China Export Tax Refund Policy: Recent Changes and Implications

Chi­na is one of the world’s largest exporters, and its export tax refund pol­i­cy plays an impor­tant role in sup­port­ing its for­eign trade and main­tain­ing its com­pet­i­tive­ness in the glob­al mar­ket. Export tax refund refers to the process of refund­ing or exempt­ing the val­ue-added tax (VAT) and con­sump­tion tax (CT) paid by exporters dur­ing the pro­duc­tion and dis­tri­b­u­tion of export­ed goods. The pol­i­cy aims to reduce the tax bur­den on exporters, pro­mote fair trade, and encour­age export-ori­ent­ed industries.

How­ev­er, Chi­na’s export tax refund pol­i­cy is not sta­t­ic, but con­stant­ly adjusts to the chang­ing domes­tic and inter­na­tion­al envi­ron­ment. In recent years, Chi­na has made sev­er­al changes to its export tax refund pol­i­cy, such as speed­ing up the refund process, expand­ing the scope of paper­less fil­ing, sup­port­ing new trade mod­els, and improv­ing the con­ve­nience of depar­ture tax refunds. These changes have sig­nif­i­cant impli­ca­tions for exporters and for­eign investors in Chi­na, as they affect their cash flow, com­pli­ance require­ments, for­eign exchange man­age­ment, and busi­ness opportunities.

In this arti­cle, we will pro­vide an overview of Chi­na’s export tax refund pol­i­cy, explain the recent changes and their impli­ca­tions, and offer some prac­ti­cal tips for exporters to opti­mize their tax refund process.

What is China’s export tax refund policy?

Chi­na’s export tax refund pol­i­cy is based on the prin­ci­ple of “exemp­tion, cred­it and refund”. This means that export­ed goods are exempt from VAT and CT at the point of expor­ta­tion, exporters can claim cred­it for the input VAT and CT paid on pur­chas­es relat­ed to exports, and exporters can apply for a refund of the excess input VAT and CT over out­put VAT and CT.

Accord­ing to the State Tax­a­tion Admin­is­tra­tion (STA), Chi­nese man­u­fac­tur­ers can recov­er up to 17 per­cent of the val­ue-added tax from the Chi­nese gov­ern­ment when they export goods to for­eign coun­tries. The refund is based on the export VAT refund rate of the export­ed goods, which is deter­mined by the Cus­toms com­mod­i­ty code. The export VAT refund rates are between 0 per­cent and 17 per­cent, and where the refund rate is at 17 per­cent, there is a full recov­ery of the input VAT. From the begin­ning of 2021 to Nov 10, the total tax refund, as well as tax exemp­tion, reached 1.64 tril­lion yuan ($227.84 bil­lion), up 14.9 per­cent year-on-year.

Chi­na’s export tax refund pol­i­cy cov­ers both direct exports and deemed exports. Direct exports refer to goods that are sold by domes­tic enter­pris­es to over­seas cus­tomers and shipped out of Chi­na. Deemed exports refer to goods that are sold by domes­tic enter­pris­es to for­eign-invest­ed enter­pris­es or projects with­in Chi­na under cer­tain con­di­tions, such as pro­cess­ing trade, bond­ed zones, or key con­struc­tion projects.

Chi­na’s tax rules pro­vide for three export refund treat­ments: the tax-exempt treat­ment, the pay-first-and-refund-lat­er treat­ment, and the exempt-off­set-refund treatment.

• The tax-exempt treat­ment applies to goods that are exempt from out­put VAT at the point of expor­ta­tion, such as self-pro­duced goods or goods pur­chased from small-scale tax­pay­ers. Exporters do not need to pay out­put VAT or apply for a refund.
• The pay-first-and-refund-lat­er treat­ment applies to goods that are sub­ject to out­put VAT at the point of expor­ta­tion, such as non-self-pro­duced goods or goods pur­chased from gen­er­al tax­pay­ers. Exporters need to pay out­put VAT first and then apply for a refund.
• The exempt-off­set-refund treat­ment applies to goods that are sub­ject to out­put VAT at the point of expor­ta­tion but can be off­set by input VAT cred­its. Exporters do not need to pay out­put VAT but can apply for a refund of the excess input VAT over out­put VAT.

The applic­a­ble treat­ment depends on var­i­ous fac­tors, such as the nature of the export­ed goods, the source of pur­chase, the type of tax­pay­er, and the type of trade.

What are the recent changes to China’s export tax refund policy?

In order to cope with the impact of the COVID-19 pan­dem­ic, the trade war with the US, and the glob­al eco­nom­ic slow­down, Chi­na has made sev­er­al changes to its export tax refund pol­i­cy in recent years, aim­ing to ease the pres­sure on exporters, improve trade facil­i­ta­tion, and sup­port new trade mod­els. Some of the major changes are sum­ma­rized below:

Speeding up the refund process

In 2018, Chi­na announced that it would speed up the export tax refund process and ensure that most refunds are com­plet­ed with­in 10 work­ing days. To achieve this goal, Chi­na intro­duced paper­less refund fil­ing in all regions and all rat­ing Class A and Class B enter­pris­es, which account for more than 90 per­cent of the total refund amount. Paper­less fil­ing allows exporters to sub­mit their refund appli­ca­tions online with­out pro­vid­ing hard copies of sup­port­ing doc­u­ments, such as con­tracts, invoic­es, and trans­port doc­u­ments. This reduces the admin­is­tra­tive bur­den on exporters and tax author­i­ties, and improves the effi­cien­cy and accu­ra­cy of the refund process.

In 2020, Chi­na fur­ther expand­ed the scope of paper­less fil­ing to rat­ing Class C enter­pris­es on a vol­un­tary basis, pro­vid­ing more con­ve­nience and flex­i­bil­i­ty for exporters. In addi­tion, Chi­na also sim­pli­fied the record-fil­ing require­ments for export tax refund appli­ca­tions, reduc­ing the num­ber and types of doc­u­ments required for record-fil­ing. For exam­ple, ship­ping orders of export goods and doc­u­ments exe­cut­ed by anoth­er orga­ni­za­tion entrust­ed by the export enter­prise to com­plete cus­toms dec­la­ra­tion are no longer required for record-filing.

Expanding the scope of paperless refund filings

The expan­sion of the scope of paper­less refund fil­ing was list­ed as one of the new mea­sures to offer con­ve­nient tax ser­vices to tax­pay­ers. Paper­less fil­ing was encour­aged to be used not only by rat­ing Class A and Class B enter­pris­es, but also in rat­ing Class C enter­pris­es on a vol­un­tary basis, so as to con­tin­u­ous­ly improve the con­ve­nience of tax refunds.

Supporting new trade models

In order to fur­ther sup­port and serve the devel­op­ment of the pri­vate econ­o­my, the STA guid­ed tax author­i­ties in the pilot areas for com­pre­hen­sive man­age­ment of mar­ket pro­cure­ment and trade to coöper­ate with com­merce, cus­toms and oth­er depart­ments to devel­op an inte­grat­ed mar­ket pro­cure­ment and trade man­age­ment sys­tem and a tax exemp­tion man­age­ment sys­tem. In 2019, rel­e­vant mar­ket tax exemp­tion man­age­ment sys­tems were inspect­ed and accept­ed in accor­dance with the pro­vi­sions of the Admin­is­tra­tive Mea­sures for Export Exemp­tion of Mar­ket Pro­cure­ment (Pro­vi­sion­al).

Mar­ket pro­cure­ment and trade is a new trade mod­el that allows small and medi­um-sized enter­pris­es to pur­chase goods from domes­tic mar­kets or online plat­forms and export them through des­ig­nat­ed cus­toms clear­ance chan­nels. This mod­el sim­pli­fies the export pro­ce­dures, reduces the costs, and improves the effi­cien­cy for exporters. Under this mod­el, exporters can enjoy export tax exemp­tion if they meet cer­tain con­di­tions, such as hav­ing valid con­tracts, invoic­es, trans­port doc­u­ments, and cus­toms declarations.

Improving the convenience of departure tax refunds

The STA active­ly inno­vat­ed tax refund ser­vices. From Jan­u­ary 30, 2019, an instant depar­ture tax refund ser­vice was intro­duced in Shang­hai on a tri­al basis, which has great­ly accel­er­at­ed export refund pro­cess­ing and pro­mot­ed the shop­ping and con­sump­tion of over­seas tourists in Chi­na. From Sep­tem­ber 21, 2019, tax refund through WeChat and Ali­pay was pilot­ed in Bei­jing to pro­vide more choic­es for for­eign tourists.

Depar­ture tax refund is a pol­i­cy that allows over­seas tourists to claim a refund of VAT paid on goods pur­chased in Chi­na when they leave the coun­try. The pol­i­cy aims to attract more for­eign vis­i­tors and boost domes­tic con­sump­tion. To apply for a depar­ture tax refund, over­seas tourists need to meet cer­tain require­ments, such as hav­ing valid pass­ports or trav­el doc­u­ments, stay­ing in Chi­na for no more than 183 days con­sec­u­tive­ly, pur­chas­ing goods from des­ig­nat­ed tax-free shops, spend­ing at least 500 yuan at one shop in one day, and leav­ing Chi­na with the pur­chased goods with­in 90 days.

What are the implications of these changes for exporters?

These changes have sig­nif­i­cant impli­ca­tions for exporters and for­eign investors in Chi­na, as they affect their cash flow, com­pli­ance require­ments, for­eign exchange man­age­ment, and busi­ness oppor­tu­ni­ties. Some of the main impli­ca­tions are:

• Improved cash flow: By speed­ing up the export tax refund process and expand­ing the scope of paper­less fil­ing, Chi­na has reduced the time and cost for exporters to claim their refunds. This helps exporters improve their cash flow and liq­uid­i­ty, espe­cial­ly for small and medi­um-sized enter­pris­es that rely heav­i­ly on export income.
• Reduced com­pli­ance risks: By sim­pli­fy­ing the record-fil­ing require­ments and sup­port­ing new trade mod­els, Chi­na has low­ered the com­pli­ance risks for exporters. Exporters do not need to pro­vide as many doc­u­ments as before for record-fil­ing, and they can enjoy tax exemp­tion under cer­tain trade mod­els. This reduces the chances of errors, omis­sions, or dis­putes in the refund process.
• Enhanced for­eign exchange man­age­ment: By improv­ing the con­ve­nience of depar­ture tax refunds and intro­duc­ing new pay­ment meth­ods, Chi­na has enhanced the for­eign exchange man­age­ment for exporters. Exporters can receive their refunds in for­eign cur­ren­cy or RMB, and they can use online plat­forms such as WeChat and Ali­pay to facil­i­tate the refund process. This helps exporters avoid exchange rate fluc­tu­a­tions and trans­ac­tion fees.
• Increased busi­ness oppor­tu­ni­ties: By sup­port­ing new trade mod­els and attract­ing more for­eign tourists, Chi­na has increased the busi­ness oppor­tu­ni­ties for exporters. Exporters can explore new mar­kets and chan­nels for their prod­ucts, such as mar­ket pro­cure­ment and trade, bond­ed zones, or cross-bor­der e‑commerce. Exporters can also ben­e­fit from the increased demand and con­sump­tion of over­seas tourists who can enjoy tax refunds on their purchases.

What are some practical tips for exporters to optimize their tax refund process?

To opti­mize their tax refund process and max­i­mize their ben­e­fits, exporters should fol­low some prac­ti­cal tips, such as:

• Choose the appro­pri­ate export refund treat­ment: Exporters should choose the export refund treat­ment that suits their sit­u­a­tion and prod­uct type, such as tax-exempt, pay-first-and-refund-lat­er, or exempt-off­set-refund. Dif­fer­ent treat­ments have dif­fer­ent refund rates, pro­ce­dures, and require­ments, so exporters should com­pare them care­ful­ly and make an informed decision.
• Use paper­less fil­ing if pos­si­ble: Exporters should use paper­less fil­ing if they are eli­gi­ble and will­ing to do so, as it can save time and cost for them and the tax author­i­ties. Paper­less fil­ing allows exporters to sub­mit their refund appli­ca­tions online with­out pro­vid­ing hard copies of sup­port­ing doc­u­ments. How­ev­er, exporters should still retain the orig­i­nal doc­u­ments for future ref­er­ence or inspection.
• Pre­pare the required doc­u­ments in advance: Exporters should pre­pare the required doc­u­ments in advance and ensure that they are com­plete, accu­rate, and con­sis­tent. The required doc­u­ments may include con­tracts, invoic­es, trans­port doc­u­ments, cus­toms dec­la­ra­tions, tax pay­ment cer­tifi­cates, etc. Exporters should also check the record-fil­ing require­ments and sub­mit the doc­u­ments accordingly.
• Keep track of the refund sta­tus and progress: Exporters should keep track of their refund sta­tus and progress through online plat­forms or com­mu­ni­ca­tion with tax author­i­ties. Exporters should also pay atten­tion to any changes or updates in the export tax refund pol­i­cy and adjust their refund strat­e­gy accordingly.
• Seek pro­fes­sion­al advice if need­ed: Exporters should seek pro­fes­sion­al advice if they encounter any dif­fi­cul­ties or uncer­tain­ties in the export tax refund process. Pro­fes­sion­al advi­sors can help exporters under­stand the pol­i­cy changes, com­ply with the require­ments, opti­mize their refund strat­e­gy, and resolve any dis­putes or issues.

Conclusion

Chi­na’s export tax refund pol­i­cy is a key fac­tor that affects the prof­itabil­i­ty and com­pet­i­tive­ness of exporters and for­eign investors in Chi­na. The pol­i­cy is con­stant­ly evolv­ing to adapt to the chang­ing domes­tic and inter­na­tion­al envi­ron­ment. In recent years, Chi­na has made sev­er­al changes to its export tax refund pol­i­cy, such as speed­ing up the refund process, expand­ing the scope of paper­less fil­ing, sup­port­ing new trade mod­els, and improv­ing the con­ve­nience of depar­ture tax refunds. These changes have sig­nif­i­cant impli­ca­tions for exporters and for­eign investors in Chi­na, as they affect their cash flow, com­pli­ance require­ments, for­eign exchange man­age­ment, and busi­ness opportunities.

To opti­mize their tax refund process and max­i­mize their ben­e­fits, exporters should fol­low some prac­ti­cal tips, such as choos­ing the appro­pri­ate export refund treat­ment, using paper­less fil­ing if pos­si­ble, prepar­ing the required doc­u­ments in advance, keep­ing track of the refund sta­tus and progress, and seek­ing pro­fes­sion­al advice if needed.

If you need more infor­ma­tion or assis­tance on Chi­na’s export tax refund pol­i­cy or oth­er relat­ed top­ics, please con­tact us at info@​youwinconsulting.​com. We are a pro­fes­sion­al con­sult­ing firm that pro­vides com­pre­hen­sive ser­vices for for­eign investors in Chi­na, such as com­pa­ny reg­is­tra­tion, account­ing, tax com­pli­ance, legal advi­so­ry, HR man­age­ment, mar­ket research, etc. We have a team of expe­ri­enced experts who can help you nav­i­gate the com­plex and dynam­ic busi­ness envi­ron­ment in Chi­na and achieve your goals.

Frequently Asked Questions

Here are some com­mon ques­tions and answers relat­ed to Chi­na’s export tax refund policy:

Sources:

1. State Tax­a­tion Admin­is­tra­tion | Export refund management
2. Chi­na Brief­ing | Chi­na Export Tax Refund Pol­i­cy: Recent Changes, Doc­u­men­ta­tion Process, For­eign Exchange Management
3. C.I.E.F | What is Chi­na Export Tax Refund?
4. PTL Group | China’s Export Fees and Refunds
5. Chi­na Tax & Invest­ment Con­sul­tants Ltd | An Overview of the VAT Export Refund Rules in China
6. Busi­ness Chi­na | Vat Return & Export Vat Tax Refund In China