To promote the export of goods, in China there is no VAT applicable to exported goods. When a company sources/buys products from the supplier, the supplier VAT invoice (Fapiao) includes VAT (input VAT). Normally, the input VAT could be deducted from the output VAT, but for exported goods there is no output VAT. Therefore, the government has set up a system for the refund of export-related VAT. Companies can claim back the input VAT paid for export goods through the monthly export VAT refund claim.
Who is eligible for export VAT refund?
Generally, to be eligible for export VAT refund, the export enterprise must:
Be a general VAT taxpayer;
Have a legitimate business address;
Be duly registered for tax purposes;
Hold import and export rights;
Have a business scope that includes import and export activities;
Carries out normal foreign exchange transaction and settlement activities;
Fulfills its social insurance obligations towards its employees;
Hold special permits if exporting certain products, such as vehicles, lubricants, and paraffin wax;
Have completed the necessary record-filing procedures for export tax rebate.
Which industries are eligible for VAT rebates?
As stipulated in the STA Announcement (2022), the VAT rebate policy has been extended to include all eligible companies in the following six industries:
Manufacturing and trading
Scientific R&D and technology services
Electricity, heating, gas, and water production and supply
Software and information technology services
Ecological protection and environmental governance
Transport, logistics, warehousing, and postal
The tax rebate procedure
In order to enjoy tax rebate policies, exporters should provide Chinese authorities with several documents:
Value-added tax (VAT) is one of the major indirect taxes in China.
VAT rate: The standard VAT rate in China is 13%, but there are also reduced rates of 9%, 6%, and 3%.
Invoicing (VAT Fapiao): All businesses must issue VAT invoices for the sale of taxable goods and services in China. There are two types of invoices: general VAT invoices and special VAT invoices.
General VAT taxpayers refer to enterprises whose accumulated taxable income during a consecutive period of no more than 12 months, or four quarters, exceeds RMB 5 million or those who have a sound accounting system. Multiple VAT rates of 13%, 9%, and 6% apply to general VAT taxpayers. The input VAT can be credited against the output VAT.
Small-scale VAT taxpayers refer to enterprises whose accumulated taxable income during a consecutive period of no more than 12 months, or four quarters, are below RMB 5 million or without a sound accounting system. A 3% levying rate is applied to small-scale VAT taxpayers, but they cannot deduct input VAT from output VAT.
general VAT taxpayer
small-scale VAT taxpayer
Taxable income
> RMB 5 million
≤ RMB 5 million
Rate
6% to 13%
3%
VAT payable
OUTPUT VAT IN THE CURRENT PERIOD – INPUT VAT IN THE CURRENT PERIOD
SALES x VAT RATE
Pros + + +
Tax-saving when low profit (low-markup) products; collect and verify special VAT from supplier for VAT deduction, apply VAT tax rebate for export busienss.
Tax-saving for high-profit (high markup) products; Can file VAT tax quarterly; Doesn’t need to collect and verify special VAT invoices for deduction, and the tax calculation method is straightforward; and Can enjoy certain VAT exemption benefits for small transactions.
Cons – – –
as to file tax monthly; Has to collect special VAT invoices and verify them to ensure the input VAT deduction; and increasing tax burden when profit markup on cost higher than critical ratio*, or when the enterprise is unable to collect special VAT invoices for input VAT deduction.
Has to keep in lower annual income (below RMB 5 million), can no enjoy export VAT tax rebate. Most general VAT taxpayers are dedicated to dealing with general VAT taxpayers. Small-scale VAT taxpayer cannot deduct input VAT from output VAT.
*The critical ratio here refers to a ratio of profit markup on cost under which the tax burden for the general taxpayer and small-scale taxpayer is the same. It varies based on the actual tax rates applied.
Chinese VAT rates:
Tax items
VAT rate
Most goods and some services
Sales and imports of most goods (unless otherwise specified), Labour services, including processing, repair, or assembling services, Tangible moveable property leasing services
13%
Real estate, transportation, postal and agriculture
Agricultural, forestry, animal husbandry products: grains, vegetable oils, fresh milk, medicinal and other plants, agricultural machinery, fertilizer, and pesticide, Tap water, heating, cooling, gas, coal/charcoal products for residential use, Books, newspapers, magazines, audio-visual products, electronic publications, Transportation services, Postal services, Basic telecommunications services, Real estate, construction, transfer of ownership of properties and land use rights, real estate leasing service, Other goods specified by the state council
9%
Services
Financial and insurance services, Modern services: research and development, technical services, information technology services, cultural and creative services, logistics and ancillary services, leasing, consulting, radio, film and television services, etc. Lifestyle services: education, healthcare, travel, entertainment, catering, accommodation, cultural and sports services, other daily lifestyle services, Value-added telecommunications services, Intangible assets, excluding land-use rights, Sales of virtual props for online games
6%
Small-scale taxpayers
For most goods and services.
3% (except certain actual transactions applicable to 5% VAT rate)
Exports
Export of goods and services (except where otherwise stipulated by the State Council)
0%
General VAT taxpayer calculation method:
For general taxpayers, the calculation formula is as follows:
Tax payable = current output VAT – current input VAT – previous surplus input VAT
The input VAT can be deducted from the output VAT to arrive at the tax payable. However, not all input VAT can be deducted. In order to deduct any input VAT, the company must receive a special VAT Fapiao where the tax amount is specified, and this amount must be verified in the online system of the tax bureau.
If the current output VAT is higher than the current input VAT, this will result in a VAT tax payable for the company. If the current input VAT is higher than the output VAT, the surplus amount of input VAT can be carried forward to the next period.
Small-scale VAT taxpayer calculation method:
The calculation method for small-scale taxpayer is a simplified calculation, because no able to deduct input VAT.
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Tax-Based Incentives
tax incentives in Guangdong–Hong Kong–Macao Greater Bay Area
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There are steps to set up a company in Shenzhen:
Get familiar with local authorities and institutions departments
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What Is a Two-Tiered Tax Rate? The Two-Tiered Tax Rates Regime involves two profit tax rates. Under the new system, the first HK$2 million of a company’s profits are taxed at a lower profits tax rate of 8.25%, while profits above HK$2 million are taxed at the standard profits tax rate of 16.5%.
The profits tax rate for the first HK$2 million (US$250,000) of profits of corporations will be lowered to 8.25%. Profits above that amount will continue to be subject to the tax rate of 16.5%.
The hong Kong Two-Tiered Profit Tax has been implemented to support small and medium-sized enterprises. This will reduce the tax burden on enterprises, especially SMEs and startup enterprises, and will help foster a favorable business environment, drive economic growth, create job opportunities and enhance Hong Kong’s competitiveness.
However, if an entity has one or more connected entities, the two-tiered profits tax rates can only apply to one nominated entity among its connected entities. The others will not qualify for the two-tiered profits tax rates.
Interest, gains or profits derived from qualifying debt instruments that are already subject to tax at half-rates under the existing provision will be excluded from the proposed two-tiered profits tax rates regime.
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