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Who gets the VAT rebate?

A buyer who is purchasing from various suppliers in China via sea and even overland, asked me a few questions about the VAT system and how the VAT rebate is sorted out between the government, exporter and buyer.  Here are some highlights:

Buyer:  I’d like to receiving data about size of VAT compensation based on nomenclature of china-made goods and China Good’s Code (used by Customs)

Mike:  I believe you are referring to the HS codes which are used globally as well as in China. Send us the HS codes and we can look up the VAT rebate rate on the products in question. If just a few codes, I can do it for free.

Buyer:  How to get data on terms, time length, way of compensation regarding VAT to the importing company?

Mike:  Technically, the China based exporter (assuming they are registered and run official book keeping in China) receives a VAT rebate from the Chinese government after the goods have left the country.  How much of this VAT rebate (if any) the exporter shares with the buyer, is up for negotiation between seller and buyer.

A buyer of Chinese rugs recently asked me a similar question to what you have asked, here is my full response:  Confusion about VAT…Where does it go? What should I expect? (http://chinasourcinginfo.org/2011/07/17/confusion-about-vat-where-does-it-go-what-should-i-expect/)

Buyer: I would like data on the way by which VAT is compensated in the case when the seller is a company in China Mainland and the buyer receives the goods transported overland to Russia or Hong Kong for example. What is it is sent by sea or air?

Mike: If you are referring to the amount of compensation given to the exporter from the China government in form of VAT rebate, then the amount is the same regardless if that exporter exports overland or via sea or via air.

However, the amount of VAT rebate can be different for different exporters even if they are exporting the same product.  For example, an exporter exporting under a “trading license” has a slightly different rebate than an exporter exporting under a “manufacturing license”.  This (fairly technical blog post) explains why if you are interested: http://chinasourcinginfo.org/2011/09/22/vat-rebate-differences-between-trading-and-manufacturing-companies/

Furthermore, the size and experience of your exporter also plays a big role in how much rebate they get back. The experienced exporter will be able to negotiate the best rate, as often the HS code and applicable VAT rebate is up for discussion/negotiation with government. There are also different rates and calculations for “small scale tax payer” and “normal tax payer” status.  As small scale exporter under small scale tax payer doesn’t get the full VAT rebate given to a normal tax payer.

If you want to learn more about VAT system in China, here are links to some of my recent blogs on the subject:

VAT scams exposed

Confusion about VAT…Where does it go? What should I expect?

What is VAT and why should I worry about it?

Crash course in Chinese VAT

Our supplier won’t give us the discount for VAT

VAT rebate differences between trading and manufacturing companies

With multiple contracts, how is the VAT and VAT rebate processed among multiple parties?

After the Import Duty and VAT is paid during importation, when can I get a VAT rebate?

How can we collect the VAT rebate if our manufacturer is the exporter?

Does VAT apply to tooling for customer owned tools, purchased from a supplier in China?

VAT rebate differences between trading and manufacturing companies

With multiple contracts, how is the VAT and VAT rebate processed among multiple parties?

After the Import Duty and VAT is paid during importation, when can I get a VAT rebate?

How can we collect the VAT rebate if our manufacturer is the exporter?

Does VAT apply to tooling for customer owned tools, purchased from a supplier in China?

Feel free to contact me if you have questions.


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

 

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