations will China’s levels of economic expansion, which has been waning over the last four years.

Photo by Patrick Yan