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Can I get a VAT rebate on my China purchase?

by Mike Bellamy

I have been doing research about VAT returns in China, the more research I do the more confused I seem to get, please help me! I am trying to export construction material from China in to Mongolia and get the VAT return. So far I have understood that in order to be eligible for VAT return is being a Chinese based company and the rest is kind of blurry. Please help me understand what I need to do to get VAT return. 

You can find an easy to understand explanation of your options in this blog post: What is VAT and why should I worry about it? But here are the highlights.

Yes, unless you have set up a legal entity in China, you cannot process the VAT rebate when the goods leave China.

If your orders are small-medium, it probably makes sense to keep things simple and buy “FOB port” rather than “ExW China factory.” Under FOB terms the seller is responsible for arranging the export and processing all taxes and rebates on the China side. So negotiate a good FOB price that you can live with, knowing that the VAT rebate amount will not be disclosed. Even if the seller claims to tell you the VAT rebate, there are a lot of smoke and mirrors. It is kind of like when a car dealer gives you a price below the MSRP. VAT like MSRP is easy to manipulate for the purposes of making a sale.

If the order is large you may consider appointing an agent with im-ex rights to process the VAT rebate and exportation on your behalf. Here is an example of such an agent). Make sure the agent you hire is both experienced and transparent. There are too many sloppy brokers out there that will cause more harm than good.  And many of them will try to re-route the VAT rebate into their pockets rather than yours. So be careful.

If the orders are steady and very large, consider setting up your own entity in China to not only process the VAT rebate, but also support QC and vendor relations. Here is a good article on the steps/costs involved for that option:  Advanced sourcing skills: WFOE’s and other options for a China presence

If you would like introductions to China based companies that can help you manage your supply chain in a more efficient fashion, please check out where I keep a list of endorsed service providers who have done  a good job for me on similar cases. 

Let me know how things work out for you.

Question answered by Mike Bellamy, an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center. Mike is also the author of "The Essential Reference Guide to China Sourcing" and founder of PassageMaker Sourcing Solutions.

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