Business with China: Process of Export VAT Refund

Doing export business in China gives companies several opportunities to legally optimize their tax costs. One of these opportunities is the refund of Value Added Tax (VAT). In this article, we will explain in detail how the export VAT refund works when exporting goods from China, what conditions must be met to get the refund, and what important points companies should pay attention to in order to pass tax checks successfully.

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When a Chinese company buys goods inside China, it pays VAT to the Chinese government. If the company later exports these goods, it has the right to get the VAT refunded. Also, exported goods are not subject to corporate income tax.

VAT can almost always be refunded, except for some special categories of goods like oil, military goods, and a few others. The ability to refund VAT is also connected to the legality of the export. For example, in the case of exports to high-risk countries, it is very common when brand owners refuse to give permission to export their products to high-risk countries because of fears of sanctions. If the goods are exported from China without custom declaration, VAT cannot be refunded.

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Requirements for the Company

To successfully get a VAT refund, a company must:

• Have real operations in China: a physical office, hired employees, a record of paying taxes and social insurance for these employees, and real business deals. A virtual company without employees will almost never be able to get a VAT refund.

• Legally export goods that were originally bought inside China with VAT.

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How to Apply for Export VAT Refund in China

1. After receiving the export customs declaration, you need to check the data both in the paper version (if available) and in your account with the General Administration of Customs of China (GACC).

2. Within 90 days after the export customs declaration is issued, you must prepare and submit a VAT refund application through the tax office software.

The application must include:

• Export customs declaration;

• Special VAT invoice for the purchase of goods (增值税专用发票);

• VAT credit form (抵扣联), which must be completed within 30 days after receiving the VAT invoice;

• Foreign exchange receipt document for the incoming foreign currency from the export sale (外汇进来的核销单);

• Record of payment to the supplier in the bookkeeping system;

• The company's physical address (the office must exist in reality);

• Other documents that the tax office may request.

The first VAT refund is usually processed within 6 to 12 months after submitting the documents. Future refunds are generally completed within 2 months.

It is recommended that the amount of the first contracts with VAT refunds should not exceed 1 million RMB. VAT refund procedures involve strict checks. Big deals worth tens of millions of RMB made through a new company could attract extra attention from tax authorities.

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Getting a VAT refund when exporting goods from China is a real opportunity for companies to reduce costs and increase the efficiency of their international operations. However, successful refunding requires not only legal business operations but also full compliance with strict Chinese regulations. Companies must have a real office, hired employees, transparent bookkeeping, and correctly prepared documents for each export deal. When all conditions are met, VAT refunding becomes a stable and predictable process that can significantly improve a company's financial performance on the global market. When they are not met, VAT refund becomes a costly and ineffective procedure. If the setup doesn't mean to have a substance in China Mainland, we recommend to consider another options like Hong Kong or Singapore.

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