China implements 'reverse invoice' policy for recycling sector

Starting from Monday, Chinese recycling enterprises, including ferrous scrap processors, are allowed to issue invoices to individual sellers when buying the waste transactions, and the companies can use the invoices as legitimate deduction certificates for the taxes they need to pay, Mysteel Global noted.

Under reverse charge invoicing, recycling enterprises will issue invoices to individual sellers when procuring waste materials, a procedure opposite to the usual practice where those paying for scrap and waste receive invoices from payees.

In commercial activities, after a transaction is completed, it is usually the supplier of products or services that issues a standardized invoice to the buyer, specifying details such as the name of the product or service, quantity, price, tax amount, and other information, as Mysteel Global has reported.

In its announcement on Friday, the tax administration clarified several key conditions for reverse charge invoicing, which also addresses the doubts previously raised by market participants regarding the amount limitations and invoice types.

For example, it is stipulated that under the reverse invoice scheme the individual sellers' cumulative sales amount of scrapped products or waste materials in value must not exceed Yuan 5 million ($700,000) within a period of 12 consecutive months.

Besides, the invoice type is subject to the value-added-tax (VAT) calculation method adopted by the recycling company, according to the announcement.

If the company is paying its VAT at a general rate of 13%, it can issue the VAT special invoice that can be used as a certificate for both income tax and VAT deductions, while if it pays VAT at a simplified rate of 3%, it can issue the ordinary invoice for the purposes of income tax deduction only.

The administration has also confirmed that the transaction amount corresponding to the reverse charge invoice can also enjoy other existing preferential benefits such as a VAT refund or exemption.

The implementation of this new tax rule is "conducive to creating a favourable tax environment for the entire resource recycling industry and enhancing the quality of domestic economic circulation," the national tax administration noted.

The eased tax burden on the recycling industry will also boost the operations of product scrapping companies, which will help accelerate the renewal of equipment and the trading-in of consumer goods in the country, the administration stressed.

Written by Anthea Shi, shihui@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com