"Reverse invoicing" releases multiple efficiencies in the resource recycling industry, a complete guide to individual income tax business income

I. What is reverse invoicing?

Starting April 29, 2024, when natural person sellers of scrapped products (hereinafter referred to as sellers) sell scrapped products to resource recycling enterprises, eligible resource recycling enterprises may issue invoices to the sellers. This method of invoicing by the purchaser to the seller is called "reverse invoicing."

II. Applicable scenarios

As an individual engaged in recycling scrap products, when you sell recycled scrap steel, waste paper, waste plastic, and other scrap products to an enterprise, the other party as the purchaser can issue an invoice on your behalf through reverse invoicing.

For example,In Nanjing, after this policy was implemented, the tax authorities promoted and guided it both online and offline simultaneously to help taxpayers grasp the key points of the policy. For example, Nanjing Ninglun Tire Co., Ltd., as a New Third Board listed enterprise mainly engaged in tire sales and waste tire recycling, solved the problem of difficulty in individual invoicing when purchasing waste tires through the "reverse invoicing" policy, reducing operating costs.

NanjingA certainAs a designated dismantling enterprise for Jiangsu Province's home appliance trade-in program, the electronics company also benefits from the "reverse invoicing" policy, simplifying transaction processes, reducing tax risks, and standardizing accounting.

Professor Cheng Yao of the Department of Taxation, School of Public Finance and Taxation, Nanjing University of Finance and Economics, believes that the "reverse invoicing" policy is a beneficial policy that achieves multiple goals in the resource recycling field. It helps improve enterprise compliance, reduce costs, and promote the sustainable development of the circular economy, and is of great significance to a major economic province like Jiangsu.

III. Policy basis

Announcement of the State Taxation Administration on Matters Concerning "Reverse Invoicing" by Resource Recycling Enterprises to Individuals Selling Scrap Products (State Taxation Administration Announcement No. 5 of 2024)

IV. How is individual income tax calculated after completing a sale?

1. Calculate tax amounts in two steps!

Step 1:At the prepayment stage, sellers sell scrapped products through "reverse invoicing." At the time of invoicing, the resource recycling enterprise handles and prepays the individual income tax on business income at 0.5% of the invoiced amount.

Step 2:During the annual final settlement and payment stage, sellers shall, before March 31 of the following year of "reverse invoicing," handle annual final settlement and payment of business income on their own with the competent tax authority at the place of business management, and resource recycling enterprises shall provide sellers with information such as "reverse invoicing" and taxes already paid.

2.During annual settlement, distinguish as follows based on whether costs and expenses can be accurately accounted for

Able to accurately account

Tax payable = taxable income × applicable tax rate - quick calculation deduction - tax already prepaid

Taxable income = total revenue for the tax year - costs - expenses - losses

Cannot accurately account for

If the seller cannot obtain complete and accurate cost and expense information and cannot correctly calculate the annual taxable income, the competent tax authority may, within a certain period, adopt the deemed taxable income rate method for collection, referring to the taxable income rate applicable to the "commerce" industry and determining it at the lower end (5%).

Tax payable = taxable income × applicable tax rate - quick calculation deduction - tax already prepaid

Taxable income = total revenue for the tax year × 5%

3. Scenario demo - tax amount calculation!

V. After calculating the tax amount, how do you file it?

1. Log in to the Natural Person Electronic Tax Bureau website, click "I Want to Handle Taxes - Tax and Fee Filing - Other Business Income (Form B)."

2. Select the corresponding year and click Confirm.

3. Enter personal filing information, follow the steps in sequence, and finally confirm the filing information.

How do individuals pay individual income tax when selling scrapped products they have used themselves:

➱ Sellers selling self-used scrapped products shall pay individual income tax according to "income from property transfer." The taxable income shall be the balance after deducting the original value of the property and reasonable expenses from the income from property transfer, and individual income tax shall be calculated and paid at the applicable tax rate.

➱ If the transfer income of scrapped products is lower than the original value of the property, since there is no income, individual income tax is not required.

The Kailing Technology Reverse Invoicing Solution, with its advantages of convenience, precision, efficiency, and completeness, brings an innovative invoicing model to the renewable resource recycling industry. It effectively solves the pain points of the traditional electronic tax bureau reverse invoicing process and, with innovative technology and system integration capabilities, significantly improves enterprise efficiency and value.

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