China VAT & Export Rebates
Export Tax Rebate/Exemption is a major concern for most foreign enterprises in China. The
reason for this is that firms understand the policies and declaration procedures regarding this
issue will affect its cash flow. In practice, this area is extremely complex, often resulting in
different tax advisers on export method and tax rebate declaration processes, leading to
differing tax rebate amounts, and consequently affecting the operations profitability. Although
the policies and regulations are quite obvious, foreign enterprises still can legally use
appropriate tactics to get more tax rebates over a shorter period. Therefore, choosing an
experienced tax consultant and get valuable advice at an early stage has become an important
success factor for most foreign enterprises. In this article I would like to share my knowledge
in the field of VAT and tax rebate with you, and hope this will help with your VAT payment
and export tax rebate practice. In view of the fact that the relevant policies are changing
frequently, and that officers from tax authorities may hold different opinions over regulations
thus giving different interpretations, this is an area that needs careful analysis and attention.
Export Tax Rebate Policies
Export tax rebate refers to China government promises to rebate the tax after the export
products are exported. Such taxes should be incurred during the processes of domestic
production and circulation. The purpose is in order to encourage exportation. Generally
speaking, these taxes include VAT, business tax and special consumption tax. However, for
foreign invested enterprises export tax, such rebate only refers to VAT rebates due to the
Chinese government current stipulation of 0% rate of consumption tax for these enterprises.
Therefore, export tax rebated on VAT is a major concern for most foreign invested
enterprises. In order to appropriately use Chinese export tax rebate polices to claim back the
most tax, we need to understand the relevant VAT policies first.
(1) Who should pay VAT?
The China government stipulates that all units and individuals engaged in the sales of goods,
provision of processing, repairs and replacement services, and importation of goods within the
territory of the People s Republic of China shall pay VAT.
(2) VAT rate
The VAT rate generally is 17%, and at 13% for some goods. For small-scales taxpayers it is
6%. It should be pointed out that exporting goods is tax free.
For taxpayers dealing in goods or providing taxable services with different tax rates, the sales
amounts for goods or taxable services with different tax rates shall be accounted for
separately. If the sales amounts have not been accounted for separately, the higher tax rate
(3) Calculation for VAT
The VAT tax payable shall be the balance of output tax for the period after deducting the
input tax for the period. The formula for computing the tax payable is as follows:
Tax payable = Output tax payable for the period - Input tax for the period.
I. Output tax refers to the VAT amount that is calculated with sales turnover and VAT rate
and is collected by tax payers from buyers of commodities or services when taxpayers sell
commodities or provide taxable services.
II. Input tax refers to the VAT amount paid or born by the taxpayer for purchasing
commodities or receiving taxable services
If the output tax for the period is less than, and insufficient to offset against the input tax for
the period, the excess input tax can be carried forward for setoff in the following period.
(4) Additional provisions for VAT
The following items shall be exempt from VAT:
· Self-produced agricultural products sold by agricultural producers ;
· Contraceptive medicines and devices ;l
· Antique books ;
· Importation of materials and equipment directly used in scientific research, experiment
· Importation of materials and equipment from foreign governments andl international
organizations as assistance, free of charge;
· Equipment and machinery required to be imported under contract processing, contract
assembly and compensation trade;
Articles imported directly byl organizations for the disabled for special use by the
· Sale of goods which have been used by the sellers.
· For taxpayers engaged in tax exempted or tax reduced items, the sales amounts for tax
exempt or tax reduced items shall be accounted for separately. If the sales amounts
have not been separately accounted for, no exemption or reduction is allowed.
(5) When does VAT liability arise?
For sales of goods or taxable services, it is the date on which the sales sum is received or the
documented evidence of right to collect the sales sum is obtained.
For importation of goods, it is the date of import declaration.
VAT on the import action of goods shall be collected by the customs office on behalf of the
tax authorities. VAT on self-used articles brought or mailed into china by individuals shall be
levied together with customs duty.
Export Tax Rebate
(1) Who is qualified for export tax rebate?
Currently two tax rebate methods are used in export tax rebate practice. One is levy in
advance and then claim back ; another is exemption, reduction and refund . Foreign
invested enterprises registered before Dec. 31, 1993 enjoy 0% tax rate for both VAT and
consumption tax for their exported goods. Other enterprises which have right for importing
and exporting enjoy the policy of free of consumption and exemption, reduction and refund
VAT . For those which have no self-exported right, they need to pay in advance and obtain
refunds after export.
Qualified enterprise scope for export tax rebate
There are eight kinds of enterprises that can enjoy the policy of export tax rebate:
· manufacturing enterprises with export rights;
· foreign trading enterprises with export rights;
· industrial and trading enterprises with export rights;
· Sino-foreign joint ventures with export right and joint ventures chain enterprises with
· Foreign invested enterprises;
· Enterprises consigning their export goods to other export agents with export rights;
· Designated tax rebate enterprises
· Specially authorized tax rebate enterprises
Goods scope of qualified for export tax rebate
All export goods which should levy VAT or / and consumption tax, except goods that the
China government definitely stipulates no tax rebate and / or have been bought from small
Under what circumstance a enterprise can claim back the VAT ?
To claim back the levied VAT, five conditions must be satisfied:
· The enterprises are qualified for VAT rebate;
· Goods which involve VAT and / or Consumption tax belonging to the category in
which the goods should levy VAT and / or consumption tax
· Goods must have gone through custom declaration and have left Chinese territory;
· Recorded in account books as export sales;
· Must have the clearance form of received foreign currencies for export.
(2) Calculation for tax rebate amount
I. Calculation (Formula and rebate rates)
Export tax rebate rate varies according to different export goods. Often used rates are 17%,
15%, 13% and 5%.
Tax payable=output tax for domestic sales (Input tax for total purchase Non refund VAT)
Non refund VAT = Export sales *(17%-refund rate)
If Tax payable >0, No refund (Because input VAT for export sales has been deducted)
Tax Payable < 0 & export sales/total sales<=50%, No refund
Tax payable <0 & export sales/total sales >50%, can get VAT refund.
The refund amount will depends on:
X=VAT payable, Y=FOB price *refund rate
If |X| >Y, refund=Y & VAT carry forward=|X|-|Y|
If |X|<=Y, refund=|X|
II. Other provisions
(I) The enterprises which purchased domestic equipment which belongs to tax free categories
can enjoy full VAT rebates. In addition, they may also reduce or be exempt from income tax.
(II) Input tax on following items shall not be credited against the output VAT:
· Fixed assets purchased;
· Goods purchased or taxable services used for non-taxable items;
· Goods purchased or taxable services used for group welfare or personal consumption;
· Abnormal losses of goods purchased
· Goods purchased or taxable services consumed in the production of work-in-progress
or finished goods which suffer abnormal losses.
(III). Imported materials for processing or assembling, no VAT paid when imported, therefore
no export VAT refund is applicable.
Export Tax Rebate/Exemption Declaration procedures
After an enterprise s commodities are exported and related financial transactions completed,
export enterprises are expected to apply to the competent tax authority for tax
rebate/exemption against related tax vouchers on a regular basis, in accordance with
regulations and requirements concerning export tax rebate/exemption. Export tax
rebate/exemption declarations also provide data, on the basis of which the competent tax
authority is able to verify, approve and handle tax rebate/exemption. Currently Shanghai
adopts two methods of declaration: computer based declaration and paper based. Normally
each export enterprise will declare once a month. To obtain the export tax refund promptly, it
is very important to understand application procedures and application materials needed.
(1). Documents below should be provided for export tax rebate/exemption application:
· The export tax rebate fold of Customs Declaration Form for Exports, stamped with the
official seal of the Customs and bearing the signature Customs officials on duty;
· The export tax rebate fold of Clearance Form of Received Foreign Currencies for
· Invoices for exportation;
· Subsidiary ledgers for exported commodities (for verification purpose);
· For export trading enterprises, they need to produce special VAT invoices (offset fold)
or general invoices on the purchase of commodities for export.
For export trading enterprises applying for consumption tax rebates, they need to
produce the Tax Payment Ticket for Exports only, issued by export factories and
bearing the seals and signatures of the competent tax authority and the Bank.
· For export trading enterprises, they need to produce the Tax payment Ticket or the
Split Form of Tax Paid exports on the purchase of commodities for export.
In view of the fact that different enterprises and export products require differing application
documents and procedures, Dezan Shira & Associates regional offices provide advise on, and
provide full scope tax rebate consulting services. Please contact our relevant regional office