VAT Refund in China
The Chinese Value Added Tax can be considered as an all stages net revenue tax with the possibility of a tax return. Almost all turnovers, which were generated through the sale of goods and services in China, are subject to the Chinese VAT. Similar as in Germany, Austria, Switzerland or the UK, the destination principle gets applied in China as well.
The basic rate is 16% whereas the reduced VAT rate of 10% is appliedfor specific goods, for example staple food. There are several goods and services which are not subject to the Chinese VAT at all. For instance, international transport services, medical services as well as exports are free from the Chinese VAT.
After the export, the VAT Refund has to be applied for online until the VAT declaration deadline in the coming April. If the input VAT paid through the purchase of goods and services exceeds the generated VAT through sales, an input tax surplus occurs. The minor of this input tax surplus and the VAT refund amount calculated on the basis of the export amount with VAT refund rate will be paid by the Chinese financial bureau.
Examples of how an input tax surplus occurs in the Chinese business:
- A German Company establishes a subsidiary in China. In the beginning of the business operation bigger investments get settled. The VAT paid within these investments can only be balanced with future generated VAT through sales of goods and services. This way an input VAT surplus occurs.
- During the establishment of a production facility in China, machinery gets shipped from Germany to China. During the import to China, the Chinese import VAT (16%) has to be paid. The tax has to be paid directly to the Chinese customs while importing. The import VAT also counts as VAT input.
- The biggest share of those manufactured products gets exported out of China. Because exporting goods are exempt from Chinese VAT, this way an input VAT surplus is generated. Due to the fact that this company will not generate much VAT output in the future, the paid input tax can only be balanced through VAT refund. The refund of the input VAT is a very important subject for this company.
The refund of the VAT or the input VAT surplus therefore is of vital importance matter for international companies acting in China. Calculation, declaration and all supporting and advising actions during the process of tax refund are done by us in Shanghai and in whole China.
How does the process of VAT refund look like?
Here is an overview of the process of VAT refund in China.
- A prerequisite for VAT refund is the recognition as VAT general tax payer. Only general tax payers have deductible VAT inputs and therefore qualify for a VAT refund. The next step before the first application for a VAT Refund is the Initial Registration. All export companies, who want to apply for a VAT Refund, must go through this recording and filing procedure beforehand. Our experienced professionals do all the paper work and collect all documents like business license, exporter register etc for this process.
- VAT Calculation together with the generation and the handing in of the electronic VAT Declaration. During this time, our Chinese tax consultants and senior accountants collect and prepare all the relevant accounting documents like contracts, registers and VAT invoices and hand them in according to the Chinese tax guidelines. If there is an input VAT surplus, in other words a claim against the Chinese financial office, it has to be decided whether this surplus should remain to balance with upcoming tax payments or if the financial office should transfer the money to the company’s bank account. We advise our clients during this decision in detail. If a VAT refund has been applied for, a general verification procedure usually lasting from 5 working days to one month follows, during which Chinese tax authorities inspect all the application documents, verify the export information against the customs system and the VAT invoicing information against the VAT tax systems.
- If everything is verified and proven in consistency, the VAT refund can be expected in the following month. If the main application data or documents are proven to be wrong, not only will the application for the VAT refund take much longer to get granted (if at all), but it is also likely that the Chinese tax authorities induce a tax audit of the applicant company. It is therefore very advisable that all steps starting from the preparation of documents until the follow-ups are handled by reliable professionals. Our experienced tax consultants and senior accountants join our clients during this procedure.
The guidelines regarding the refund of the Chinese VAT are mostly regulated in “the Administrative Measures for the Value-Added Tax and Consumption Tax on Export Goods and Labor Service, 2012-24” and the related announcements and interpretations.
We help our clients in line with the VAT Declaration with the following services:
- Application for Qualification Recognition of General VAT tax payers.
- Detailed Tax Accountancy in China, especially regarding the Chinese VAT and the refund procedure of an input VAT surplus;
- Calculation of the VAT, creation and delivery of the electronic VAT declaration;
- Preparation and supervision of all tax audits,
- Clearance of all doubts and questions between clients and the tax authorities;
- Visit of the Chinese tax authorities representing our client;
- Advisory of the management of the company, training of the employees of our clients about how to act during a tax audit in China (Do’s and Dont’s);
- Law enforcement in front of Chinese courts in close collaboration with our partner law firms;
- Provision and maintenance of a legal address
Our clients of Vat Refund in China often ask us to perform the following services as well
- Accounting Outsourcing in China
- Payroll Accounting in China
- Tax Consultation in China
- Internal Audit in China
- Company Set-up in China
Further reasons to work with Artax Rufil Consulting in China
- we are a quality, service and customer oriented company
- all of our employees stick to our Artax Rufil Consulting corporate principles
- we are a German company and adhere to German virtues
- we work in China since 2004
- through our services and performances we support international companies in China and generate that way a higher quality of life for our clients, employees and investors
- we have access to a well-functioning network of experts in several business areas in China
Our quality promise:
“Your contact person will be a senior tax and legal specialist with a good command of English (and/or German) who regularly participates in professional training, is permanently employed at Artax Rufil Consulting and based at our office in the German Centre Pudong, Shanghai. Don’t settle for less!”
Highly qualified accountants, auditors, IFRS-experts, tax consultants, experts and programmers for automation, accounting software and IT-solutions as well as international management consultants work in our Shanghai office. Our working languages are English, Russian, Chinese and German.