We all know that entity which purchases labor service from individual shall withhold individual income tax when paying labor service fee to the individual according to law of individual income tax. But for corporate income tax (“CIT”) deduction purpose, is payment document of IIT and service fee is sufficient? Is invoice required like other expenditures? In this article, we will have a rough review on relevant tax regulation regarding the invoice for labor service provided by individual.
According to tax regulation (State tax announcement (2018)No.28), for the payment incurred in China, where the counter party is VAT tax payer who has made tax authority, VAT invoice (including invoice issued by tax authority on behalf) shall be CIT deduction document.
From the above regulation, we can see that for VAT taxable transactions, VAT invoice shall be obtained as CIT deduction document, except for the situation that the counter party is allowed not to make tax registration according to tax law or is individual who conducts small and infrequent transactions.
Therefore, for invoice for labor service provided by individual matter we firstly shall judge whether the service provided by individual is VAT taxable transaction or not. If yes, VAT invoice shall be required, otherwise no VAT invoice is required.
According to VAT tax regulation (Caishui (2016)36), the entity or individual which conducts sales of service, intangible assets or immovable property in China is VAT tax payer and shall levy VAT.
According to this regulation, we can see that labor service provided by individual falls in the scope of transactions which are subject to value added tax (“VAT”), therefore, VAT invoice shall be obtained for labor service payment and VAT invoice shall be the key supporting documents for corporate income tax (“CIT”) deduction.
Then, is there any situation that no VAT invoice is required for individual labor service payment? Tax regulation (State tax announcement (2018)No.28) stipulates that if the counter party is an entity which is allowed not to make tax registration or is individual who conducts small and infrequent transactions, the deduction document shall include invoice issued by tax authority on behalf or payment document and internal document. The standard for judging the small and infrequent transaction is that the revenue of the taxable transaction shall not exceed the threshold for levying VAT according to VAT law.
For the threshold of VAT levy, according to article 37 of Implementation Provisions of VAT law, the threshold for VAT payment only is applicable for individual. The range of threshold includes:
For sales of goods, monthly sales revenue shall be 2000-5000 yuan
For sales of service, monthly revenue shall be 1500-3000 yuan
For tax payment by times, revenue per day or times shall be 150-200 yuan
According to article 50 of Caishui(2016) 36, the threshold for individual VAT levy is
For tax levy by period, the threshold shall be monthly revenue of 5000-20000 yuan
For tax levy by times, the threshold shall be revenue per time/day of 300-500 yuan
In all, VAT invoice shall be obtained for labor service purchased from individual for CIT deduction purpose. For the individual who meets the definition of small and infrequent service provider, i.e. the taxable revenue does not exceed the threshold of VAT levy, other than VAT invoice issued by the tax authority on behalf, payment document and other internal document can also be the supporting documents for CIT deduction. According to tax regulation (State tax announcement (2018)No.28), the payment document shall state the information such as name and ID of individual, expense item and service amount.
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