China Clarifies Tax Refund Policy on Goods Exported by Foreign Trade Service Providers

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SHANGHAI – To clarify the terms of earlier provisions and promote the participation of small and medium enterprises (SMEs) in the international marketplace, as well as curb abuses of the export VAT refund system, China’s State Administration of Taxation (SAT) released an announcement regarding the refund of taxes on goods exported by foreign trade comprehensive service enterprises (SAT Announcement [2014] No. 13, hereinafter referred to as “Announcement”) on February 27. The Announcement will go into effect on April 1.

“Foreign trade comprehensive service provider” refers to foreign trade enterprises who provide export-related services in logistics, customs declaration, credit insurance, financing, receipt of foreign exchange and tax rebate for domestic SMEs in the manufacturing industry.

As stated in the Announcement, the export of goods by a foreign-trade comprehensive service provider, under contract between a domestic manufacturer and an overseas organization or institution, will be eligible for a VAT refund if the following conditions are met:

  • The export goods must have been produced by the manufacturer in question;
  • The manufacturer must have sold the export goods to the comprehensive service provider;
  • An export agreement must have been signed between the manufacturer and the overseas enterprise or individual stipulating that the goods in question will be exported by the comprehensive service provider to the overseas party, who will then issue payment to the service provider; and
  • The service provider must solely handle their export activities (i.e. cannot outsource their services)

RELATED: Import-Export Taxes and Duties in China

The announcement also stipulates several general requirements concerning service providers, requiring that they:

  • Contribute to the strengthening of risk controls;
  • Evaluate the business standards and manufacturing capabilities of the manufacturing enterprise; and
  • Verify the authenticity of the domestic purchase and export status of goods involved in which the tax refund is declared.

Importantly, a comprehensive service provider found to have committed an illegal violation of tax law, such as providing falsified VAT refund invoices or export VAT refunds acquired through fraud, will be penalized according to the relevant laws.

Lastly, service providers are required to submit all required paperwork with the relevant tax authority when filing export VAT refund applications.

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