Laws of the People's Republic of China

State Administration of Taxation

Circular of the State Administration of Taxation on Some Issues concerning Tax Refund or Exemption on Export Goods

GuoShuiFa [2003] No. 139

November 18, 2003

The administrations of state taxation of all provinces, autonomous regions, municipalities directly under the Central Government, cities directly under state planning, and all entities under the State Administration of Taxation:

With a view to solving the issues feedback from the regions concerning the enforcement of export tax refund policies, upon deliberation, we hereby make the following notice:

I.

The following formula shall be applicable for calculating and deducting the output tax payable on the taxable goods regarded as sold in domestic market according to the Measures for Tax Exemption, Deduction or Refund:

Output tax payable = Offshore price of export goods regarded as taxable goods sold in domestic market ¡ÁForeign exchange quotation of Renminbi ¡Á VAT rate Where the export enterprises have made calculation on the amount of taxes prohibited from exemption or deduction in the tax exemption, deduction or refund as prescribed on the aforesaid taxable goods, which are regarded as goods sold in domestic market and have been changed into cost, they shall be changed from the cost item into the income item of amount of tax.

The taxable goods regarded as goods sold in domestic market shall include: Goods for which the relevant certificates of tax refund or exemption on their export haven't been fully collected by the production enterprises within 6 months from the date of applying to customs for export or for which the formalities of tax exemption, deduction, or refund haven't been handled at the tax authorities in charge as prescribed in the "Circular of the Ministry of Finance and the State Administration of Taxation on Further Advancing the Implementation of Measures for Tax Exemption, Deduction and Refund on Export Goods" (CaiShui [2002] No. 7); and the export goods enjoying the tax exemption, deduction, or refund and with no electronic data (excluding the paper-made customs declaration) declared by the production enterprises, or the export goods with electronic data but haven't been declared at the current month by the enterprises as prescribed in the "Circular of the State Administration of Taxation on Examination and Verification of the Export Volume of the Production Enterprises Enjoying Tax Exemption, Deduction or Refund by Using the Export Data in the "Port Electronic Law Enforcement System" (GuoShuiHan [2003] No. 95). The export volumes, for which taxes unpaid shall be paid in the following month as prescribed in Document GuoShuiHan [2003] No. 95, shall not include the export volume of the business of commission, agency factor, or consignment.

The taxable goods regarded as goods sold in domestic market shall include: Goods for which the relevant certificates of tax refund or exemption on their export haven't been fully collected by the production enterprises within 6 months from the date of applying to customs for export or for which the formalities of tax exemption, deduction, or refund haven't been handled at the tax authorities in charge as prescribed in the "Circular of the Ministry of Finance and the State Administration of Taxation on Further Advancing the Implementation of Measures for Tax Exemption, Deduction and Refund on Export Goods" (CaiShui [2002] No. 7); and the export goods enjoying the tax exemption, deduction, or refund and with no electronic data (excluding the paper-made customs declaration) declared by the production enterprises, or the export goods with electronic data but haven't been declared at the current month by the enterprises as prescribed in the "Circular of the State Administration of Taxation on Examination and Verification of the Export Volume of the Production Enterprises Enjoying Tax Exemption, Deduction or Refund by Using the Export Data in the "Port Electronic Law Enforcement System" (GuoShuiHan [2003] No. 95). The export volumes, for which taxes unpaid shall be paid in the following month as prescribed in Document GuoShuiHan [2003] No. 95, shall not include the export volume of the business of commission, agency factor, or consignment.

The amount of taxes prohibited from exemption or deduction in the tax exemption, deduction or refund, shall be calculated according to the formula as prescribed in Document CaiShui [2002] No.7

III.

Where a production-oriented enterprise group corporation (or parent plant) exports goods for its member enterprises (or branches) as an agent, the enterprise group (or parent plant) may file an application to the competent taxation authorities for issuance of the "Certificate of Export as an Agent", and the member enterprises (or branches) shall implement the methods of tax "Exemption, Deduction, or Refund".

IV.

Where a foreign contracting engineering company, who has the management right for foreign economic cooperation upon approval by the relevant departments, and who is not an ordinary VAT taxpayer, purchases export goods in relation to a foreign contracting project, the production enterprises supplying goods for it may file an application to the tax authorities for issuance of Tax Payment Notice (used specially for export goods) upon the strength of the certificates (copies) such as the certificate of approval for the management right of foreign economic cooperation, etc., as provided by the foreign contracting engineering company. The foreign contracting engineering company may then, upon the strength of the Tax Payment Notice (used specially for export goods), common invoices or special VAT invoices, and other prescribed certificates, apply for handling tax refund on export goods in relation to the foreign contracting project to the competent tax authorities.

V.

Where a production enterprise within the bonded zones purchases raw materials, components and parts, etc. from the enterprises outside the bonded areas, who have the management right of import and export, and exports them after having processed them into products, it shall file an application to the competent taxation authorities for handling tax exemption, deduction or refund upon the strength of the file bill on exit issued by the customs in the bonded zones and other prescribed certificates.

Where an enterprise engaging in the processing of the imported materials in the bonded zones imports raw materials and components and parts from abroad, it may, upon the strength of the "Bill for Filing the Imported Goods in the Customs Bonded Zones", go through the formalities for obtaining the "Certificates of Tax Exemption on Trade of Processing Imported Materials by Production Enterprises", etc.

VI.

Tax refund or exemption on goods exported through storehouse, which is supervised by the customs, shall be handled according to the existing provisions upon the strength of the customs declaration for export goods (used specially for export tax refund) signed and issued by the customs or other prescribed certificates.

VII.

As to the provisions of Article 3 of the Document CaiShui [2002] No. 7, that is, "the purchase of raw materials enjoying tax exemption shall include the purchase of raw materials enjoying tax exemption from within the country and the import of materials and components and parts enjoying tax exemption for processing the imported material", the purchase of raw materials enjoying tax exemption from within the country refers to the goods enjoying tax exemption, whose names are listed in the "Interim Regulations of the People's Republic of China on Value-added Taxes" and the "Detailed Rules for the Implementation of the Interim Regulations of the People's Republic of China on Value-added Taxes", and other relevant provisions, and for which the input tax payable cannot be calculated and deducted as prescribed.

VIII.

Where an enterprise is doing a new export business other than those prescribed in paragraph 2, and paragraph 3 of the present Article, the method of refunding taxes on monthly basis shall not be applicable to the amount of tax refundable occurred within 12 months from the date of occurrence of the first of the export business. That amount of tax refundable shall be carried forward to the next term to offset for goods sold in domestic market. After the 12 months, the provisions of Article 9 of the present Circular on small export enterprises shall be applied, if it is a small export enterprise. Where the enterprises do not fall within the scope of small export enterprises, the tax exemption, deduction or refund thereof shall be handled uniformly by way of calculation on monthly basis.

In case an enterprise has registered and opened business for over one year (excluding small export enterprises) and does have the production capability and has no illegal acts such as tax evasion, smuggling, or evading or illegally trading in foreign exchange upon verification by local or municipal tax authorities, the tax exemption, deduction or refund of its newly occurred business may be calculated on monthly basis uniformly.

Where a newly established enterprise whose total sales volume of internal distribution is 5 million Yuan or more, and whose overseas sales volume accounts for 50% or more of its total sales volume, and it will face difficulty in case its tax refund is not to be handled within 12 months from the date of establishment, the tax exemption, deduction or refund thereof shall be handled by way of calculation on monthly basis uniformly on the basis of tight control upon the approval of the administrations of state taxation of provinces, autonomous regions, and municipalities directly under the Central Government.

IX.

The amount of tax refundable of a small export enterprise, which is occurred in the middle of the year, and on which the term for examination and verification of the tax refund is 12 months under Article 8 of Document CaiShui [2002] No. 7, shall not be handled by way of refunding taxes on monthly basis, but shall be handled by way of carrying it forward to the next term to offset for goods sold in domestic markets. For the part failing to be offset, the tax refund shall be handled once for all at the end of the year. The standard for determining the small export enterprises shall be made uniformly by the administrations of state taxation of all provinces (autonomous regions, and municipalities directly under the Central Government) according to the reality of the whole provinces (autonomous regions, and municipalities directly under the Central Government), and within the range of 2 million Yuan or more up to 5 million Yuan of the total sales volume of the enterprise in domestic markets and overseas markets in the previous taxpaying year.

X.

The VAT shall be exempted for the export goods of the production enterprises taxed by simple method. And other goods exported shall apply the Methods of Tax Exemption, Deduction and Refund.

XI.

A small-scale taxpayer, who entrusts other processing enterprises to undertake the business of processing with materials provided, may file an application to the tax authorities for issuance of "Certificate of Tax Exemption on Processing with Materials Provided" according to the relevant provisions in existence. And the processing enterprises may go through the formalities for tax refund on processing fees upon the strength of the "Certificate of Tax Exemption on Processing with Materials Provided".

XII.

Where an enterprise with foreign investment who is not a VAT taxpayer, or who is a small scale taxpayer, or who is established in the bonded zones, purchases home-made equipment, which is in conformity with the relevant provisions under the "Circular of the State Administration of Taxation concerning Printing and Distributing the 'Trial Measures for the Administration of Tax Refund on Home-Made Equipment Purchased by Enterprises with Foreign Investment'" (No. GuoShuiFa [1999] No. 171), its tax refund may be handled in accordance with the relevant provisions.

XIII.

Where an enterprise with foreign investment entrusts other enterprises to undertake the construction of a project by way of contracting for labor and materials, it may sign an agreement with the enterprise engaging in the construction and entrusts it to purchase the kinds of home-made equipment in conformity with the relevant provisions of Document GuoShuiFa [1999] No. 171. The enterprise engaging in the construction shall then, upon the strength of the entrustment agreement for purchase of the home-made equipment and the "Handbook for Registration of Home-Made Equipment Purchased by Enterprises with Foreign Investment", purchase the home-made equipment, and obtain the special VAT invoices and the Tax Payment Notice (used specially for export goods) for value-added taxes, and hand them over to the enterprise with foreign investment to handle tax refund pursuant to relevant provisions.

XIV.

The present Circular shall enter into force as of January 1, 2003.