Export Tax Rebates in China
Mar. 22 – China began to implement its export tax rebate policy in April 1985 as a way to enhance the country’s competitiveness in foreign markets by eliminating double taxation on exported goods. Export tax rebates refer to refunds of indirect taxes paid by exporting enterprises in the production and distribution process. We discuss China’s value-added tax rebates and consumption tax rebates below.
Value-added Tax Rebates
Exported goods are generally subject to zero percent VAT, for these goods, the VAT exemption and rebate policy applies (discussed below). Some goods are exempt from VAT. The difference between zero-rated goods and goods exempt from VAT lies in the refundability of input VAT.
For both zero-rated and exempt goods, no output VAT is payable. For zero-rated goods, input VAT is refundable. For exempt goods, input VAT credits cannot be refunded nor used to deduct output VAT from domestically sold goods, but can be added into the cost of the exported goods. Some examples of VAT exempt goods are:
- Goods exported by small-scale VAT taxpayers
- Software products
- Used equipment
- Agricultural products produced by agricultural manufacturers
- Duty-free exports such as oil paintings, nuts, and black beans
VAT Exemption and Rebate Policy
There are two ways to implement the VAT exemption and rebate policy applicable to zero-rated goods:
- Exemption, credit, and refund method (ECR method); and
- Exemption and refund method (ER method).
The ECR method is generally applicable only to production enterprises qualified as general taxpayers (no credit and refund is available for small-scale taxpayers). Exemption means that goods which are exported by production enterprises either directly or on consignment through foreign trade companies are exempt from output VAT.
Credit means that, for enterprises whose self-produced goods are both exported and sold domestically, the input VAT credit on materials purchased for the production of export goods is offset against the output VAT on domestic sales.
Refund means that, after offsetting the input VAT against the VAT payable, any excess amount of input VAT is refundable.
The ER method is applied to the export of goods or services by export enterprises or other enterprises with no manufacturing capabilities. Under the ER method, output VAT of the exported goods is exempted, and a certain portion of input VAT is refundable, but not creditable.
Consumption Tax Rebate
In general, export goods are not subject to consumption tax. For goods covered by the VAT exemption and rebate policy, CT is also exempt. If the exported goods were originally imported into China, the CT paid at import is refundable.
For goods that are VAT exempt, CT is also exempt, however, previously paid CT is neither refundable nor creditable from CT payable for domestically sold goods.
Portions of this article came from the March 2013 issue of China Briefing Magazine titled, “Trading with China.” This issue of China Briefing Magazine focuses on the minutiae of trading with China – regardless of whether your business has a presence in the country or not. Of special interest to the global small and medium-sized enterprises, this issue explains in detail the myriad regulations concerning trading with the most populous nation on Earth – plus the inevitable tax, customs and administrative matters that go with this.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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