11 EXPOET ¡®vat REFUND
For export sales, they are generally exempted from output VAT and the related input VAT may be refunded. However the refund rate is generally lowered than the output rate and effective from Jan 1,2004 there are 5 main refund rates, i.e. 17%, 13%, 11%, 8% and 5%:
(I) Ships, automobiles and spare parts, aviation vessels, multifunctional machine-tools, printed circuits, program controlled telephones, telegraphic switching equipment, light-transmitting equipment, medical instruments, metallurgy equipment, train, etc.- 17%;
(2) Industrial product proceed with agricultural products as raw materials, cotton, wheat, maize flour, meat, edible offal of ducks, rabbits, hares, clothes, textiles. certain electronic machinery, certain iron or steel articles, small hardware, organic or inorganic chemical materials, plastic-ware, toys, shoes, clocks, watches, ceramics, porcelain, fiber, rubber-ware, sports products, leather craft, travel luggage, etc. 13%;
(3) Petroleum, unwrought zinc, coal, chemical fertilizers 11%
(4) Products derived from natural resources: unwrought aluminum, yellow phosphorus and other phosphorus, unwrought nickel, ferric-alloys, molybdenum ores, etc.; 8%
(5) Certain agricultural products- e.g. soybeans, products derived from natural resources: coke, coal, feldspar, talc, steatite, etc. 5%.
-The VAT refunds were cancelled for the export of crude oil, timber, wood pulp, goat hairs, eels, ores of rare earth metals, phosphorus ores, natural graphite, etc.
@A bicycle manufacturer sold 1,500 bicycles in the first quarter of the year with
selling price of each bicycle was 300 dollars and exported 2,250 units of bicycle.
FOB for each bicycle is 30 US dollars; input VAT of parts for the bicycles 85,500
dollars; the exchange rate is 100 US dollars to RMB 840, value added tax rate 17%,
refund rate 13%.
Above purchase did not include tax and have VAT special invoices. Require calculating the taxable or refundable value added tax for the enterprise.
Non-refundable VAT = 2,250 x 30 x 8.4 x (17% - 13%) = 22,680 dollars Deductible /refundable VAT = 85,500 - 22,680 = 62,820 dollars
Output VAT of domestic sales = 1,500 x 300 x 17% = 76,500 dollars
Net VAT payable = 76,500 - 62,820=13,680 dollars payable.
However if the selling price of each unit in the domestic market is 200 dollars each, then the output VAT of domestic sales =100 x 200 x 1 7%=5 1,000 dollars payable
Net VAT payable = 51,000-62,820 = 11,820 dollars refundable.
There are 2 tax refund computation methods:
(1) ¡°Exempt, setoff, refund¡± method
It is mainly applied to all manufacturing enterprises. It consists of 3 steps:
a. Exempt refers to the export sale is exempted from output VAT;
b. Setoff refers to the related input VAT of the exported goods can be used to setoff
the output VAT of the domestic sales made by the taxpayer, if any;
c. Refund refers to the case that after the setoff, if there are still unused input VAT, they can be refunded.
The above 3 steps should be made in order and computed monthly by the taxpayer.
However for the case that the VAT tax rate (normally 17%) is not same as the refund rate, it needs to calculate the irrecoverable input VAT:
Irrecoverable input VAT = Free on board (FOB) x (tax rate - refund rate) - Bonded materials x (tax rate - refund rate)
Bonded materials are materials imported into the PRC for the purpose of export to overseas. No payment of import duty and VAT is needed at the import stage.
The irrecoverable VAT cannot be used to offset against the output VAT of the domestic sales, and should be transferred out from input VAT and be charged to cost of sales. Then the VAT payable (A) = Output VAT of domestic sales - (Total input VAT - irrecoverable VAT) - input VAT brought forward
If(A) is positive, the taxpayer needs to pay the amount for the month.
If(A) is negative, the amount of refund depends
(i) FOB x refund rate > or equal to input VAT carried forward at the end of the month:
The refund amount = input VAT carried forward at the end of the month (ii) FOB x refund rate < input VAT carried forward at the end of the month:
The refund amount = FOB x refund rate
The reason for the above process is to make sure the refund is the amount of the refund itself or the amount left, not including any input VAT that is brought forward from last month that is not belonging to input VAT of the consumed materials of export goods.
(2) ¡°Levy first, refund afterwards¡± method
It is mainly applied to all trading enterprises that have right of import and export. Under this method, an enterprise needs to pay output VAT on export and claim a VAT afterwards as explained in the following formula:
VAT payable Output VAT on domestic and export sales - input VAT
VAT refund Export sales x refund rate

12 EXPORT EXEMPT BUT NO REFUND
For exporting the following goods, there in no output VAT but also no input VAT refund:
Contract processing for export;
...i.A
Contraceptive medicines and devices;
Antique books;
Others stipulated by the laws.