The orderly operation of the renewable resources industry is of great significance in improving the level of resource recycling, enhancing the ability to guarantee resource security and promoting green, low-carbon and recycling development. Over the years, the tax policies in the field of recycling and comprehensive utilization of renewable resources have been constantly changing, and in order to promote compliant operation and improve profit margins, the business models of enterprises in the renewable resources industry have been adjusted, which at the same time have also given rise to a number of tax issues.

The objective status quo of the renewable resources industry has been formed for a long time that the source of waste production is not sold with invoices, and the recycled resources are collected to the natural person's retail household, which leads to the tax dilemma of the lack of invoices at the source in the resource recycling process. With the state's macro-control of the renewable resources industry and the promotion of value-added tax reform, the field of renewable resources has introduced tax incentives such as calculation of credits with acquisition vouchers, first levy and then return, tax exemption, etc. Until 2008, the “Circular on Value-added Tax Policies on Renewable Resources” (Cai Shui [2008] No. 157) canceled the tax exemption and credit policy of resource recycling enterprises, the tax burden of recycling enterprises has increased, and the recycling industry has become increasingly vulnerable. The tax burden of recycling enterprises has risen, and the issue of invoicing at source in the recycling process and the related issues of VAT deduction and pre-tax deduction for enterprise income tax have been highlighted again. In order to make up for the shortfall of input items and obtain compliant pre-tax deduction vouchers for enterprise income tax, some enterprises have changed their business model, sought third-party issuance or even purchased special VAT invoices. In recent years, with the continuous improvement of tax collection and management capacity and the joint actions of multiple departments to combat tax-related crimes, a large number of false invoicing and tax evasion cases have erupted in the renewable resources industry, and the enterprises and their responsible persons are facing serious risks of administrative and criminal liability.

In order to promote the sustainable and healthy development of the renewable resources industry, on December 30, 2021, the Ministry of Finance and the State Administration of Taxation (“SAT”) issued the Announcement on Improving VAT Policies on Comprehensive Utilization of Resources (Announcement of the Ministry of Finance and the SAT Announcement No. 40 of 2021), which permits VAT general taxpayers engaged in the recycling of renewable resources to choose to apply the simplified taxation method to pay VAT at a rate of 3% on the sale of renewable resources. This policy alleviated to a certain extent the excessive VAT burden of recycling enterprises, but the issue of pre-tax deduction vouchers for the enterprise income tax of their procurement business has not yet been effectively resolved.

In 2024, there were new changes in the tax collection and management of renewable resources: at the tax-related criminal level, the Interpretation of the Supreme People's Court of the Supreme People's Procuratorate on Several Issues Concerning the Application of Laws to the Handling of Criminal Cases of Harming the Collection and Management of Taxes (Legal Interpretation〔2024〕No. 4) was formally implemented on March 20, which revised the conviction and sentencing of the crime of falsely issuing VAT invoices and the crime of tax evasion, so that the renewable resources industry's tax-related Criminal cases in the renewable resources industry are facing new opportunities and challenges. At the tax policy level, on April 24, the State Administration of Taxation (“SAT”) issued the Announcement on Matters Relating to “Reverse Invoicing” by Resource Recycling Enterprises to Sellers of End-of-Life Products to Natural Persons (SAT Announcement No. 5 of 2024), which makes it clear that eligible resource recycling enterprises are able to “reverse invoicing” to natural person end-of-life product sellers. “Reverse invoicing”, the VAT invoices issued in the reverse direction can be used as proof of VAT input credit and pre-tax deduction of enterprise income tax for recycling enterprises, which relieves the source invoicing dilemma of the recycling industry, but also poses a new challenge to the tax compliance of the recycling industry. At the same time, the Regulations on Fair Competition Review came into force on August 1, clarifying the review criteria for the local formulation of fiscal and tax incentives; the Audit Commission, the General Administration of Taxation, the Development and Reform Commission, the Municipal Supervisory Bureau and other departments have issued documents or convened meetings to clearly investigate tax rebates in violation of regulations, and carry out cleanup of laws and regulations and policies related to the unequal treatment of enterprises, and governments in many places have issued documents to clearly carry out the cleanup of undue interference in the market and subsidies linked to tax revenues.

Many governments have also issued documents to explicitly carry out actions to clean up improper market intervention and subsidy or rebate policies linked to tax and fee revenues, and there have been a number of cases of refunding financial rebates or paying back taxes in practice.

Based on the latest regulatory situation and tax policy guidance, Hwuason Law Firm combines its continuous research on the renewable resources industry and its experience in representing the latest tax-related cases to write this report, which discusses the tax environment of the renewable resources industry under the new situation of tax collection and management, common tax-related risks, the impact of the “reverse invoicing” policy, the controversial focuses of the tax-related criminal cases and the key points of defense, as well as the tax compliance management of the enterprises. This report analyzes the tax environment of the renewable resources industry under the new situation of tax administration, common tax-related risks, the impact of the “reverse invoicing” policy, the key points of disputes and defense in tax-related criminal cases, as well as the management of corporate tax compliance, with a view to providing useful references for the renewable resources industry.

Click to download:《Resources Recycling Industry Tax Compliance Report》（2025）