Value Added Tax (VAT) applies for the service companies (specific industries), trading companies and manufacturing companies in China. According to the current VAT laws, if you export the services or goods overseas, you could get the VAT refunded from the tax bureau. Today we are going to talk about the VAT refund for a trading company. See how it works. The VAT refund process is set out below.
1.As a trading company, you have to get an importation and exportation license from the government.
2.You have to apply for the General VAT taxpayer certificate from the tax authority.
3.Purchase the goods from the manufacturing suppliers.
4.The suppliers have to go to the tax bureau to buy the VAT invoice.
5.Obtain the VAT invoice from the suppliers.
6.Shipping the goods overseas by the trading company
7.Get the Customs Declaration Forms (to prove the goods have been exported outside China)
8.Receiving the payment from the overseas customers.
9.Double check the payment information from the SAFE(State Administration of Foreign Exchange bureau)
10.Applying for the VAT refund by the collected documents
11.Issuing the VAT refund notice to the trading company by the tax authority
12.Get the VAT rebate from the tax authority
Case background
Ningbo Future trading company, who is focusing on the bread toaster exportation, in May 2014, it purchased goods from a Chinese manufacturer for CNY11,700(inclusive of 17% VAT) and export those products to the US for USD2,000(CNY12,400) and VAT refund Rate is 14%.
Calculation
Step 1: You have to get the purchase price without VAT, which is the base of the calculation of the VAT refund. Since the total purchase cost is CNY11, 700, so the price without VAT is CNY10, 000([11700/ (1+17%)], which could be seen on the VAT invoice as well.
Step 2: Confirm the VAT refund rate and calculate the VAT refund, the rate is decided by the customs HS code. In this example, it is 14 %( HS code: 8516721000). So the VAT rebate is CNY1, 400 [CNY10, 000*14%].
Step 3: Calculation of the profit and loss
Profit = Cash flow= Sales- Purchased costs + VAT refund =CNY12, 400 (USD2, 000)- CNY11, 700+CNY1，400=CNY2,100
Step 4: Actual Foreign Exchange rate calculation. According to the rule, when the goods exported, the trading company has to calculate the actual FX rate as the self-assessment, which means how much Chinese Yuan used for per one US dollar. The tax authority to use this index to monitor that if there is any fraud or cheating on the exportation. The current alert scope is 5.00 to 8.00. The formula is set out as follows. Actual Foreign Exchange rate=price without VAT*(1+17%-VAT rebate rate)/FOB USD=10000*(1+17%-14%)/USD2000=5.15.
Since the number falls the range, this exportation could be accepted.
Keywords: Ningbo accounting, Ningbo Auditor, Ningbo accountants, Ningbo CPA
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