Small-Scale Taxpayer VAT: 1% Rate, Filing & Thresholds

Rate

Scope

13% ←

Goods, processing, imports

Transport, construction, agri

Modern/financial/life services

Small-scale (currently 1%)

Small-scale preferential

Exports, exempt items

Key Takeaways

Rate: statutory 3%, temporarily 1% through end of 2027 (policy relief)

Exemption: monthly sales ≤¥100k or quarterly ≤¥300k → VAT fully exempt (ordinary invoices only)

Special invoices: issuing a special VAT invoice forfeits the exemption on that sale — the buyer needs it for deduction

Registration: sales >¥5M/year must register as general taxpayer; below that it is optional

Core answer: Small-scale taxpayers (小规模纳税人, annual sales ≤ ¥5M) pay VAT at a 3% levy rate on the NET amount — currently reduced to 1% through 2027 — with NO input tax credits. Monthly sales ≤ ¥100k (quarterly ≤ ¥300k) on ordinary invoices are VAT-exempt. Tax = inclusive sales ÷ 1.01 × 1% (at the reduced rate). Sell ¥101,000 inclusive in a quarter: tax = ¥1,000 if above the exemption, ¥0 if within it.

The rules in one table

Item	Rule
Threshold	annual sales ≤ ¥5M
Levy rate	3% standard, 1% reduced (to end-2027)
Exemption	≤¥100k/month or ≤¥300k/quarter (普票 only)
Input credits	none
Special invoices	专票 issued/paid at levy rate, counts against exemption

The exemption trap: issuing a 专用发票 (which the client needs for credits) forfeits the exemption ON THAT AMOUNT — the ¥300k quarterly line covers 普票 sales only. Splitting one contract across invoices to dodge the line is audited behavior.

Worked examples

Example 1 — Within the line. Quarter sales ¥280k all on 普票: VAT = ¥0. Same sales with ¥50k issued as 专票: the ¥50k pays 1% = ¥495, the ¥230k stays exempt.

Example 2 — Over the line. Quarter ¥400k (inclusive): net = 400,000 ÷ 1.01 = ¥396,040; tax at 1% = ¥3,960. If the policy reverts to 3%: 400,000 ÷ 1.03 × 3% = ¥11,650 — the 1% policy is a 66% tax cut.

Example 3 — The threshold strategy. Approaching ¥5M annual sales: crossing it forces conversion to general taxpayer (13% output but input credits). For a reseller with 90% creditable inputs, general status is CHEAPER; for a consultant with almost no inputs, staying small-scale is gold. Model both before the growth spurt.

Example 4 — Service business. Freelance designer, ¥90k/quarter average: stays exempt all year; quotes should still say 含税 because clients see one number — the "tax" you keep is legal exemption, not evasion.

Common mistakes and myths

"Exemption = no filing" — you still file quarterly returns declaring exempt sales; zero-tax ≠ zero-paperwork.
Giving out 专票 casually — every 专票 dollar is taxable; ask clients whether they truly need it.
Ignoring the other taxes — small-scale status covers VAT only; 企业所得税/个税 and surcharges (减半征收 under 六税两费) still apply.
Splitting entities to stay small — multiple companies with the same owner splitting one business is explicitly targeted by audits; substance over form.
Assuming 1% is forever — the reduced rate is a policy with an expiry date (currently 2027-12-31); price long contracts with the standard 3% in mind.

Frequently Asked Questions

What is the small-scale taxpayer VAT rate now?

Statutory collection rate is 3%, but the relief policy cuts it to 1% through December 2027. On ¥100k of sales: ¥1,000 VAT instead of ¥3,000. Sales below ¥100k/month (¥300k/quarter) with ordinary invoices are fully exempt — most micro businesses pay zero VAT.

How does the ¥300k quarterly exemption work?

If total quarterly sales (ordinary invoices + uninvoiced) stay ≤¥300k, VAT is fully exempt. Exceed it by even ¥1 and the ENTIRE quarter becomes taxable at 1%, not just the excess. Special invoices never qualify — their sales are taxed regardless of the threshold.

Should I issue special or ordinary invoices?

Ordinary invoices preserve your exemption and lower rate. Issue special invoices only when the buyer demands them for input deduction (usually business clients). A special invoice sale is always taxed — it cannot share the ¥300k exemption. Many small sellers quote two prices: ordinary-invoice price vs special-invoice price.

When must I register as a general taxpayer?

Mandatory when rolling 12-month sales exceed ¥5M. Below that, voluntary registration makes sense if your clients need special invoices and your input invoices are substantial — general taxpayers deduct input VAT, often lowering the real burden below 1%. Model both before switching; switching back is restricted.

How is the 1% tax calculated on tax-inclusive sales?

Sales = tax-inclusive revenue ÷ (1 + 1%); tax = sales × 1%. Received ¥50,500: sales = 50,500 ÷ 1.01 = ¥50,000, tax = ¥500. File quarterly in the first 15 days of Jan/Apr/Jul/Oct through the e-tax bureau — even zero-sales quarters require a filing.

What mistakes get small taxpayers in trouble?

Three classics: (1) forgetting that exceeding ¥300k taxes the whole quarter; (2) issuing special invoices casually and losing the exemption; (3) hiding cash sales — banks now share personal account data with tax authorities, and large unexplained personal transfers trigger audits. Long-term zero filings with active business operations also raise flags.