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China's Value-Added-Tax-Rebate Policy: A Complete Guide

January 3, 2023

All micro and small businesses in 13 qualifying sectors in China are now eligible for the country's VAT refund scheme. 

Examine the implications for your company's VAT status if you do qualify.

Those foreign corporations and their Chinese affiliates that fit certain criteria may now request a complete VAT refund.

You may learn whether or not your company qualifies for a VAT refund in China by reading the details provided below.

General Information on Value-Added Tax Reductions

Chinese value-added tax rates may range from 3 to 13 percent.  At the conclusion of each tax period, however, a VAT credit will be available if the input VAT was higher than the output VAT. 

In the past, this was not refundable, but it may be carried over to the next year's tax return.

Nonetheless, the status quo is no longer true. 

To avoid having to add the whole amount to the following taxable period, China announced in April 2019 that taxpayers who met the requirements may ask for a refund of their excess input VAT.

China has made even more substantial adjustments to its VAT reform program since this last revision.

As it stands now (October 2022), all eligible businesses may submit monthly applications for (incremental) VAT refunds.

As an added bonus, the government will now provide a one-time reimbursement equal to the whole amount of VAT credit payable to any business that has carried over credits from the past. 

These tax credits are designed to help businesses in certain industries manage their cash flow and keep the economy running smoothly.

The total amount of VAT credit refunds issued between April and May 2022 was 1.34 trillion yuan.

To take advantage of the revised VAT refund scheme, though, you'll still need to meet certain qualifying requirements.

VAT refunds are available to the following groups of people:

Micro- and small businesses (across all sectors) and enterprises throughout 13 different sectors in China are now eligible for the country's VAT refund scheme.

The sectors that qualify for the VAT refund are shown below.

  • Manufacturing

  • Services and products related to scientific research and technological development

  • Creating and distributing essentials like power, heat, and water

  • Computer-Related Services and Software

  • Nature conservation and environmental policymaking

  • Shipping, storing, transporting, and warehousing are just a few examples.

  • Both wholesale and retail

  • Food production through farming, forestry, livestock raising, and fishing

  • Institutions specializing in food service and hospitality

  • Housing, maintenance, and other offerings

  • Professionals in the fields of teaching health and social work

  • Arts, athletics, and recreation,

However, businesses that could be eligible for a VAT refund should be aware of certain extra requirements.

Tax authorities will give preference to small businesses, followed by those of a medium size, and finally those of a large size.

More than half of a company's VAT sales must originate from one of the aforementioned sectors for that firm to be eligible for VAT refunds.

Extra necessities consist of:

  • Enjoy a tax credit status of A or B.

  • There was no evidence of VAT fraud in the 36 months prior to the application.

  • Not have more than two previous tax evasion convictions in the preceding 36 months before applying.

After April 1, 2019, you are no longer eligible for the favored "refund upon payment and return (refund) after payment" policy.

Do you fully comply with regulations while maximizing input recovery at your company? 

Get in touch with us so we can handle your domestic VAT returns and compliance needs.

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