Tax Refund in China: Myth or Reality
Whether you’re a beginner or have been working with imports from China for years, it´s very probable you’ve heard of a ghostly figure, who many people regard as if it were the Loch Ness Monster of imports. It’s about the tax refund. And in this article, we will decipher what is a myth and what is the reality.
Does China really do a tax refund on products that are exported?
The answer is simple and short. It actually consists of three letters, YES. But it doesn’t work like tax refund in some countries airports where they refund you the taxes on the goods you buy while visiting that country. Chinese do not refund the taxes to the person who bought it but to the one who sold the goods. I’m not talking about who produced it, but about the company that made the export (either the factory or an intermediary).
In fact, the tax refund is the true reason whereby there are so many brokers for any product because a broker can sell a product at the same price as he bought it and still makes a very good profit. Obviously, this does not happen, which really happens is that honest intermediaries (those who are not trying to swindle, but reselling the product) have two profits. The first one is a margin between the purchase and the sale price and then (two months later) the big prize, tax refund, which approximately goes from 5% to 14% depending on the product. For simple plastic products, whose rate of return is 14%, any exporter makes a profit of 5% of the price he got it plus 14% of the tax refund.
How can buyers benefit from tax refunds?
There are two ways that work perfectly depending on the amounts and buying frequency of a foreign company.
- Make purchases through an exporter with whom we have agreed on the distribution of taxes. For this method, which is the simplest, we just have to find a reliable export company in China (some company with export rights) and make the purchase through them (payments are also through them) and 2-3 months later they receive the transfer from the government. Then you have to see how these yuan are taken out of China, but that’s material for another article.
- Open a company with export rights in China. This is the method I recommend if the purchase quantity is very large, we are talking about many containers per month. And there is also interest in having a presence, or commercial offices in China, as part of our organizational strategy in the Asian giant. The opening of such companies in China is very easy to do, but it has very different legislation, so I don’t think it’s worth describing the process, since in a few months it may be different. But in another article, I will talk about the main characteristics that have not changed over time. How do I know what percentage of taxes will be refunded? There is a government-owned website with tables of refund rates depending on the product.
How can I get more information about the tax refund?
We at Awarecon have extensive experience with tax returns and have all the tools to help our clients do either of the above-mentioned in the proper way. We can advise, assist or represent our clients to open their company in China. As well as recommending our friendly export company, which we have been working with for the last few years.
