Export Tax Rebates in China

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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).

ECR 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.

ER Method
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.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across China by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

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Alberto Vettoretti
Managing Partner, China, Vietnam & Italy
Shenzhen Office
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Sabrina Zhang
China National Tax Partner
Beijing Office
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Susan Ma
Manager
Shanghai Office
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Jim Qiao
Manager, Yangtze River Delta Region
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12 Responses

  • Norizam says:

    HI..Sir, We’re electronic manufacturer based at Spore. Please advise is there any way for us to get VAT rebate for our product exported to China. Our product is comunnication card (PCCA lavel)

    Rgds

  • @Norizam – You need to apply for VAT rebate from Singapore. I will email you directly about this. – Chris

  • Frank says:

    if we are to export clothes (apparel) from China do we need a CIQ certificate to get the VAT back?

  • @Frank:
    The following documents are essential for VAT export rebate:
    • Customs declaration for exported goods (exclusively for export tax rebate)
    • Certificate of export agency
    • Special VAT invoices (deduction copies)
    • Instruments for verification and writing-off of export proceeds in foreign exchange
    • Payment form for consumption taxes (exclusively for exported goods).
    Different tax bureau might have different requirements that may include additional documents, however the CIQ certificate is generally not required for claiming VAT rebates.
    Best regards;
    Chris

  • M.D.Mehta says:

    I wish to have information including rate of refund for export of goods from China based on Harmonized Custom Code or commodity list. Thanks.

  • @M.D.Mehta: There are no documents on this currently available. You could check for the refund rate through the system of State Administration of Taxation website: http://www.tax.sh.gov.cn/tycx/TYCX_tuiShuiCodeSearch.jsp?SUB=111

    If you require more information, please contact us directly at china@dezshira.com
    Best regards;
    Chris

  • jurgen says:

    HI can chinese trade companies refund VAT for transportation?
    Example:
    trade companies export goods to europe / viena /. Based on the new regulation forwarding companies adding 6.83% VAT on the top of freight cost. Shipping term is DDU Viena.
    Can trade company apply for transportation VAT refund?
    FOr domestick services { trucking ..etc }
    Ocean freight and trucking cost in EU to buyer?

    If not, is there any way how to do it? For example export tax refund..etc!

    thank you
    Jurgen

  • @Jurgen: Currently, eligible Chinese transportation companies providing international transportation service are subject to 0 percent VAT, while foreign companies engaged in international transportation service in China are subject to 6.8 percent tax rate (6% VAT and 0.8% local surcharge) because they need to contract with a Chinese local agent to be able to provide the same service. Such contracting arrangements are categorized as “auxiliary logistic service” under the new regulations. Currently there is no export VAT refund applicable for transportation industry.

    There could be export VAT refund for the goods exported based on the VAT refund rate for different products. We will be covering this exact subject very shortly in a specific article on China Briefing as you are well aware it creates an uneven playing field between local and foreign companies in this industry.

    Best wishes
    Chris

  • fred autocrat says:

    We are a trading company in China.
    Please explain me the procedure for how I can get my export refund as we make huge transactions.

  • @Fred: The article above deals with the subject of export refunds. However, if you require further and more detailed information about obtaining refunds, please contact Dezan Shira & Associates directly at tax@dezshira.com and specify where your main office is located. Someone from our pertinent regional office will then get back to you to discuss your issues with you.
    Kind regards;
    Chris

  • Faheem Meer says:

    Dear Chris;

    I wish to know what benefits in terms of exemptions, refunds and rebates Chinese manufacturers get for exporting overhead electrical conductors to other countries say Pakistan?

  • @Faheem: For exporting of overhead electrical conductors, the main benefit Chinese manufacturers can obtain are the 17% VAT tax rebate. Concerning exemption, this is only one process to calculate how much VAT should be refunded. In any event, the VAT rebates rate is not different with the importing countries, say Pakistan. However, if you wish to export overhead electrical conductors from Pakistan to China, you will be pleased to note there is a conventional tariff applicable of 0%. ​

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