VAT paid to the domestic suppliers for raw materials, overheads, chicaneries or goods in China.
The “exemption, deduction and refund” method applies the following steps:
Tax refund= purchase amount * tax refund rate
The company is qualified as a general VAT payer (GVAT);
The company has an import and export license;
The goods are subject to VAT or consumption tax in China;
The revenue generated from the transaction is booked as export income in the accounts of the company;
The goods must physically leave the country (except for those shipped to export processing zone or bonded warehouse/logistic zones);
The company has to produce evidence that the payment of export transactions has been settled before the end of April the following year. If a long payment term is agreed in the contracts, special filing on the extension of payment terms is required by tax bureau, which shall be finished before the end of April of following year.
Obtain a GVAT license with the tax bureau
File export business with foreign exchange bureau
Apply for a VAT refund license with tax bureau
Export goods through customs and issue VAT exemption invoices for export transactions
Submit VAT refund data into the tax bureau’s VAT refund system
Site visit: before releasing the initial VAT refund, the tax bureau may pay a visit to the company to verify whether it has a premise, proper procedure and experienced human resources in place to manage VAT refund
Documentation, including but not limited to the export declaration form, input VAT invoices obtained from suppliers, export invoices and shipping documents etc., needs to be properly filed and will be reviewed by the tax bureau during an investigation.
Internally, the company may do a health check before submitting such adjustments to the tax bureau. All the export refund applications must be handed-in before the 15th of April the next year, the deadline for closing all the VAT refund transactions in tax system. If any improper filing or missing of documents is confirmed by the tax bureau, the VAT refund may have to be returned and a 13% VAT may be levied much the same as a domestic transaction.