Case Studies
Resale and Consumption-Based Tax Rebates: Selling Scrap and the 'Three-Flow Reverse Invoicing' Option
Selling scrap doesn’t have to mean complex taxes — with the new rules on “反向开票”, small sellers can benefit from reduced rates and simpler reporting.
By NomadicTax Research Team • 5-8 min read • August 28, 2026
## What is “三流合一反向开票”?
“三流合一反向开票” is a mechanism where **scrap product sellers** issue reverse invoices to certified resource recovery enterprises. This aligns the operational flows — information, funds, goods — for simpler verification. Under **公告2026年第12号**, natural persons who sell scrap via this process enjoy **预缴经营所得税** (prepaid business income tax) at lowered rates depending on annual sales amounts. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5250556/content.html?utm_source=openai))
## Rules & Rates Effective July 1, 2026
- If a seller’s **annual sales (ex-VAT)** through this method are up to **¥600,000**, tax is prepaid at **0.25%**.
- If sales exceed ¥600,000, the excess portion is taxed at **0.5%**.
These rates apply to natural persons only and through the resource recovery enterprise certified under these reverse invoice rules. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5250556/content.html?utm_source=openai))
## Real-World Example
Mr. Chen gathers and sells scraps to a certified recycling company via reverse invoicing:
- In 2026, his sales total **¥550,000** (ex-VAT). He will prepay tax at **0.25%**, meaning ¥1,375.
- If he later sells ¥700,000, the first ¥600,000 portion is taxed at 0.25%, the remaining ¥100,000 at 0.5%, so total tax paid would be ¥1,500 + ¥500 = **¥2,000**.
## Compliance Checklist
- Make sure purchaser is a **resource recovery enterprise** eligible under the policy and that they're issuing the **reverse invoice** with ‘三流合一’ features.
- Track cumulative sales through the reverse invoicing system — sales above threshold trigger higher rate for overage.
- Maintain invoice, proof of recycling company’s qualification, VAT documents.
## How This Helps Sellers
- Reduces rate from standard business income tax which may be higher under ordinary methods.
- Simplifies reporting since invoices are issued by certified entities; reduces audit risk.
- Provides clearer distinction between VAT and business income tax responsibilities.
## Limitations & Watch Outs
- Only applies when **reverse invoice mechanism is used**; sales outside that channel taxed normally.
- Only natural persons; businesses, legal entities have different rules.
- Threshold is sales ex-VAT — keep VAT invoices and assessments clear.
## Strategic Moves
- If selling scrap is a regular income source, aggregate sales planning to stay near threshold limit could be beneficial.
- If approaching excess, calculate extra tax cost in advance.
- Consider selling more through official channels early to benefit from lower rate on sales up to ¥600,000.
## Conclusion
This policy demonstrates China’s push to formalize and simplify small-scale economic activity. For natural persons, using certified recycling firms and reverse invoices can lower tax burden and decay the compliance complexity. If you operate in this space or plan to, preparing compliant paperwork and sales channels is vitally important.