For exporters in China, indirect taxes paid during the production and distribution process can be refunded. Specifically, exporters are eligible for rebates on value-added tax (‘VAT’) and consumption tax (‘CT’) incurred during the production process.
Often export rebate policies are adjusted according to the current economic circumstances to support and promote exports. For example, since March 2020 the VAT refund scope was increased to 1464 products, with a 13% tax rebate rate for 1,084 items and a 9% tax rebate rate for 380 products.
Though the export rebate process has been streamlined and simplified during the past years. Companies should establish robust and responsive internal controls to ensure preferential export tax rebate policies are leveraged properly. Without comprehensive management, especially for supply chains, companies could be exposed to delays and losses, which may snowball out of control. We recommend the following best practices to risk manage export rebates.
Vigilantly prepare and file documents
Companies are obliged to submit the following filing documents within 15 days after the export tax refund declaration.
- Purchase and sale contracts of export enterprises (including export contracts, comprehensive foreign trade service contracts, purchase contracts of foreign trade enterprises, and purchase contracts of production enterprises to purchase non-self-produced goods for export);
- Transport documents for export goods (including ocean bill of lading, air waybill, rail waybill, freight forwarding document, postal receipt, etc.) freight forwarder service fee invoice, etc.);
- Documents for customs declaration entrusted by export enterprises to other entities (including entrusted customs declaration agreement, the agency customs declaration service fee invoice issued by the entrusted customs declaration entity).
A catalogue of the above filing documents shall also be produced according to the chronological order of the tax refund declaration.
Details matter and should be continuously checked
Export tax rebates can be delayed or rejected when the submitted data do not match. Internal policies and procedures should monitor and inspect the packing and loading of goods, so that customs declaration and departure goods adhere to the outbound goods and the goods listed in the packing list. Any receipts and payments of foreign exchange shall match the transactions. Failure to implement such control systems may result in tax inspections and authenticity issues. Ultimately, it can impact the company’s credit when applying for export tax rebates.
Unless otherwise stipulated, filing documents shall be stored and retained for 5 years. Such documents shall not be damaged without prior authorisation. Documents can be retained as hardcopy, imaging or softcopy. If hard copies are stored, the storage location of the record-filing documents shall also be indicated in the catalogue of export refund record-filing documents. If the softcopies are stored and subject to tax inspection, any soft copies required to be converted to hardcopies for the inspection shall be affixed with the company seal.
Continuously monitor policy changes Relevant policies can rapidly change, and local provincial or municipal provisions can vary. Personnel should regularly monitor policy changes and their implications for the company. And if necessary policies should be nimbly adjusted and staff training conducted.
At Horizons, we have been advising companies for over 30 years in China. If you have questions or concerns related to taxes or other related matters, please contact Horizons at +86 21 5356 3400 or email@example.com.