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.

VAT Briefing

(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 shall apply.

(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.

Note:
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 ;
• Antique books ;
• Importation of materials and equipment directly used in scientific research, experiment and education;
• Importation of materials and equipment from foreign governments and 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 by organizations for the disabled for special use by the disabled ;
• 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.

next