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If your company is classified as a small-scale VAT taxpayer (and not a general VAT taxpayer), please pay close attention to the State Taxation Administration’s Announcement No. 2, 2026.

According to this regulation, if a small-scale taxpayer voluntarily supplements unreported income or is flagged by tax authorities for underreporting, the income will be backdated to the month it should have been recognized. This seemingly technical adjustment can have serious consequences.

Ⅰ.Why Does This Matter?

The key issue lies in the 5 million RMB threshold. If the total revenue over any consecutive 12-month period exceeds this amount, a small-scale taxpayer is required to register as a general VAT taxpayer. This transition triggers a significant change in VAT rates, which are typically much higher for general taxpayers.

Suppose your revenue exceeds the threshold due to backdated income. In that case, you may be reclassified as a general VAT taxpayer retroactively. This means you could be liable for the difference between the small-scale and general VAT rates on past transactions—resulting in a substantial tax bill plus daily late payment penalties.

To mitigate these risks, it is essential to maintain accurate accounting records and recognize revenue promptly in accordance with accounting standards. Even if your customer does not request an invoice immediately, do not defer the revenue recognition. Delaying recognition by keeping funds in "advances from customers" or similar accounts can lead to compliance issues under this new rule.

Have questions about your specific situation? Call our hotline at 86+189 1629 8482 (English service available).