Sister Wang, who runs a clothing store on Taobao, sources her inventory from individual sellers on 1688. Since she can’t obtain cost invoices, her reported profits are artificially inflated, and she’s struggling under the weight of corporate income tax and personal income tax on dividends. After hearing from a colleague that “registering as a sole proprietor with a fixed-rate tax assessment results in a total tax burden of just 2%,” she’s tempted to do so.

However, she failed to notice that with the official implementation of the Value-Added Tax Law in 2026, the costs of violating regulations—such as maintaining small-scale taxpayer status or operating as a shell sole proprietorship—have risen significantly, and tax assessments for live-streaming, high-gross-margin businesses, and cross-border e-commerce have been banned across the entire supply chain.

This article clearly explains who qualifies for the fixed-rate tax collection method, the actual tax burden, and the five major pitfalls. We recommend that small and medium-sized e-commerce business owners read it thoroughly before making a decision.

01

What Is a Fixed-Rate Tax Assessment?

The assessed tax collection method is essentially a fallback tax administration measure, not a tax incentive. For small-scale taxpayers with inadequate accounting records, an inability to accurately calculate costs, or difficulty obtaining input invoices, taxes are not calculated based on book profits; instead, a tax rate is determined based on their business turnover, and they pay individual income tax on business income accordingly.

Compared to the audited assessment method (revenue – costs = profit, on which tax is then paid), the most pressing financial and tax challenges for e-commerce businesses are: the inability to obtain input tax invoices for drop-shipping operations, difficulty in obtaining invoices for live-streaming commissions and promotional fees, artificially inflated reported profits, and long-term reliance on personal bank accounts for receiving payments. With a compliance-based tax assessment, businesses can avoid the hassle of missing invoices and file their returns with a lower overall tax burden.

After taxes, profits can be withdrawn directly into the legal representative’s personal account without having to pay the 20% individual income tax on dividends. However, this is contingent on the business activities being genuine—the tax assessment process addresses “incomplete accounting records and documentation,” not “a lack of business activities.”

02

Who Is a Good Fit and Who Isn't?

Priority eligibility in 2026: Taobao C-stores, Pinduoduo, Douyin Stores, and Video Account Stores; businesses must be individually owned and classified as small-scale taxpayers with annual sales of ≤5 million; product categories must be general physical retail items such as apparel, home goods, and food; Most suppliers are individuals, resulting in a chronic shortage of cost invoices; no full-time finance staff; seeking low-cost compliance.

Under no circumstances should these individuals apply for a fixed-rate tax assessment (high-risk): live-streaming influencers, MCN agencies, and high-commission service providers (fixed-rate tax assessment is prohibited across the entire supply chain); High-margin categories such as cosmetics, luxury goods, and electronics, as well as virtual goods; limited liability companies, corporate stores, and general taxpayers; businesses with annual turnover consistently exceeding 5 million; and those who only wish to register a shell sole proprietorship to issue invoices and launder funds.

Very Important: Starting in 2026, the fixed-rate tax assessment system for cross-border e-commerce will be completely phased out, and tax collection based on audited accounts will be implemented. For those hoping to “save” on cross-border taxes by relying on the fixed-rate assessment system for individual businesses, that avenue has now been closed.

If you’re facing a similar situation—such as deciding whether to opt for a fixed-rate tax assessment as a sole proprietor in e-commerce, or if you’re worried about being forced to switch to general taxpayer status or having your fixed-rate assessment revoked—feel free to scan the QR code to add Qicaiying’s online customer service (WeChat/Phone: 18620388671). We’ll help you determine if this approach is right for you and guide you through the process of complying with regulations. Feel free to scan the QR code to contact Qicaiying’s online customer service (WeChat/Phone: 18620388671), and we’ll help you sort out this entire process from start to finish.

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03

Estimation of Actual Tax Burden

Take the tax assessment for a small-scale individual business park as an example: with annual revenue of 3 million and a lack of cost invoices, if an audit reveals inflated profits, the individual income tax burden will be very heavy; After a compliant tax assessment, the total tax burden can be as low as approximately 1.5%–2.5% (VAT at 1% + surcharges + assessed individual income tax).

Double Tax Exemption Benefits: Small-scale taxpayers with monthly sales of ≤100,000 and quarterly sales of ≤300,000 who issue general invoices are exempt from VAT; in some regions, individual income tax may also be exempted within industrial parks, resulting in a zero tax burden (subject to the interpretation of the local tax authority). Micro and small enterprises with annual profits of ≤3 million are subject to a corporate income tax rate of 5%.

However, starting in July 2026, the fixed-rate tax system was reinstated with stricter eligibility requirements, leading to large-scale cleanups in many regions. Entities eligible for the fixed-rate tax system must be genuine, small-scale, engaged in physical goods transactions, and have an annual turnover of no more than 5 million—if they exceed any of these criteria, their eligibility may be revoked, and they will be required to switch to the audited accounting system.

04

The Five Deadly Pitfalls

Pitfall 1: Using a shell sole proprietorship to issue invoices and process transactions—with no physical store, no orders, and no logistics—poses a risk of issuing fraudulent invoices. If detected, this results in back taxes, late payment penalties, and fines ranging from 0.5 to 5 times the tax amount; in severe cases, criminal liability may apply. Pitfall 2: Maliciously splitting income across multiple business accounts under a single individual. The Golden Tax System identifies and consolidates related accounts based on legal representative, phone number, address, and cash flow for combined tax calculation.

Pitfall 3: Failing to report income received in personal accounts from the platform; the platform reports the full amount quarterly, and failing to report transfers to personal accounts constitutes tax evasion. Obtaining a tax assessment does not mean you are exempt from filing tax returns. Pitfall 4: Naively trusting claims of “guaranteed assessment” or “permanent assessment.” In many regions, assessments are reviewed annually, as specified in the “Tax Assessment Notice”; there is no guarantee of permanence.

Pitfall 5: Ignoring the "Four-Stream Consistency" principle—contracts, funds, invoices, and goods must all match. Screenshots of each order from the backend, shipping records, and payment transaction histories must be retained for at least five years. With the "Golden Tax Phase IV" initiative and platform reporting requirements, any gray-area operations will be exposed.

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05

How Can Small and Medium-Sized E-Commerce Businesses Get Started?

First, choose the right business entity: Register as a sole proprietorship (small-scale) in a compliant business park; limited liability companies are not eligible for the fixed-rate taxation on business income applicable to sole proprietorships. Second, ensure the business is genuine: The online store must be actively operated, with genuine product sources and actual shipments; fake orders are strictly prohibited (transaction volumes generated by fake orders will be treated as income).

Third, control the red line: Do not exceed 5 million in cumulative sales over a rolling 12-month period; it is recommended to stay within 4.5 million to leave a buffer. If sales exceed 5 million for two consecutive months, you will be mandatorily reclassified as a general taxpayer (subject to the 13% and 3% tax rates) in the month of the violation, and your assessed tax status will be immediately revoked. Fourth, maintain a chain of evidence and file returns on time; being subject to a tax assessment does not mean you are exempt from filing returns.

In a nutshell: The 2026 fixed-rate taxation method is a compliance solution for small and medium-sized physical e-commerce businesses with incomplete accounting records and documentation—it is not a magic bullet for tax avoidance. Only when the business entity is compliant, operations are genuine, transaction amounts are manageable, and documentation is complete will this approach truly prove effective.

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