Direct answer: China classifies VAT taxpayers as small-scale or general. Small-scale taxpayers use a simplified 3% levy rate and cannot deduct input VAT; they issue ordinary VAT fapiao. General taxpayers apply 6%, 9% or 13% output VAT, can deduct qualified input VAT, and can issue special VAT fapiao that buyers can deduct. A newly registered business may choose small-scale taxpayer status if its projected annual VAT taxable sales are below RMB 5 million. The choice affects pricing, cash flow, and the ability to issue tax-deductible invoices to customers.
1. The two VAT taxpayer statuses
China's VAT system assigns every VAT-registered business to one of two categories: small-scale taxpayer or general taxpayer. The status is not a formal company size classification; it is a tax filing method that determines the rate, the invoice type, and the ability to recover input VAT.
Small-scale taxpayers use a simplified collection method. General taxpayers use the standard credit method. The choice between them affects how much VAT a company charges, how much it can recover on purchases, and what kind of fapiao it can issue to customers.
2. Comparison of small-scale and general taxpayer status
| Feature | Small-scale taxpayer | General taxpayer |
|---|---|---|
| VAT levy rate | 3% (simplified); temporary reductions to 1% have been common in recent years | 6%, 9% or 13% depending on the goods or services |
| Input VAT deduction | Not available | Available on qualified special VAT fapiao and other deductible documents |
| Invoice type | Ordinary VAT fapiao | Ordinary and special VAT fapiao |
| Customer deduction | Buyers generally cannot deduct VAT from ordinary fapiao | Buyers can deduct input VAT from special fapiao |
| Annual sales threshold | May remain small-scale if annual VAT taxable sales are below RMB 5 million | Must register as general taxpayer if annual VAT taxable sales exceed RMB 5 million, or may opt in below the threshold |
| Accounting requirement | Simpler bookkeeping is usually acceptable | Must maintain detailed accounts that support input and output VAT |
| Tax filing frequency | Usually quarterly | Usually monthly |
Note: Temporary VAT relief policies have reduced the small-scale taxpayer rate to 1% in some periods. The current rate and the expiry date of any temporary relief should be confirmed with the local tax bureau.
3. The RMB 5 million threshold
A business whose annual VAT taxable sales exceed RMB 5 million is generally required to register as a general VAT taxpayer. A business below the threshold can choose small-scale status, but it may also opt to become a general taxpayer if it needs to issue special fapiao to customers or recover input VAT on large purchases.
The threshold is measured on a rolling 12-month basis or by the calendar year, depending on the local tax bureau's interpretation. For a newly registered WFOE, the company can declare its projected sales during registration and choose the status accordingly.
4. When small-scale status makes sense
Small-scale status is usually better for companies with low sales, limited input VAT, and customers who do not need special fapiao. Examples include small trading companies, service providers selling to individuals, and early-stage businesses that have not yet built a customer base of general VAT taxpayers. The simplified method reduces bookkeeping and filing complexity.
5. When general taxpayer status is necessary
General taxpayer status is necessary when customers demand special VAT fapiao, when the company has significant input VAT on rent, equipment, inventory, or services, or when the business model requires VAT-efficient pricing. Manufacturers, distributors selling to other businesses, and service providers with large deductible costs often benefit from general taxpayer status.
6. How to switch status
Once a company crosses the RMB 5 million threshold, it generally must register as a general taxpayer and cannot revert. A company below the threshold may apply to become a general taxpayer and may, in some cases, return to small-scale status if tax rules permit. Any switch must be handled through the tax bureau and may require adjustments to the accounting system, invoice type, and filing calendar.
7. Where Caigeek fits
Caigeek helps WFOEs and e-commerce businesses model the cash-flow impact of small-scale versus general taxpayer status, track the rolling sales threshold, and prepare the VAT accounting setup. The final taxpayer-status election and tax bureau registration are handled by the company or its tax agent.
Frequently asked questions
What is the difference between small-scale and general VAT taxpayer in China?
Small-scale taxpayers use a simplified 3% levy rate, cannot deduct input VAT, and issue ordinary fapiao. General taxpayers apply 6%, 9% or 13% output VAT, can deduct input VAT, and can issue special fapiao.
What is the VAT threshold for small-scale taxpayers in China?
Businesses with annual VAT taxable sales below RMB 5 million may usually choose small-scale taxpayer status. Above that threshold, general taxpayer status is generally required.
Can a small-scale taxpayer issue special VAT fapiao?
Small-scale taxpayers normally issue ordinary VAT fapiao. Some local tax bureaus allow them to issue special fapiao through the tax bureau or under pilot programmes, but the general rule is ordinary fapiao only.
Can a small-scale taxpayer deduct input VAT?
No. Small-scale taxpayers cannot deduct input VAT. General taxpayers can deduct qualified input VAT supported by special fapiao and other deductible documents.
When should a WFOE choose general taxpayer status?
When customers require special fapiao, when the company has significant deductible input VAT, or when the business model benefits from VAT-efficient pricing.
Can a company switch back from general to small-scale taxpayer?
Generally not. Once a company exceeds the threshold and becomes a general taxpayer, it usually cannot revert. Voluntary elections below the threshold may be reversible under specific rules.
How often does each status file VAT returns?
Small-scale taxpayers usually file quarterly. General taxpayers usually file monthly.
Important notes
This article provides general procurement and finance-management information for foreign companies operating in China. It is not accounting, tax, legal, audit or investment advice for a specific company. Rules and deadlines should be confirmed with the local tax bureau, market regulation department and a licensed professional adviser.