Can General VAT Payers Revert to Small-Scale After the Implementation of the VAT Law? New Rules on Input Invoices, Quarterly Filing, and Export Rebates

Business owners in Yiwu International Trade City, Huangyuan Market, and Beixiazhu have likely heard the phrase, "VAT has been legislated." Starting from January 1, 2026, the Value-Added Tax Law of the People's Republic of China and its implementing regulations (State Council Order No. 826) will come into effect, replacing the decades-old provisional VAT regulations. With the upgrade in legal status and reorganization of provisions, many business owners are wondering: Have the tax rates changed? Will I be forced to become a general taxpayer? Is quarterly filing still valid? Can I still get an export rebate? Today, Jinfan Tax & Finance will explain the key points of the new regulations in plain language.

I. Identity Rules Have Become Stricter: Once a General Taxpayer, Always a General Taxpayer

Let's start with the most important point, as it directly determines how you will calculate your taxes in the future.

1. Exceeding the Standard Requires Registration, and It Is Irreversible

Article 36 of the Implementing Regulations of the VAT Law stipulates: Except as otherwise provided in these regulations, if the annual taxable sales of a unit or individual business exceed the standard for small-scale taxpayers, they shall register as a general taxpayer with the competent tax authority and pay VAT according to the general method from the period when the standard is exceeded. It also clearly states: Once registered as a general taxpayer, they cannot revert to being a small-scale taxpayer.

How much does this rule cost? For example, Mr. Wang, who operates a wholesale business in the International Trade City, needs to provide a 13% special invoice to his customers. To take the order, he registers as a general taxpayer but later finds that he cannot gather enough input invoices, resulting in a higher actual tax burden than when he was a small-scale taxpayer. Wanting to revert to being a small-scale taxpayer, he finds that the regulation has closed this door. Therefore, before making the decision to switch, it is essential to carefully calculate whether the input invoices are sufficient and whether the customer requires a special invoice.

2. Who Is Naturally a Small-Scale Taxpayer?

Article 7 of the regulations is also worth noting: Natural persons are considered small-scale taxpayers; non-enterprise units that do not frequently engage in taxable transactions and whose main business is not within the scope of taxable transactions may choose to be taxed as small-scale taxpayers. For market operators who occasionally conduct business as natural persons, this provision clarifies their tax status.

II. Filing Rhythm: Small-Scale Taxpayers Can File Quarterly, and Those Filing by Occurrence Should Not Forget the Deadline

• Article 43 of the regulations: Small-scale taxpayers and certain financial institutions such as banks, finance companies, trust companies, and credit cooperatives can file taxes on a quarterly basis. Quarterly filing is beneficial for market operators and traders during peak seasons, as it reduces financial pressure.
• Article 44 of the regulations: Taxpayers who file by occurrence must declare and pay taxes by June 30 of the following year if their sales reach the threshold. Even if you file by occurrence, you must adhere to the deadline, or you will face late payment penalties.
• Article 16 of the regulations: If the quoted price is an all-inclusive price, the sales amount should be calculated using the formula—for general taxation, divide the inclusive sales amount by (1 + tax rate), and for simplified taxation, divide the inclusive sales amount by (1 + collection rate). Business owners who quote FOB prices for foreign trade or all-inclusive prices for domestic trade should ensure the correct calculation before issuing invoices.
• Article 17 of the regulations: For transactions settled in foreign currencies, the exchange rate can be chosen as either the mid-rate of the RMB on the day of the transaction or the first day of the month, but once determined, it cannot be changed for 12 months. Business owners involved in cross-border transactions should carefully consider their choice at the beginning of the year.

III. Input Tax Credits: What Can Be Credited and What Cannot, Detailed in the Regulations

1. Eligible Documents for Input Tax Credits, Only These Types

Article 11 of the regulations specifies that VAT deduction vouchers include VAT special invoices, customs import VAT special payment receipts, tax payment certificates, agricultural product acquisition invoices, agricultural product sales invoices, and other documents with input tax credit functions. A common pitfall for Yiwu business owners is attempting to use ordinary invoices or receipts for tax credits—only the listed documents are eligible for input tax credits.

2. These Types of Losses Cannot Be Credited, and the Scope Has Been Expanded

Article 19 of the regulations defines abnormal losses as losses due to poor management, such as theft, loss, or spoilage of goods, and losses due to violations of laws and regulations, such as confiscation, destruction, or demolition of goods or real estate. The non-deductible items include not only the goods themselves but also related services:

• Abnormal losses of purchased goods, and related processing, repair, and transportation services;
• Abnormal losses of work-in-progress and finished products and the purchased goods (excluding fixed assets) and related services used in their production;
• Abnormal losses of real estate and the purchased goods and construction services used in the real estate;
• Abnormal losses of construction projects in progress and the purchased goods and construction services used in the project.

For example, if a warehouse floods, goods are confiscated, or unauthorized renovations are demolished, these were previously often credited, but the regulations now strictly define them as non-deductible. If already credited, the input tax must be reversed.

3. Incorrect Invoices and Returns, Special Invoices Must Be Handled According to the Rules

Article 37 of the regulations states that special invoices cannot be issued in cases where the buyer is a natural person or the transaction is exempt from VAT. Article 38 further stipulates that if a special invoice is issued and there is an error, a sales allowance, termination, or return, the invoice must be voided or a red VAT special invoice issued. If not handled correctly, the output tax or sales amount cannot be reduced according to Articles 13 and 14 of the regulations. In simple terms, failing to issue a red invoice for a return will result in an inflated output tax, leading to overpayment.

IV. Mixed Sales, Determination, and Anti-Avoidance: Three Areas Prone to Scrutiny

• Article 10 of the regulations: Mixed sales must simultaneously meet two conditions: involving two or more different tax rates or collection rates, and having a clear primary and secondary relationship (the primary business reflects the essence and purpose of the transaction, and the secondary business is a necessary supplement). Only then can the primary business tax rate be applied; do not arbitrarily choose a lower rate.
• Article 18 of the regulations: If the sales amount is significantly low without a justifiable reason, the tax authority will determine the amount in the following order: the average price of similar transactions by the taxpayer in the recent period, the average price of similar transactions by other taxpayers in the same period, and finally, the composite taxable price (cost × (1 + cost profit margin) + consumption tax, with a cost profit margin of 10%, adjustable by industry). Risks arise when related companies transfer goods at low prices or when transactions are conducted through personal accounts at low prices.
• Article 53 of the regulations: If a taxpayer implements arrangements without reasonable commercial purposes to reduce, exempt, or delay VAT payments, or to obtain early or excessive rebates, the tax authority can make adjustments. In simple terms, transactions designed to minimize taxes can now be scrutinized and adjusted based on clear legal grounds.

V. Key Points for Export and Cross-Border Business Owners

• Article 47 of the regulations: Export transactions are subject to the export rebate rate set by the State Council, calculated using the exemption, offset, and refund method (export exemption + corresponding input tax offset against VAT payable, with any excess refunded) or the exemption and refund method (export exemption + corresponding input tax refunded).
• Article 48 of the regulations: Export transactions must be declared within the specified period; failure to do so will result in the transaction being treated as a domestic sale and subject to VAT. If the export is entrusted and the required agency export procedures are not followed, the shipper of the goods must declare and pay the VAT.
• Article 49 of the regulations: Taxpayers can waive the right to a rebate or exemption, but once waived, they cannot apply for it again for 36 months. This is a one-time decision, so do not waive it lightly.
• Article 52 of the regulations: The tax authority can legally obtain information related to export tax management, including logistics, customs clearance, freight forwarding, and financial settlement. Discrepancies in customs declarations, freight forwarding documents, and remittance records can easily lead to scrutiny, as inconsistencies in the flow of documents, goods, and funds are easily detected.

VI. Frequently Asked Questions

Q1: Have my tax rates and collection rates changed after the implementation of the new law?

This change upgrades VAT from a provisional regulation to a law and systematizes the supporting details. The tax rates and collection rates on your invoices remain the same, but you need to review the details on taxpayer registration, tax periods, input tax credits, and export and anti-avoidance measures. The specific rate applicable depends on the type of goods, services, and your business identity.

Q2: My annual sales have just exceeded the threshold; can I delay the registration?

No. Article 36 of the regulations states that registration must be completed, and the general tax method must be applied from the period when the small-scale threshold is exceeded. Delaying the registration until the end of the year will still require you to adjust the accounts for the interim period according to the general tax method.

Q3: After registering as a general taxpayer, can I revert to being a small-scale taxpayer?

No. The regulations clearly state that once registered as a general taxpayer, you cannot revert to being a small-scale taxpayer. Therefore, it is a one-way street, and you should conduct a thorough tax burden analysis before making the switch.

Q4: Do small-scale taxpayers need to apply for quarterly filing?

Article 43 of the regulations allows small-scale taxpayers to file on a quarterly basis. For specific confirmation and electronic tax bureau settings, follow the guidance of your local tax authority. You can consult your bookkeeper or the local tax branch for more details.

Q5: If goods are spoiled or confiscated, can the input tax still be credited?

According to Article 19 of the regulations, if the loss is due to poor management, such as theft, loss, or spoilage, or due to violations of laws and regulations, such as confiscation, destruction, or demolition, it is considered an abnormal loss, and the related input tax cannot be credited. If already credited, it must be reversed. However, if the loss is due to a force majeure event, such as a natural disaster, it is not considered an abnormal loss and can be credited, provided there is a complete chain of evidence (photos, insurance claims, inventory records, etc.).

Sources and References

• Implementing Regulations of the Value-Added Tax Law of the People's Republic of China (State Council Order No. 826, adopted at the 75th executive meeting of the State Council on December 19, 2025, promulgated on December 30, 2025, and effective from January 1, 2026) — Chinese Government Website: https://www.gov.cn/zhengce/zhengceku/202512/content_7053153.htm
• Value-Added Tax Law of the People's Republic of China (effective concurrently with the implementing regulations)
• State Administration of Taxation: https://www.chinatax.gov.cn/; Zhejiang Provincial Tax Bureau: https://zhejiang.chinatax.gov.cn/

Note: This article is based on publicly available legal provisions. For specific application, please refer to the guidance of your local tax authority and your actual business situation.

The most significant risk with the new regulations is continuing old practices: failing to register, failing to issue red invoices, and failing to reverse input tax, which can result in additional taxes and penalties. Yiwu business owners want clarity in their tax payments, clean books, and sustainable business operations. Jinfan (Yiwu) Finance & Tax Management Co., Ltd. has provided tax and accounting services in Yiwu for 10 years, serving market operators and foreign trade enterprises in the International Trade City, Huangyuan Market, and Beixiazhu. We can help you with everything from general taxpayer registration and input invoice management to quarterly filing and export rebate documentation. If you have any questions, feel free to contact us.