Understanding VAT Refunds & Reductions in China 2021

May 2, 2021
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china vat refund

If you are a foreign company operating in China, handling your accounting in China and producing financial statements is a challenge. The Chinese financial management system differs from the system used in the rest of the world (China GAAP vs. Western GAAP) – but the biggest challenge is keeping up with the constant regulatory updates. Often, this can only be achieved with the deep familiarity and experience of a local professional. Read a brief review of VAT Reductions and VAT Refunds in China:

VAT Reforms

Since April 1, 2019, China’s VAT rates have decreased across the board. Companies previously paying VAT rates of 16% and 10% will now pay 13% and 9% respectively.

The previous rate of 10% on agricultural products underwent a modest decrease to 9%. Furthermore, agricultural products bought for the use in production or commissioned processing saw a decrease in the VAT rates from 13% to 10%.

The 6% VAT rate for value-added telecommunication and financial services also remained unchanged since 2019.

The 2019’s changes in the VAT system demonstrate how the Chinese government is taking progressive steps to apply international best practice within their own VAT system. Particularly, in addition to formalizing the reduction in the VAT regulations, these rules also necessitate all businesses claim new credits or alter their compliance methods. For instance, this could include the following notable changes:

  • Potentially opening up VAT refunds for excess input VAT credits to all businesses
  • Offering certain industries will a 10% “super deduction”
  • Cashflow benefits from allowing full input VAT credits up-front for purchasers of real estate and projects under construction.
  • Allowing input VAT credits for transportation services, which consequently increases the need for changes to corporate reimbursement policy.
  • VAT refund rate changes, which will affect exporters and the input tax credit of purchasing agricultural products caused by changes to VAT rates.

Read more about VAT refunds in China and other tax liabilities in the comprehensive Financial guide for Foreign Companies in China.

Super Input VAT Credit

Beginning April 1, 2019 to December 31, 2021, taxpayers in any of the four qualifying service industries below will be eligible to an additional 10% super input VAT credit. The qualifying services are:

  • Postal Services
  • Telecommunications services
  • Modern services: including R&D, IT services, creative services, logistics and ancillary services, certification and consulting services, leasing, radio, film and television services, and business support services.
  • Lifestyle services: including cultural services, education, healthcare, travel, entertainment, accommodation, and daily services.

Read more about China VAT refund and other Financial services in China.

Financial Management in China

Foreign companies operating in China should optimize their local financial management system. In order to meet the requirements of Chinese authorities and reduce costs to a minimum, it is more important than ever to carefully control financial statements and meet deadlines to avoid fines. Local knowledge is therefore crucial to manage the constantly changing regulatory updates.

PTL Group has more than two decades of experience operating in the Chinese market and local experts on the ground who update their practices to fit the requirements of the latest policy changes and provide vital support in meeting the financial needs of our clients in China.

Managing your China operation’s financials with maximum efficiency and transparency is not a luxury. It’s an absolute must. PTL Group’s financial experts support its clients whether they already have an entity in China or not, in managing the financial operation in China.

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