Key Updates on PRC VAT General Taxpayer Registration Rules

China’s VAT framework distinguishes between two main taxpayer categories: general taxpayers and small-scale taxpayers. General taxpayers are typically businesses whose annual taxable sales exceed RMB 5 million. These entities use the credit method to calculate VAT liability, whereby the VAT payable equals output VAT minus input VAT. Accurate accounting is required under this system. General taxpayers have the ability to issue special VAT invoices, allowing their buyers to claim input VAT credits. Depending on the industry, applicable VAT rates are 13%, 9%, or 6%.

In contrast, small-scale taxpayers are businesses whose annual sales fall below the threshold. These entities pay VAT by applying a fixed rate—usually 3%, or 1% during preferential periods—directly to their sales, without the ability to claim input VAT credits. Although small-scale taxpayers may occasionally issue special VAT invoices, the VAT they pay does not support input credit deductions in their own VAT filings.

Key Changes Introduced by the New Rules:

• Tighter Registration Exemptions: The revised rules significantly narrow exemptions from general taxpayer registration. Now, only natural persons and non-enterprise organizations that seldom conduct taxable transactions and whose main business activities fall outside the VAT scope may choose not to register as general taxpayers.
• Earlier Effective Registration Date: Under the new rules, if tax authorities adjust a taxpayer’s sales figures during an audit or assessment, those adjusted sales are attributed back to the year in which the underlying transactions occurred. This practice ensures that the sales figures for threshold determination are more accurate and reflective of the taxpayer’s actual business activity during the relevant year. Previously, such adjustments would have been included in the sales of the current month or quarter.
• Removal of the Probationary Period: The updated rules eliminate the probationary period for new general taxpayers, streamlining the transition to general taxpayer status.
• Clarification of Transitional Arrangements: The revised framework provides more explicit guidance for handling existing cases and status changes during the transition to the new rules.

Key takeaway / recommendation

Companies that currently qualify as small‑scale taxpayers should promptly review their recent sales and recalculate cumulative taxable sales for the past four quarters. Given the earlier effective date under the new rules, it is advisable to set up a dynamic monitoring mechanism and activate a contingency plan once cumulative sales approach the threshold (for example, when they exceed RMB4 million).

Companies should also prepare for internal system and process adjustments. The finance team should familiarize itself with the accounting requirements, invoice management, and VAT filing procedures applicable to general taxpayers. In addition, operational departments, especially sales and procurement, should be informed of the changed invoice issuance and receipt requirements that will apply after the status change.