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12.3. Refund of VAT to Non-Residents

Effective 1 April 2019, refund of excess input VAT credit at the end of each tax period is allowed to general VAT payers in all industries in China. Non-residents not established in China are not eligible to claim refund of input VAT.  

Effective 1 July 2019, a more relaxed tax refund policy was implemented for some advanced manufacturing taxpayers including those producing and selling following products:

  • Non-metal minerals;
  • General equipment;
  • Special equipment; and
  • Computer, communication, and other electronic devices.

In order to claim refund of excess VAT credit, the revenue of the above products must be exceeding 50% of the manufacturing taxpayer’s total revenue.

VAT refund for certain R&D equipment is granted until 31 December 2023, subject to certain conditions (see Sec.10.4.).

COVID-19 Emergency Measures

In response to the COVID-19 pandemic, effective 1 April 2019 until 31 December 2022 (extended from 31 December 2021) qualifying service providers (i.e. taxpayers engaged in engaged in postal services, telecommunications services and modern services) are allowed to increase input VAT deductions by 10% (i.e., 110% deduction), with excess input VAT carried forward. For this purpose, qualifying service income must account for more than 50% of total income. Further, a taxpayer's export of goods and services and cross-border taxable activities are not eligible for the increased deduction. Additionally, taxpayers mainly engaged in lifestyle services are allowed to increase input VAT deduction by 15% from 1 October 2019 until 31 December 2022 (extended from 31 December 2021).

Further, expanded VAT refund policy was implemented that provides qualifying taxpayers to obtain a refund for excess input VAT credit on a monthly basis, including small and micro enterprises, medium enterprises, and enterprises engaged in:

  • Manufacturing;
  • Scientific research and technical services;
  • Electricity, heat, gas, and water production and supply;
  • Software and information technology services;
  • Ecological protection and environmental management;
  • Transportation;
  • Warehousing;
  • Postal services;
  • Wholesale and retail (effective 1 July 2022);
  • Agriculture, forestry, animal husbandry, and fisheries (effective 1 July 2022);
  • Accommodation and catering (effective 1 July 2022);
  • Resident services, repairs, and other services (effective 1 July 2022);
  • Education (effective 1 July 2022);
  • Health and social work (effective 1 July 2022); and
  • Culture, sports, and recreation (effective 1 July 2022).

Taxpayers engaged in the above industries are considered engaged in the relevant industry if more than 50% of total sales subject to VAT correspond to the relevant industry.

In order to qualify for the expanded refund policy, the taxpayers are required to meet the following conditions:

  • Tax compliance credit rating of the taxpayer must be A or B (compliance rating system includes ratings of A, B, C, D, and M for certain newly established enterprises);
  • In the 36 months prior to the application for a refund, there have been no instances of fraud involving input VAT refund claims, export tax refund claims, or falsely issuing special VAT invoices;
  • In the 36 months prior to the application for a refund, the tax authority has penalized the taxpayer no more than once; and
  • Since 1 April 2019, the taxpayer has not enjoyed the VAT policies of immediate collection and immediate refund or first collection and then refund.

Qualifying taxpayers can apply for the excess input VAT refund from the April 2022 period. Qualified medium-sized enterprises in the manufacturing industry and other industries can apply for a one-time refund of the existing tax credit from the July 2022 period.