Editor's note: Recycling of renewable resources is a key part of the comprehensive utilization of resources, which is of great significance to promote the development of circular economy and achieve green, low-carbon and high-quality development. Since the beginning of this year, the State Council has repeatedly issued documents proposing to promote the construction of a waste recycling system and accelerate the green transformation of development methods, and the "Action Plan for Promoting Large-scale Equipment Renewal and Consumer Goods Trade-in" (Guo Fa [2024] No. 7) proposes to promote the "reverse invoicing" practice of resource recycling enterprises to natural person sellers of scrapped products, and improve tax policy support. Based on the above-mentioned policy guidance and industry difficulties, on April 24, the State Administration of Taxation issued the "Announcement on Matters Concerning the "Reverse Invoicing" of Resource Recycling Enterprises to Sellers of Scrapped Products by Natural Persons (Announcement No. 5 of 2024 of the State Administration of Taxation, hereinafter referred to as "Announcement No. 5"), which makes specific provisions on the scope of the issuer and receiver of the "reverse invoicing" policy, billing requirements, invoice functions and tax supervision. It is of great significance to correctly understand the requirements and responsibilities of each entity in the "reverse invoicing" business and the impact of "reverse invoicing" on the recycling business, so as to improve the degree of business compliance and avoid and prevent tax-related risks.
The basic policy of "reverse invoicing" stipulated in Announcement No. 5 is that from 29 April 2024, sellers of scrapped products by natural persons (hereinafter referred to as "sellers") sell scrapped products to resource recovery enterprises, and qualified resource recovery enterprises may issue invoices to sellers (i.e., "reverse invoicing"). Based on the common business models of the renewable resources industry in practice, this article summarizes eight key points that need to be paid attention to in the application of the "reverse invoicing" policy for readers' reference.
Point 1: "Reverse invoicing" is not applicable to the sale of scrapped products by self-employed individuals to recycling enterprises
There are two types of sellers of scrapped products of natural persons referred to in Announcement No. 5, one is a natural person who sells the scrapped products used by himself, and the other is a natural person who sells the acquired scrapped products and has a cumulative sales volume of no more than RMB 5 million (excluding VAT) for no more than 12 consecutive months (natural months, the same below). For natural persons who sell scrapped products for 12 consecutive months with a cumulative sales volume of more than 5 million yuan, resource recovery enterprises shall not "reverse invoicing" to them.
In practice, the "sellers" stipulated in Announcement No. 5 are usually expressed as urban and rural residents who sell scrap iron, waste plastic bottles, waste paper and other waste products generated in daily life, and such natural persons are the source of scrap products, and the other type is waste pickers and recycling individuals, who purchase scrapped products from individuals or waste production enterprises for aggregation and sale.
According to the Detailed Rules for the Implementation of the Provisional Regulations on Value-Added Tax, individuals refer to individual industrial and commercial households and other individuals, and the Announcement of the State Administration of Taxation on Several Matters Concerning the Registration and Administration of General VAT Taxpayers (Announcement No. 6 of 2018 of the State Administration of Taxation) further stipulates that "other individuals" refer to natural persons. Therefore, in the context of tax law, self-employed persons are not natural persons, and according to the provisions of Announcement No. 5, self-employed individuals do not fall under the category of "sellers".
Point 2: Recycling enterprises must meet both conditions before they can "reverse invoicing"
Article 2 of Announcement No. 5 stipulates that recycling enterprises that can "reverse invoicing" include units and individual industrial and commercial households. Recyclers need to meet two conditions before they can apply for "reverse invoicing" 1) Engaged in hazardous waste collection, shall obtain a hazardous waste business license that meets the requirements;2) Engaged in the recycling of scrapped motor vehicles, shall obtain the qualification certificate of scrapped motor vehicle recycling and dismantling enterprises;3) Other resource recovery enterprises shall comply with the requirements of the management measures for the recycling of renewable resources issued by the competent department of commerce, register the business entity, and complete the filing of renewable resource recycling operators in the commerce department.
(1) Recycling enterprises need to keep purchase and sale materials to prove the authenticity of the business
In terms of the authenticity of the business, according to Article 17 of Announcement No. 5, the resource recovery enterprise that implements "reverse invoicing" shall keep the materials that can prove the authenticity of the business, including the purchase contract or agreement for the acquisition of scrapped products, transportation invoices or vouchers, cargo weighing bills, transfer payment records, etc., and establish an acquisition ledger to record in detail the time, place, seller and contact information of each acquisition business, the name, quantity and price of the scrapped products, etc., for inspection.
In the above information, it is often difficult for recycling companies to obtain transport documents. In practice, scrapped products are generally transported by the seller himself, and the agreed settlement price also includes transportation costs, and it is difficult for the seller to issue transportation invoices to the recycling enterprise if it transports it by itself or by finding an individual driver or fleet for transportation, and the recycling enterprise can retain the vehicle information (driver's name, license plate number, driver's license, driving license, etc.), take photos of the transportation vehicle, save the transportation fee payment voucher, etc., to support the real occurrence of the acquisition business and transportation. In addition, Announcement 5 also requires recycling enterprises to keep transfer and payment records, and when paying for goods to sellers, recycling enterprises should avoid cash payments, and keep bank transfer records, WeChat or Alipay payment records, etc.
(2) According to the type of recycling engaged, the corresponding business qualification shall be applied for as required
For business qualifications, hazardous waste business licenses and scrapped motor vehicle recycling and dismantling enterprise qualification certificates for the application of recycling enterprises have more stringent requirements on the site, technology and process, etc., recycling enterprises engaged in the acquisition of such scrapped products should pay attention to the relevant policy requirements; in practice, more recycling enterprises that have obtained recycling business qualifications through industrial and commercial registration, "Renewable Resources Recycling Management Measures" It is stipulated that to engage in renewable resource recycling business activities, you must meet the conditions for industrial and commercial administrative registration, and only after industrial and commercial registration can you engage in business activities. The filing matters of renewable resource recycling operators are integrated into the business license, and after the market supervision department approves the industrial and commercial registration, the enterprise information will be shared with the relevant departments through the provincial sharing platform.
Point 3: Recycling enterprises should adjust the invoice amount according to actual business needs
Articles 5 and 6 of Announcement No. 5 stipulate that recycling enterprises shall issue invoices marked with the words "Acquisition of Scrapped Products" to sellers online through the electronic invoice service platform or VAT invoice management system. When recycling enterprises issue invoices on their own for the sale of scrapped products, and taxpayers should correctly select the "scrapped products" category code in accordance with the new "Commodity and Service Tax Classification Coding Table".
In practice, considering the different types of goods actually recycled by enterprises, the large number of sellers, and the continuity of the purchase and sale of goods, the demand for the number of invoices and the amount of invoices varies from one to the other. Article 7 of Announcement No. 5 stipulates that a recycling enterprise may, according to the actual business needs of "reverse invoicing", apply to the in-charge tax authorities for adjustment of the invoice amount, or the maximum invoice limit and number of copies, in accordance with the regulations. Therefore, recycling enterprises can reasonably apply for adjustment of the original invoice quota according to the types of scrapped products recovered in daily operations, the number and transaction volume of sellers, the amount of each transaction and the annual transaction amount, so as to avoid the insufficient remaining available invoice quota in the current month and affect the issuance of invoices. In addition, the "Detailed Rules for the Implementation of the Measures for the Administration of Invoices" stipulates that "units and individuals who fill in invoices must issue invoices when the business business confirms the operating income", and the recycling enterprises should correctly grasp the time limit for invoicing, avoid early invoicing or excessive delay in invoicing, and pay attention to the standardization of the time point of invoice issuance.
Point 4: The invoice issued in reverse can be used as a pre-tax deduction voucher for enterprise income tax
Article 16 of Announcement No. 5 stipulates that "invoices issued by resource recovery enterprises in the opposite direction, which comply with the relevant provisions of tax laws, administrative regulations, rules and normative documents, can be used as the pre-tax deduction voucher of the enterprise income tax." If the pre-tax deduction is not in accordance with the regulations, it shall be handled in strict accordance with the relevant provisions of the Law of the People's Republic of China on the Administration of Tax Collection and Collection, the Measures of the People's Republic of China for the Administration of Invoices, etc."
According to the provisions of the Enterprise Income Tax Law and its implementation regulations, and the Measures for the Administration of Pre-tax Deduction Vouchers for Enterprise Income Tax, the invoices issued by the recycling enterprises in reverse need to meet the three principles of authenticity, legitimacy and relevance before they can be used as pre-tax deduction vouchers for enterprise income tax. In practice, disputes often arise over the authenticity and relevance of tax enterprises. Authenticity means that the invoices issued by the recycling enterprise in the reverse direction can reflect the authenticity of the acquisition business and the expenses incurred due to the acquisition have actually occurred, and relevance means that the invoices issued in the reverse direction are related to the acquisition expenses reflected and have probative force.
The Announcement of the Ministry of Finance and the State Administration of Taxation on Improving the VAT Policy for Comprehensive Utilization of Resources (Announcement No. 40 of 2021 of the Ministry of Finance and the State Administration of Taxation, hereinafter referred to as "Announcement No. 40") allows general VAT taxpayers engaged in the recycling of renewable resources to apply the simplified tax calculation method to the sale of the renewable resources they acquire, which reduces the VAT tax burden of recycling enterprises to a certain extent. After the implementation of the "reverse invoicing" policy, the recycling enterprise can choose to apply the simplified VAT calculation method, and cooperate with the "reverse invoicing" policy to solve the problem of pre-tax deduction of enterprise income tax while alleviating the VAT tax burden.
Point 5: The special VAT invoice issued in reverse shall be deducted according to 1% or 3%.
Article 8 of Announcement No. 5 stipulates different types of "reverse invoicing" based on the different tax calculation methods of recycling enterprises: if a recycling enterprise sells scrapped products subject to the simplified VAT calculation method, it may issue ordinary invoices in reverse but not in reverse, and if the general VAT calculation method is applicable, it may issue special VAT invoices and ordinary invoices in reverse. At the same time, it is clarified that resource recovery enterprises can deduct the tax indicated on the special VAT invoice issued in reverse according to the regulations. Here, the specific amount of "tax indicated on the special VAT invoice" needs to distinguish different situations. For sellers with monthly sales of less than 100,000 yuan, if the seller waives tax exemption, the recycling enterprise can reverse issue a special VAT invoice with a levy rate of 1% or 3% and deduct the input, and for the seller with monthly sales of more than 100,000 yuan, the recycling enterprise can issue a special VAT invoice of 1% or 3% (the seller waives the reduction rate of 1%) for deduction. Accordingly, a recycling enterprise that chooses to apply "reverse invoicing" can obtain a VAT input deduction of 1% or 3% when it acquires business, and shall issue invoices at a VAT rate of 13% for external sales. Recycling enterprises face a heavier VAT burden when purchasing from sellers.
For example, the recycling enterprise Company A is a general VAT taxpayer, and its sales of scrapped products choose to apply the general VAT tax calculation method, and have obtained the qualification of "reverse invoicing". In June 2024, Company A purchased waste plastics from natural person A who sells scrapped products, with a purchase amount of 2.02 million yuan. For the above-mentioned acquisition business, Company A chose to issue a special VAT invoice in reverse, indicating that the sales amount excluding tax was 2 million yuan and the tax amount was 20,000 yuan. Then, when calculating the VAT payable for the period in June 2024, Company A can deduct the above-mentioned input VAT of 20,000 yuan according to the regulations. Company A shall issue a VAT invoice at 13% for the external sales of the batch of waste plastics, and pay VAT after deducting the input tax of 20,000 yuan (other deductions are not calculated).
Point 6: Waste production enterprises should issue their own invoices for the direct sale of scrapped products, and the use of natural persons to sell and conceal income will face greater regulatory risks
Announcement No. 5 stipulates that end-of-life products refer to "products that have lost all or part of their original use value in the process of social production and consumption". That is, the scrapped products applicable to "reverse invoicing" can come from industrial production waste, or from the daily life of residents. As can be seen from the "scrapped products" category code and Annex 2 of Article 6 of Announcement No. 5 "reverse invoicing", the categories of scrapped products include scrap steel, scrap non-ferrous metals, scrap plastics, scrap tires, waste paper, waste electrical and electronic products, scrapped motor vehicles, waste textiles, waste glass, waste batteries, etc.
For a long time, one of the factors for the insufficient VAT input deduction at the source of the purchase of waste materials is that waste production enterprises sell scrap materials without tickets. Taking scrap steel as an example, the "China Renewable Resources Recycling Industry Development Report (2023)" shows that mainland scrap steel mainly comes from large and medium-sized iron and steel enterprises. If a steel enterprise directly sells scrap steel to a recycling enterprise, it needs to issue an invoice to the recycling enterprise and declare tax payment, which does not fall within the scope of application of "reverse invoicing". In practice, some iron and steel enterprises do not directly sell scrap steel to recycling enterprises for the purpose of concealing income and paying less taxes, but sell them to natural persons, individual recycling stations and other retail households without tickets, and retail investors do not bring tickets for their own sales, so they will naturally not require iron and steel enterprises to issue invoices, and the chain of special VAT invoices has been broken at the source. After the introduction of the "reverse invoicing" policy, the business process of "iron and steel enterprises - sellers - recycling enterprises - waste enterprises" may become-
The specific codes under the category of "scrap steel" in Announcement 5 include "manufacturing scrap steel", which refers to the use of steel to manufacture leftovers of end-use commodities, and the leftovers from iron and steel enterprises belong to the type of scrapped products of "reverse invoicing". Under the chain of "iron and steel enterprises-sellers-recycling enterprises-waste enterprises", the seller purchases scrap steel from the iron and steel enterprise, and the recycling enterprise can apply the "reverse invoicing" policy when purchasing the scrap steel purchased by the seller from the seller. Under the "reverse invoicing" policy, if the seller sells scrapped products and needs to settle the business income, the seller needs to issue the relevant purchase payment voucher as the basis for deducting the cost and expense of the final settlement of the business income.
Point 7: The recycling enterprise of "reverse invoicing" shall pay taxes and fees on behalf of the company, and shall bear the responsibility of making up the payment if it fails to handle it in accordance with the regulations
(1) There are widespread cases of non-payment or underpayment of taxes by natural persons
Due to factors such as dispersion and randomness, the income of natural persons has long been the difficulty and focus of tax supervision, especially in the field of renewable resources - under the original tax policy, natural persons should apply to the tax bureau for invoicing after selling waste materials, and the tax bureau levies value-added tax and income tax on natural persons according to the invoices issued on behalf of them, but in practice, natural persons often sell waste materials without tickets, and the regulatory function of "tax control by tickets" is limited. Non-payment and underpayment of taxes by natural persons and the rupture of the source value-added tax chain of the recycling chain have become two major problems in the tax supervision of the renewable resources industry. At present, the tax authorities have dealt with a number of cases in which natural persons sell waste materials without tax declaration, and the individuals involved are required to pay back taxes, impose late fees and impose fines. This article shows a case publicized by a local tax bureau:
After inspection, in 2021, you engaged in scrap trading business in your personal name, and after checking your personal bank account, it was found that you received 21,593,281.89 yuan (tax included) from the sale of scrap steel in 2021, including 158,693.10 yuan in the first quarter of 2021, 3,099,152.88 yuan in the second quarter, 9,015,040.00 yuan in the third quarter, and 9,320,395.91 yuan in the fourth quarter. If you fail to declare and pay taxes to the tax authorities as required after obtaining the above-mentioned income, there are tax-related problems of underpayment of value-added tax, additional taxes and individual income tax. ...... Penalty result: In accordance with the second paragraph of Article 64 of the Tax Administration Law, "if a taxpayer fails to file a tax declaration and fails to pay or underpays the tax payable, the tax authorities shall recover the tax not paid or underpaid, and impose a fine of not less than 50% but not more than five times the amount of the tax not paid or underpaid", and impose a fine of 50% of the underpaid tax of 527,093.08 yuan, with a fine of 263,546.54 yuan.
(2) "Reverse invoicing" requires the recycling enterprise to pay taxes and fees on behalf of the company, and the pricing model of the recycling chain may be adjusted
Article 11 of Announcement No. 5 stipulates that when a resource recovery enterprise "reverses invoicing" to the seller, it shall handle the declaration of value-added tax, additional tax and individual income tax for the seller in accordance with the regulations, submit the "Tax Report Form" and the "Tax Detail Report Form" to the competent tax authorities within the declaration period of the following month, and pay the tax and fee as required.
At the VAT level, according to the provisions of the Provisional Regulations on VAT and its implementation rules, natural persons are exempt from VAT when they sell items that they have used, and the natural persons here correspond to the first category of "natural persons who sell scrapped products used by themselves" in the context of "reverse invoicing". As a result, such sellers are exempt from VAT on the sale of scrapped products. For the second category of sellers, that is, "natural persons who sell acquired scrapped products and whose cumulative sales of 'reverse invoicing' for no more than 12 consecutive months do not exceed 5 million yuan", they can enjoy preferential tax policies such as VAT exemption for small-scale taxpayers with monthly sales of less than 100,000 yuan and 3% levy rate minus 1% calculation and payment of VAT according to regulations. If the seller sells scrapped products through "reverse invoicing" and the sales volume of the current month exceeds 100,000 yuan, the resource recovery enterprise of the "reverse invoicing" shall declare the value-added tax and additional taxes for the seller according to the amount of the respective "reverse invoicing" in the current month, and pay the agency taxes and fees according to the regulations.
In terms of individual income tax, Announcement No. 5 stipulates that sellers who sell scrapped products through "reverse invoicing" shall prepay individual income tax at 0.5% of the sales amount. Before March 31 of the following year of the "reverse invoicing", the seller shall go through the final settlement and payment of business income with the competent tax authority of the place where the business is operated. The business income is the balance of the seller's total income in each tax year after deducting costs, expenses and losses, which is the taxable income, and the excess progressive tax rate of 5% to 35% is applied. For sellers who have been selling without tickets and not paying taxes and fees for a long time, "reverse invoicing" regulates the tax payment of their sales business, which is an impact on the original recovery pricing system. For recyclers and sellers who choose to apply reverse invoicing, their recycling pricing may be adjusted.
(3) Recycling enterprises that fail to pay taxes and fees in accordance with the regulations will face the consequences of suspension of qualifications and back payment of taxes and fees
The "reverse invoicing" policy proposes the concept of "agency" VAT and additional taxes and payment of agency taxes. The Provisional Regulations on VAT stipulate an exception, that is, the purchaser acts as a withholding agent to declare and pay VAT on its behalf: if an overseas entity or individual sells labor services in China and does not have a business establishment in China, its domestic agent shall be the withholding agent; The "reverse invoicing" policy sets up a VAT agency payment system, and the recovery enterprise of "reverse invoicing" handles the VAT and additional taxes and individual income tax declarations and pays the agency taxes.
Recycling enterprises should pay attention to this obligation to pay on behalf of the agency, if they fail to pay the agency taxes and fees in accordance with the regulations, they will face the risk of suspending the qualification of "reverse invoicing" and being chased for taxes and late fees. On the other hand, Announcement No. 5 has not yet stipulated the period for suspending the qualification for "reverse invoicing" and whether and how it can be restored, and once the "reverse invoicing" is suspended, the recycling enterprise will be suspended qualifications, the business model built based on this will be difficult to continue to develop, affecting the continuous operation of the enterprise.
Point 8: A number of policies are in place, and the adjustment of the recycling business model needs to be fully considered
In the early days, waste enterprises usually purchased directly from the local retail households engaged in the recycling of waste materials, but due to the low willingness of retail investors to pay taxes on their own and were unwilling to declare and issue invoices on their own, resulting in the inability of waste enterprises to obtain legal and effective VAT input deduction and enterprise income tax pre-tax deduction vouchers, so in practice, with the preferential policies such as recycling enterprises first levy and then return, tax exemption and other preferential policies have evolved into a business model of "retail households-recycling enterprises-waste enterprises". Obtain the corresponding invoices to realize the VAT input deduction and the pre-tax deduction of enterprise income tax. Since the abolition of the tax exemption policy for recycling enterprises in the Notice on Value-Added Tax Policy on Renewable Resources (Cai Shui [2008] No. 157), the recycling enterprises in the business model of "retail households-recycling enterprises-waste enterprises" mostly rely on the local financial return policy to reduce the tax burden of paying taxes in full after invoicing to waste enterprises, and use waste enterprises to obtain invoices for input deduction, enjoy immediate refund and as a voucher for pre-tax deduction of enterprise income tax.
However, since the beginning of this year, the auditing, taxation and other departments have made it clear in the form of meetings or documents that they must strictly investigate the illegal tax-related problems in local investment promotion, and Jiangxi, Shanxi, Zhejiang and other places have also successively carried out rectification actions to clean up subsidies or refunds that are not properly intervened in the market and linked to tax revenues. The business model of recycling enterprises relying on financial returns is facing severe challenges, and the risk of false opening is easy to be transmitted to waste users. In practice, there are also scrap-using enterprises that purchase scrapped products from self-employed individuals, but due to the large supply volume and the limited invoicing of each individual household, there are some non-compliant treatments.
However, under Announcement No. 5, a comprehensive resource utilization enterprise (i.e., a "recycling enterprise" as stipulated in Announcement No. 5) with a recycling business operation qualification can directly purchase scrapped products from the seller, and issue invoices in reverse as a VAT input deduction and enterprise income tax pre-tax deduction voucher, which can be used as the basis for the application of the immediate refund policy, shortening the original transaction chain of "retail households-recycling enterprises-waste enterprises" to "sellers-waste enterprises", avoiding the previous practice of "recycling enterprises" Doubt whether it is actually involved in the business, and avoid the transmission of the risk of false opening of the recycling enterprise. However, at the same time, Announcement No. 5 requires enterprises applying "reverse invoicing" to declare and pay VAT and individual income tax on behalf of sellers, and scrap users should adjust their business models in accordance with laws and regulations on the basis of a comprehensive assessment of the costs and risks of different business models.