China's VAT system has two taxpayer categories: general taxpayers (一般纳税人) and small-scale taxpayers (小规模纳税人). Understanding the difference is critical for any foreign-invested enterprise in China, as it affects your tax rate, invoice-issuing ability, and input VAT deduction rights.
What Is a Small-Scale Taxpayer?
A small-scale taxpayer is a business whose annual taxable sales do not exceed ¥5 million RMB. Below this threshold, you can choose to register as a small-scale taxpayer. Above ¥5 million, you must register as a general taxpayer.
Many newly established WFOEs start as small-scale taxpayers before their revenue grows past the threshold. This is the simplest VAT regime but comes with important limitations.
Small-Scale Taxpayer VAT Rates (2026)
| Sales Level | VAT Rate | Notes |
|---|---|---|
| Monthly sales ≤ ¥100,000 (or quarterly ≤ ¥300,000) | 0% (exempt) | No VAT payable. But must still file a VAT return. |
| Monthly sales > ¥100,000 | 3% standard | The standard small-scale rate. |
| Same, under temporary reduction | 1% (reduced) | Extended through 2026. Most small-scale taxpayers pay this rate. |
Small-Scale vs General Taxpayer: Key Differences
| Feature | Small-Scale Taxpayer | General Taxpayer |
|---|---|---|
| VAT rate | 3% (or 1% reduced) | 13% (goods), 9% (transport/utilities), 6% (services) |
| Input VAT deduction | NO - cannot deduct any input VAT | YES - output VAT minus input VAT |
| Special VAT invoices (专票) | Cannot issue directly; must request tax bureau to issue at 3%/1% | Can issue directly at 13%/9%/6% |
| Ordinary invoices (普票) | Can issue at 3% or 1% | Can issue at applicable rate |
| Filing frequency | Quarterly | Monthly (some can file quarterly) |
| Annual sales threshold | ≤ ¥5 million | > ¥5 million (mandatory) |
| Registration | Automatic or optional | Mandatory above ¥5M; voluntary below |
The 13% VAT Special Invoice Question
One of the most common questions from foreign businesses: "Can small-scale taxpayers issue 13% VAT special invoices?"
The answer is no. The 13% rate applies only to general taxpayers selling goods. Small-scale taxpayers can only issue invoices at their applicable rate (3% or 1%).
However, if your customer (a general taxpayer) needs a special VAT invoice to deduct input VAT, you as a small-scale taxpayer can go to the local tax bureau and request them to issue a 3% (or 1%) special VAT invoice on your behalf. Your customer can then deduct this 3%/1% as input VAT.
VAT Exemption Threshold: ¥100,000/Month
Small-scale taxpayers with monthly sales of ¥100,000 or less (or quarterly sales of ¥300,000 or less) are exempt from VAT. This is a powerful benefit for small businesses and startups.
Key rules:
- The threshold applies to taxable sales only (some sales are already VAT-exempt, like certain agricultural products).
- If you exceed the threshold in any month (or quarter), you pay VAT on all sales that period, not just the excess.
- You must still file a VAT return even when exempt (a zero-return filing).
- Sales of special VAT invoices are not counted toward the exemption threshold - they are always taxable.
VAT Declaration for Quarterly Sales Over ¥300,000
If your quarterly sales exceed ¥300,000 (monthly exceeds ¥100,000), you must declare and pay VAT at the applicable rate:
- Calculate taxable sales: Total sales ÷ (1 + rate) = taxable sales (VAT-inclusive to exclusive).
- Calculate VAT payable: Taxable sales × rate (3% or 1%).
- File quarterly: Submit the VAT return by the 15th of the month following the quarter end.
- Pay: Transfer the VAT to the tax bureau's designated account.
Should You Choose Small-Scale or General Taxpayer?
If your annual sales are below ¥5 million, you can choose. The decision depends on your input-to-output ratio:
- Choose general taxpayer if you have significant purchases/imports with input VAT (manufacturing, trading). The 13% rate minus deductions may be cheaper than 3% with no deductions.
- Choose small-scale if your input costs are low (consulting, services, technology). The 3%/1% flat rate with no deduction is simpler and often cheaper.
2027 Policy Outlook
The 1% reduced rate for small-scale taxpayers has been extended annually since 2020. While it is expected to continue into 2027, there is no permanent legislation guaranteeing this rate. Monitor STA announcements (usually in Q4 each year) for the following year's policy.
Other potential changes to watch:
- The ¥5 million threshold for mandatory general taxpayer registration may be adjusted.
- The ¥100,000/month exemption threshold may be raised to support small businesses.
- Digital invoicing (全面数字化电子发票) is being rolled out nationwide, which will simplify invoice management for all taxpayers.