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31.08.2019

China: Refund of unutilized VAT credits

China allowing a refund of unutilized VAT credits to taxpayers who have a good tax compliance rating

Key Facts
  • The State Administration of Taxation issued an announcement on its detailed implementation (Announcement [2019] No. 20) for refund of unutilized VAT credits.
  • The taxpayers are required to have a good tax compliance rating.
Author
Maggie Han
Senior Manager (Tax/Finance)
China
> View Profile

Background

Further to the recent announcement allowing a refund of unutilized VAT credits, the State Administration of Taxation (SAT) issued another announcement on its detailed implementation (Announcement [2019] No. 20).

Criteria for the refund

A taxpayer should meet ALL of the following criteria to qualify for the refund:

  • Its incremental uncredited VAT has been above zero since April 2019 for six consecutive months (or two consecutive quarters if VAT is filed quarterly rather than monthly), and the amount for the sixth month is no less than RMB 500k;
  • Its tax credit rating is Grade A or Grade B;
  • It has not committed any fraud in obtaining the refund for uncredited or export VAT or falsified any special VAT invoices in the past 36 months before the application;
  • It has not been penalized two or more times by the tax authorities for tax evasion in the past 36 months before the application; and
  • It has not enjoyed any VAT refund, either under the policy of “immediate refund after collection” or “refund-upon-collection” since April 1, 2019.

Timing for the application

  • Once it meets all the above criteria, starting from the next month, the taxpayer can submit an online application on the tax authority’s website, after completing the VAT filing for the period.

“VAT exemption, credit or refund” and “uncredited VAT refund”

  • The two applications for a VAT refund can be submitted for the same filing period.
  • The tax authority is required to process first the application for “VAT exemption, credit or refund” as a priority, and then the application for “uncredited VAT refund” if the taxpayer can still meet the criteria.

Application timeline

  • The tax authority should complete the examination within 10 working days after receiving the application from the taxpayers.
  • If the VAT refund amount cannot yet be finalized due to some pending issues when the application is submitted, the “10 working days” should be counted from the day when the amount is confirmed.

Circumstances that may suspend the refund procedure

The following circumstances will cause the refund procedure to be suspended by the tax authority:

  • The taxpayer has VAT-related risks;
  • The taxpayer is under a tax audit and the audit is not yet wrapped up;
  • An abnormal issue found during the VAT authentication process is not resolved;
  • An abnormal VAT deduction voucher is received but not resolved; or
  • Other circumstances specified by SAT.

WTS Observation

  • It is emphasized again that the taxpayers are required to have a good tax compliance rating. To qualify for the refund of unutilized VAT credits, the taxpayers should endeavor to maintain a sound tax compliance rating at all times.
  • The policy can minimize the financial pressure of those enterprises with unutilized VAT credits accumulating overtime. They are usually engaged in large investment and long production and sales cycles.
  • The application procedure is made online and is simple, in line with the principle of administrative simplicity advocated by the Chinese government in recent years.
Article published in WTS Global VAT Newsletter Q2/2019
Recent or expected changes in VAT and GST regulations and compliance duties in various EU and third countries
View publication
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