By Victor TU

In last article (July, Ningbo Focus), we discussed VAT refund for a trading company, today I will demonstrate the calculation of VAT refund for a manufacturing company. There is one thing you have to know, the trading company applies the rule is called “Exempt and Refund” and the manufacturing company called “Exempt, Credit and Refund”. The latter is more complicated than the former.

Here is the case. The Future Toaster manufacturing company is producing Toaster in Ningbo and then export the products to Europe, the product is made by three components. Say, part 1 , part 2 and part 3, and the part 2 is imported overseas.  See the business flow as follows.

ASSUMPTIONS:

1.      FX rate RMB to Euro = 8:1

2.      The component(part2) is imported outside china amounting €25（CIF+Customs Duty）

3.      The purchase price for part1 is RMB 351 (inclusive of VAT)

4.      The purchase price for part3 is RMB 468 (inclusive of VAT)

5.      The Exportation price（FOB） of the finished goods is €100.

6.      In November, There is one Domestic sale in China, which is RMB 351(inclusive of VAT)

7.      Tax refund rate for the product is 13%

EXPLAINATION:

When you import the components outside China, and the finished goods will be exported outside china finally .You could apply for the Import Processing Manual from the China Customs, after approval, you are exempt with the import VAT (17%).

CALCULATION:

A (VAT payable)= Output VAT of Domestic sales¹ – Input VAT

+ Non-refundable VAT of exportation²– Non-refundable VAT of importation³

Note1: When you export products, there are no output VAT

Note2: Non-refundable VAT of exportation=Exportation products FOB *FX rate*(17%-VAT refund Rate)

Note3: Non-refundable VAT of importation=(Imported components CIF*FX rate +Customs Duty) *(17%-VAT refund Rate)

B (VAT Receivable)=Exportation products FOB* FX rate * VAT refund Rate - Imported components (CIF +Customs Duty)* VAT refund Rate

C (The VAT Refund)=Lower of Absolute A and Absolute B

So the company will get the VAT refund RMB 44 in November.

The gross profit for the company=351/(1+17%)+€100*8-(351+468)/(1+17%)-€100*8*(17%-13%)+€25*8*(17%-13%)=300+800-700-32+8=RMB376.

The gross profit margin=376/(300+800)=34.18%

Keywords: Ningbo accounting, Ningbo Auditor, Ningbo accountants, Ningbo CPA

关键词：宁波会计，宁波审计，宁波会计师，宁波涉外会计，宁波注册会计师

Victor & Truman，CPAs  宁波纬度会计师事务所（普通合伙）