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Trading Companies, Check out the Export Tax Refund in China!

To encourage exports, the Chinese government formulated and implemented a series of policies of which the export tax rebate is one of the most important.
For trading companies in China, it should pay more attention on export tax refund polices. This article aims to lead you to get to know it from all angels.
What is an Export Tax Refund  exactly?
Export tax rebates refer to refunds of the value-added tax (VAT) and consumption tax (CT) actually paid by the exporting enterprises on exported goods during the production and circulation process. While it is an important trade policy widely adopted by various countries to promote exports, enterprises might be exposed to certain risks and disadvantages when applying the policy.When exporting goods overseas, no VAT will be charged to the exporters and VAT paid in the following transactions will be refundable in full or in portions from the Chinese government:

VAT paid to customs for the import of materials before processing in China;

VAT paid to the domestic suppliers for raw materials, overheads, chicaneries or goods in China.

The refund is based on the VAT refund rate which is determined by the custom’s commodity code (HS code).
Tax refund on export goods
There are two tax refund methods, which are “exempting, deduction and refund” and “assessment, then refund”.
“Exemption, deduction, refund” methodApplicable to direct export sales by production enterprises with managerial authority for imports and exports or commissioned export sales;

The “exemption, deduction and refund” method applies the following steps:

Exemption –goods which are exported by production enterprises either directly or on consignment through foreign trade companies are exempt from output VAT.
Deduction-applies to production enterprises whose self-manufactured goods are both exported (either directly or through export agents) and sold domestically. The input VAT credit on materials purchased for the production of export goods is offset against the VAT payable on domestic sales.
Refund-applies if there is excess input VAT above that amount retained for credit (to be carried forward).
“Assessment, then refund”

Applicable to import and export enterprise and enterprises having special permits for claiming the tax refund on export; the calculation formula is:

Tax refund= purchase amount * tax refund rate

How do I apply for export VAT refund?

A company can obtain a VAT refund when the following conditions are satisfied simultaneously:

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.

To successfully apply for the VAT refund, the applicant must go through the below procedures:

Preparation

Register with customs and apply for an import and export license

Obtain a GVAT license with the tax bureau

File export business with foreign exchange bureau

Apply for a VAT refund license with tax bureau

Daily operation

Purchase blank export invoices

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.

Annual  filing

In March of the following year, the tax bureau will reconcile the transaction data in the VAT refund system with those in the custom’s system.  In case of a discrepancy or missed filing, the tax bureau will require the company to fill in a questionnaire, in which the company may make proper adjustments which then need to be justified properly.

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.

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