China Export Tax Refund Risk Management

For exporters in China, indirect taxes paid during the production and distribution process can be refunded. Specifically, exporters are eligible for value added tax rebates (“VAT”) and consumption tax (“TC”) incurred during the production process.

Often, export rebate policies are adjusted based on current economic circumstances to support and promote exports. For example, since March 2020, the VAT refund scope has been increased to 1,464 products, with a tax refund rate of 13% for 1,084 items and a tax refund rate of 9% for 380 products.

Although the export refund process has been streamlined and simplified over the past few years. Businesses should have strong and responsive internal controls in place to ensure preferential export tax refund policies are properly leveraged. Without comprehensive management, especially for supply chains, businesses could be exposed to delays and losses, which could spiral out of control. We recommend the following best practices for managing export rebate risk.

Carefully prepare and file documents

Companies are required to submit the following filing documents within 15 days of the export tax refund declaration.

  • Export business purchase and sale contracts (including export contracts, foreign trade full service contracts, foreign trade business purchase contracts and production for the purchase of non-self-produced goods for export);
  • Transportation documents for export goods (including ocean bill of lading, air waybill, rail waybill, freight forwarding document, postal receipt, etc.), service charge invoice forwarder, etc.);
  • Documents for customs declaration entrusted by export companies to other entities (including the customs declaration entrusted agreement, the agency customs declaration service fee invoice issued by the entity of customs declaration entrusted).

A catalog of filing documents above are also produced according to the chronological order of the tax refund declaration.

Details are important and should be checked constantly

Export tax refunds can be delayed or rejected when submitted data does not match. Internal policies and procedures should monitor and inspect the packaging and loading of goods, so that the customs declaration and outgoing goods adhere to the outgoing goods and the goods listed in the packing list. Foreign currency receipts and payments must match transactions. Failure to implement such control systems can lead to tax inspections and authenticity issues. Ultimately, this can impact the company’s credit when claiming export tax refunds.

Archive documents

Unless otherwise stipulated, the filing documents are kept and kept for 5 years. These documents must not be damaged without prior authorization. Records may be retained as hard copy, imaging or electronic copy. If paper copies are kept, the place where the registration documents are kept is also indicated in the catalog of export refund registration documents. If electronic copies are stored and subject to tax audit, all electronic copies to be converted to paper copies for audit must be affixed with the corporate seal.

Continuously monitor policy changes Relevant policies may change quickly and local provincial or municipal provisions may vary. Staff should regularly monitor policy changes and their implications for the business. And if necessary, policies must be adjusted with agility and staff training provided.

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