In China, a certain tax rate is given to all corporate taxpayers. Although it may seem obvious, the tax rate has a big impact on what a firm can and cannot do in China and suggests how the Chinese government will see it. The Tax Bureau is the organization in charge of assigning grades, but you or your neighborhood accountant may be able to sway the tax bureau’s choice.
There are five levels: A, B, M, C, and D. What do they mean?
The highest level, Level ‘A,’ entitles you to possible local financial incentives or favorable policies, such as three VAT invoice booklets in China, access to top tax bureau officials for any tax-related concerns, etc.
You should be concerned if the tax level for your business is “D.” Low tax levels indicate that the tax authorities believe your company may be engaging in illegal activities. For instance, your Chinese accountants may not fully comply with tax filing and payment dates or may produce Fapiaos that do not accurately reflect the nature of your company. Additionally, the tax bureau conducts stringent oversight and increased inspection of businesses operating in China with low tax rates.
The Corporate Credit System makes your tax status publicly available, which implies that your company’s reputation is in the open. Prospective customers or business partners can view your grade and determine if they want to work with you or not. Due to this risk, our accountants verify the credentials of our clients’ partners to add an extra level of security to their business.
You are likely to receive the “M” level if your local entity did not report any business activity the previous year or if you recently registered your firm in China. Regardless of the amount business you have had, you are still required to submit all of your reports in order to qualify for a higher tax level.
To upgrade your company to a higher tax level, it will be necessary to audit all of the business’s prior financial statements going back to the time the lower grade was initially assigned. All the missing records and reports must be provided to the tax authorities for a second examination. They will respond with the revised grade following their inspection of these materials (or not).
