Journalism

How to define and distinguish enterprise income tax as sales and value added tax as sales?

2021-07-09

1、 Regulations on enterprise income tax

Article 6 of the enterprise income tax law stipulates that the total income of an enterprise derived from various sources in monetary and non monetary forms is the total amount of income.Including: (1) income from sales of goods;(2) Income from providing labor services;(3) Income from the transfer of property;(4) Dividends, dividends and other equity investment income;(5) Interest income;(6) Rental income;(7) Royalty income;(8) Income from donations;(9) Other income.


Article 25 of the regulations on the implementation of the enterprise income tax law stipulates that: Where an enterprise exchanges non monetary assets and uses goods, property and services for donation, debt repayment, sponsorship, fund-raising, advertising, sample, employee welfare or profit distribution, it shall be deemed as selling goods, transferring property or providing labor services, Unless otherwise stipulated by the competent financial and tax departments of the State Council.


Article 2 of the notice of the State Administration of Taxation on the disposal of assets income tax by enterprises (GSH [2008] No. 828) stipulates that: If an enterprise transfers its assets to others, it shall be deemed as sales to determine the revenue in accordance with the provisions if the ownership of the assets has changed and the assets are not disposed of internally.


(1) Transfer to overseas.

(2) For marketing or sales.

(3) For social intercourse.

(4) It is used for employee reward or welfare.

(5) For dividend distribution.

(6) For external donation.

(7) Other uses for changing the ownership of assets.


Article 2 of the announcement on issues related to enterprise income tax (Announcement No. 80 of 2016 of the State Administration of Taxation) stipulates that in case of any circumstance specified in Article 2 of the notice of the State Administration of Taxation on the income tax treatment of enterprise disposal assets (GSH [2008] No. 828), unless otherwise specified, the sales revenue shall be determined according to the fair value of the transferred assets.


2、 VAT regulations

Article 4 of the detailed rules for the implementation of the Provisional Regulations of the people's Republic of China on value added tax (Decree No. 50 of the Ministry of Finance and the State Administration of Taxation) stipulates that the following acts of units or individual businesses shall be deemed as sales of goods:

(1) Deliver the goods to other units or individuals for sale on a commission basis;

(2) Sales of consignment goods;

(3) For taxpayers with two or more institutions and unified accounting, the goods are transferred from one organization to another for sale, except for those with relevant organizations located in the same county (city);

(4) Using self-produced or commissioned processing goods for non VAT taxable items;

(5) Using self-produced or commissioned goods for collective welfare or personal consumption;

(6) Providing self-produced, commissioned processing or purchased goods as investment to other units or individual businesses;

(7) Distribute the self-produced, commissioned or purchased goods to shareholders or investors;

(8) The goods that are self-produced, commissioned to be processed or purchased shall be presented to other units or individuals free of charge.


The Circular of the State Administration of Taxation on the issue of levying value added tax on goods transferred between affiliated organizations of enterprises (GSF (1998) No. 137) stipulates that the term "for sale" in Article 4 of the detailed rules for the implementation of the Provisional Regulations on value added tax of the people's Republic of China is regarded as the act of selling goods, which refers to the business behavior of the receiving organization in one of the following circumstances:

1、 Issue an invoice to the buyer;

2、 Collect payment from the buyer.


In case of any of the above two circumstances, the receiving organization shall pay VAT to the local tax authority;If the above two situations do not occur, the head office shall pay VAT uniformly.


If the receiving agency only issues invoice or collects payment for goods to the buyer, it shall calculate and pay tax to the place where the head office is located or the place where the branch is located according to different situations.


According to the notice of the Ministry of Finance and the State Administration of Taxation on the follow-up free use of innovative drugs (CS [2015] No. 4), the sales volume of self-produced innovative drugs by pharmaceutical manufacturers is the price and extra price fees charged to the buyer, and the same innovative drugs provided to patients for subsequent free use are not within the scope of VAT.


The term "innovative drugs" as mentioned in this Circular refers to the API and its preparations prepared by synthetic or semi synthetic methods, which have been approved and registered by the State Food and Drug Administration and have not been marketed in China or abroad before approval.


[case] company a is mainly engaged in the production and sales of cosmetics. In order to expand the popularity of its products, company a will use its own cosmetics with a cost of 10000 yuan for advertising in 2020.(the fair value of the product normally sold is 18000 yuan excluding tax)


Accounting treatment: the product is used for advertising and included in the sales expenses


Note that at this time, the value-added tax should be regarded as sales, and it should be included in the VAT output tax at the fair value of 18000 * 13% = 2340 yuan

Debit: sales expenses  twelve thousand three hundred and forty

Credit: goods in stock        ten thousand

Tax payable - VAT payable (output tax)    two thousand three hundred and forty


Tax treatment of enterprise income tax: self produced goods are used for market promotion. Because the ownership has been transferred, it needs to be regarded as sales in enterprise tax.


3、 Regulations on replacing business tax with value added tax

The notice of the Ministry of Finance and the State Administration of Taxation on comprehensively promoting the pilot project of replacing business tax with value added tax (CS [2016] No. 36) Annex 1: Article 14 of the implementation measures for the pilot project of replacing business tax with value added tax stipulates that the following situations shall be deemed as sales services, intangible assets or real estate:

(1) Units or individual industrial and commercial households provide services to other units or individuals free of charge, except those used for public welfare undertakings or targeting the public.

(2) Units or individuals transfer intangible assets or real estate to other units or individuals free of charge, except those used for public welfare undertakings or targeting the public.

(3) Other circumstances stipulated by the Ministry of Finance and the State Administration of taxation.


Advantages of Huacai

Industry leader
The first financial and taxation service agency landing on the new third board and the first fiscal and taxation platform providing online services
Qualification certification
It has the agency license issued by the Finance Bureau, the national high-tech enterprises, and the 5A level certification of the accounting agency of the general association of China
23 years of industry experience
300 + professional service staff, 20000 + customer service experience
ISO certification information security
Through the international ISO27001 information security management system standard certification
ISO certification standard management
Through the international ISO9001 quality management system certification
Service capability
The scope of service covers hot cities and hot areas