China Taxpayer Types: Small-Scale vs General Taxpayer

In China, all businesses engaged in value-added taxable activities must be classified either as a Small-Scale VAT Taxpayer or a General VAT Taxpayer. Understanding the difference is important for business setup, tax compliance, and cost optimization.

1. Overview of China VAT Taxpayer Types

Category	Small-Scale Taxpayer	General Taxpayer
Main VAT Rate	3% (standard simplified rate)	13%, 9%, 6% depending on industry
Input VAT Credit	No (cannot deduct input VAT)	Yes (can claim input VAT credit)
Annual Revenue Threshold	Below RMB 5 million	Above RMB 5 million OR voluntarily upgraded
Invoice Type	Can issue special VAT invoice only via tax bureau	Can issue special VAT invoice directly
Compliance Burden	Low (simplified filing)	Higher (requires bookkeeping & accurate VAT accounting)
Suitable For	Small firms, trading companies, service providers with low input VAT	Manufacturers, exporters, businesses with high input VAT

2. Key Differences Explained

VAT Rates

Small-scale taxpayers apply a flat 3% simplified VAT rate. General taxpayers apply industry VAT rates (13%, 9%, or 6%) and may deduct input VAT.

Invoice Capability

General taxpayers can issue Special VAT Invoices (增值税专用发票) directly, which allows buyers to claim VAT deductions. Small-scale taxpayers must request the tax bureau to issue special invoices on their behalf.

Tax Credit Ability

Only general taxpayers can deduct **input VAT**, which is important for companies with high purchasing costs.

3. Example VAT Calculation

Scenario:

A company sells goods worth RMB 100,000. Its purchases (input) have VAT of **10%** and cost **RMB 50,000** (so input VAT = 5,000).

✔ Small-Scale Taxpayer VAT Calculation

VAT Payable = Sales × 3%
VAT Payable = 100,000 × 3% = RMB 3,000

No input VAT deduction allowed.

✔ General Taxpayer VAT Calculation

Output VAT = Sales × 13% = 100,000 × 13% = 13,000

Input VAT = 5,000

VAT Payable = Output VAT – Input VAT
VAT Payable = 13,000 – 5,000 = RMB 8,000

Conclusion: If your business has high input VAT, being a general taxpayer can reduce tax sharply.

4. When Should a Business Choose General Taxpayer Status?

• Your clients require Special VAT Invoices
• Your business has high raw material or equipment purchases
• You aim to work with large companies (they prefer general taxpayers)
• Your annual revenue is or will exceed RMB 5 million

5. When Small-Scale Status Is Better

• You have low operating costs and little input VAT
• You sell to end consumers (who don’t need VAT credit)
• You want lower accounting and compliance requirements

Conclusion

The choice between small-scale and general taxpayer status in China depends on your business model, customer type, and input VAT level. Small-scale offers a simple 3% tax rate and easy compliance, while general taxpayer status gives more tax-saving opportunities through input VAT credit and direct issuance of special VAT invoices.

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