Whether in-kind donations by enterprises are treated as sales for VAT payment

Article 4(8) of the Implementing Rules of the Provisional Regulations of the People's Republic of China on Value-added Tax stipulates that a unit or an individual industrial or commercial enterprise giving away self-produced, commissioned-processed, or purchased goods to other units or individuals free of charge shall be regarded as sales.

Article 1 of the Announcement of the State Council Poverty Alleviation Office of the Ministry of Finance and the State Administration of Taxation on the Policy of Exempting Donations of Goods for Poverty Alleviation from Value-added Tax (Announcement of the State Council Poverty Alleviation Office of the Ministry of Finance and the State Administration of Taxation, Announcement No. 55 of 2019) stipulates that, from January 1, 2019, to December 31, 2022, for the units or individual businessmen who will give away self-produced, commissioned-processed or purchased goods through public welfare social organizations, people's governments at the county level and above and their constituent departments and directly subordinate organizations, or units and individuals who directly donate them free of charge to areas targeted for poverty eradication, shall be exempted from value-added tax (VAT).

The donation of goods in kind by enterprises belongs to gratuitous gift, and it can be seen from the above provisions that it should be treated as sales and pay VAT. However, in-kind public welfare donations to enterprises for poverty alleviation are exempted from VAT from January 1, 2019 to December 31, 2022.