Newly established enterprises do not receive general taxpayer status immediately after tax registration.

Until now, they were treated initially as small-scale taxpayers and the input value-added tax (“VAT”) they paid while setting up the business —e.g., on purchasing office and manufacturing equipment, paying utilities and contracting services— could not be used to offset output VAT, even after they became general taxpayers.

Through Announcement [2015] No. 59, the SAT now states that these input VAT can be used to offset output VAT once the taxpayer is recognized as a general taxpayer, if the taxpayer meets the following conditions in the interim:

  • The taxpayer does not generate any business income.
  • The taxpayer does not declare and pay VAT under the method applied to small-scale taxpayers (VAT payable is calculated based on the revenue and at a standard 3% VAT rate).

Date of issue: August 19, 2015. Effective date: August 19, 2015.