Adjustment on Policies regarding Export Tax Relief

The Ministry of Finance (MOF) and the State Administration of Taxation (SAT) of the People’s Republic of China have recently issued the Notice Regarding the Policies on VAT and Consumption Tax for Export Goods and Services (Circular 39) and the Announcement regarding Administrative Measures on VAT and Consumption Tax for Export Goods and Services (SAT Announcement 4) respectively.

1. Extension of the range of exported goods to which the VAT refund (exemption) policy applies. Circular 39 provides new criteria in order to claim export tax relief on certain ‘deemed self-manufactured products’. Originally provided for under the now replaced Guoshuihan [2002] No.1170, so-called deemed self-manufactured products were eligible for export tax relief as long as they were of the same type as those manufactured by the exporter and were related to the exporter’s own produced merchandise (e.g. spare parts included within a set). Circular 39 has maintained the requirements that deemed self-manufactured products are related to and of the same type as those manufactured by the claimant.

In addition, this circular grants export tax relief on the purchase of the same or related products to those entities that: (1) have no history of tax fraud; (2) are general VAT payers; (3) have been in continuous operation for no less than 2 years; (4) have a tax credit grade of A; and (5) have had revenues exceeding RMB 50 million the previous year.

2. Some export goods are subject to VAT exemption instead of VAT, only the below mentioned export goods and services should be subject to VAT. According to previous provisions, five categories of exported goods are deemed to be subject to value-added tax: 1) Goods that are specifically denied for tax refund (exception) by SAT. 2) Export enterprises fail to apply for tax refund (exemption) for export goods within the stipulated period. 3) Export Enterprises apply for tax refund (exemption) for export goods within the stipulated period, but fail to collect relevant proof. 4) Export enterprises fail to obtain the Certificate for Consignment of Exported Goods within the stipulated period. 5) Other export goods from a manufacturing enterprise not included in the exceptions of the 4 kinds of deemed self-produced products.

According to this adjustment, among the abovementioned 5 kinds of products, the 2nd, 3rd and 4th are subject to tax exemption, instead of being subject to VAT as domestic sales. The policy is effective starting from January 1st, 2012.

3. If the goods are imported by a foreign trading enterprise and exported afterward, the goods, based on application, are subject to tax relief.

4. Adjustment of the regulation regarding tax relief for processing repairs and replacement with consumption of raw material by a foreign trading enterprise.

5. Extension of the time for submitting proof for tax refund According to the previous provision, export enterprises should apply for VAT exemption within 90 days once the goods have been declared for export. Export enterprises now can apply from the month following the day that the goods are declared for customs until April 30 of the following year to collect all relevant proof and apply for VAT exemption, credit and refund.

6. The procedure of applying for tax refund has been adjusted.

7. The scope of exported products for the advanced tax refund policy has been adjusted.

8. Extension of the conditions for manufacturing enterprises for “Tax refund first, Write-off & Verification Later”, and specification of the scopes of exported goods for the application for advanced tax refund with export contracts and sales breakdown.

9. A foreign trading enterprise may opt to give up tax exemption, credit and refund for exported goods. However, after giving up the tax exemption, no further change is possible within 36 months.

10. Extension of the content of exported goods that are subject to tax exemption.

11. Adjustment of required documents submitted for tax refund and higher requirements for special VAT certificates for the import of goods.

12. If 80% of the cost of materials refers to high-valued raw material, the tax refund policy for raw material is applicable.

13. The previous provision that small and newly-established enterprises cannot obtain tax refund within the 12-months review period since establishment was revoked.

14. Redefinition of tax rebate policy relating to enterprises running business with duty-free articles and aviation food.

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