How to Calculate China Exemption-Refund (ER) Export Rebates (China VAT)

What China VAT exports do and don’t cover

Most goods sold in China have VAT applied. When the goods are exported the government will either exempt the sale from output VAT or they will refund part/all of the input VAT. The result of this is that most exports will leave China free of domestic VAT. This avoids double taxation when the goods move into other country’s VAT system. It has been identified that VAT refunds are a primary export incentive, along with duty relief and finance support.

Trading companies that export products from China can take advantage of the Exemption-Refund (ER) method. Exports are exempt from VAT output tax, the eligible input VAT is credited against domestic output VAT, and any excess can be refunded (subject to product-specific caps. Export refunds are handled through this Exemption-Refund (ER) mechanism, instead of just having a cash-back system for all input tax.

Two important points about VAT rates:

• Refund rates are set by product (HS code) – The refund rate for goods ranges from 0% to 13%. For most exported services the refund rate mirrors the applicable VAT rate.
  
• Rates can change – as an example, in December 2024, China reduced the export rate to 9% for some solar products, some refined oils and non-metallic mineral products. It also cancelled rebates for some metals such as aluminum and copper as well as some oils/fats. Staying up to date is essential because the same HS code can work differently from one month to the next.

The working formula you need

In day to day compliance, most companies will calculate the refund on the purchase value evidenced by the VAT special invoice for the exported goods. The core formula used in practice is:

Refundable amount = VAT special invoice amount (minus VAT) x applicable export rebate rate

This approach is found in tax practice notes, training materials and the local rule summaries.

Why ‘minus VAT’? The VAT special invoice will show the net goods amount and the VAT as a separate line. The export rebate returns VAT embedded in the domestic purchase price of inputs: this uses the net amount and ensures that there is no refund of a tax on a tax. Practitioner examples show this – convert any tax-inclusive price to a net amount then it can be multiplied by the rebate rate. 

Some examples may describe a FOB price x rebate rate shortcut. Those examples are specific to certain business models and local practices, but for mainstream self-procure and export cases, it is standard to use the VAT special invoice formula. Always align with the filings at the local tax bureau and specific rules that apply to your exact scenario.

Step by step process for calculating export rebate amounts

Step 1 – Identify the correct HS code and the current rebate rate

Once you have identified the HS code you can identify the correct refund rate, which will be between 0 and 13%. Adjustments can occur, for example the cut in 2024 from 13% down to 9% for specific solar items. Ensure you update your pricing and cash-flow model if your product has a reduced or canceled rate.

Step 2 – Collect the source documents

You will need the VAT special invoice and the export customs declaration. The relevant guides to the processes stress that refunds are subject to correct and matching documentation.

Step 3 – Identify the base amount

You can use the VAT special invoice amount excluding the VAT figure. You can also convert from the figure that includes tax to a net figure by dividing by 1 + VAT rate. This the refund base.

Step 4 – Apply the rebate rate

You can multiply the base figure by the applicable rebate rate for your product. That gives you the refundable amount.

Step 5 – Check for caps, mismatches and compliance limits

Using the Exemption-Refund (ER) method, the system will reconcile the exemption, the credit and the refund. Some goods will not receive a full refund and there may be some product types that qualify for a special rate set by the government to limit leakage.

Working examples of 13% and 9% refund rates

These two rates are the common top-tier rates, but some might be lower than this or even zero.

Example A – 13% refund rate

A trading company buys widgets within China for RMB 113,000 (this figure includes tax) at a VAT rate of 13%. The VAT special invoice shows RMB 100,000 (net) + RMB 13,000 VAT. The rebate rate (by HS code) is 13%.

The refund calculation:

• Base (net) = RMB 100,000
• Refund = 100,000 x 13% = RMB 13,000

Most examples in the guides are set out this way.

Example B – 9% refund rate (post-adjustment products)

• Input – same net purchase amount – RMB 100,000
• Rebate rate – 9% 
• Refund calculation – 100,000 x 9% = RMB 9,000

This example shows how the change in policy reduced the cash refund available to exporters. When the 2024 changes were announced for solar products, the exporters affected renegotiated their prices.

How to avoid common mistakes

• Using the wrong rate – don’t allow the figure to default to a specific rate, always check the HS code and the dates. Policy updates can reset the rates.
• Using a tax-inclusive base – Using a base that includes tax will mean you overestimate the value of the claim. Always convert to net then apply the rate.
• Avoid documentation mismatches – the amounts on the VAT special invoice should always match the information on the export declaration. Some local adminstrations may allow a narrow discrepancy, but vastly different figures will not be tolerated. The latest guides emphasize the need for strict monitoring of these figures.
• Expecting a full refund – there are occasions when a domestic input VAT rate is 13% but the refund rate is lower. Full refunds are not always the case.

How this works with the wider export incentives in China

VAT export refunds all sit alongside the duty exemptions and reductions, the FTZ benefits and financing tools that aim to improve the pricing power and cash flow of exporters. Guides show that the VAT refunds and rebates are used frequent and have a positive impact, particularly where the sector is price-sensitive. 

Handy refund checklist

• Confirm the HS code
• Confirm current refund rate
• Check for any recent policy changes
• Gather invoices and export declarations
• Check that the VAT special invoice net amount is clear and matches across all documentation
• Use the formula above to calculate the refund
• Reconcile the figure using the Exemption-Refund (ER) 
• Ensure there is no capped rate in the schedule for that product type

The math itself is straightforward as you can see from the formula above.

The policies relating to Exemption-Refund (ER) mechanics and the evolving rate tables explain why the refund can be less than the domestic VAT rate and why it is so important to be fully aware of the rate changes that can affect your margins.