VAT Rebate in China
Below is a typical discussions that happens when prospective clients contact PassageMaker for help clarifying the VAT rebates in hopes of negotiating a better price from their suppliers.
It starts with a simple question like “what is the VAT rebate rate in China on the products I am purchasing” but quickly moves to “how can I use this knowledge to negotiate a better price in China”.
We are always happy to help, and share the email below for your reference. While you probably aren’t in the shoe business, you may be thinking about similar issues. Hope you enjoy the blog post below and feel free to contact us if you would like more information.
Mike, Can you advise what the VAT rebate % is for footwear. If it is different for different types of footwear, please detail.
I would be happy to have my staff look up footwear VAT rebate. I believe there may be different rates for different types of footwear. Do you happen to know the HS codes of the products you would like me to look up? That would help a lot. If not, send me a picture and description and I will have my team look up the HS code and then dig up the VAT rate for that code.
Our products fit into the 6402, 6403, 6404, 6405 HTS codes. We primarily do Winter boots in leather or synthetic, we do rubber boots, and we do sandals and shoes in leather and synthetic. so basically we cover most of the footwear categories
Good news. They are all the same VAT rebate. 15%.
If I could impose on you again to clarify something. Is the 15% rebate based on the invoice price, in which case you get back 15/17ths of what you paid ( almost the whole amount ) or is it based on 15% of the VAT that you pay within your invoice price, which is a much lesser amount.
The factory invoices our agent for $18.34 per pair. Assuming that includes VAT, the VAT included is $2.66. Is the export rebate $2.35 ( 15/17ths of $2.66) or $0.40 ( 15% of $2.66 )
Excellent question. That would be the logical way to do it. But it is a bit more tricky in China and there are lots of variables and assumptions. But for the sake of giving you a feel for how it works, and assuming the price paid to the supplier includes proper VAT-paid invoice (essential for the formula to work), then if you paid 1 RMB (inclusive of tax) your VAT rebate at export (assuming 15% rebate rate in your products case) would be 0.128
First step: calculate the price before VAT (1 RMB / 1.17) = 0.8547
Second: apply the rebate rate to that price 0.8547 X .15= .128
Those are the broad strokes.
We have found out that most of the factories we deal with have an import/export licence. We conclude that they are invoicing our agent at their Hong Kong address, and therefore they are collecting the export rebate from the China Govt. because they are the official exporter out of China. If that is the case, we have to think about how we approach them regarding our pricing, especially if it is the higher of the 2 amounts in the example
Yes, it is very wise to understand how VAT plays a role in your supply chain. As mentioned in a previous email, you may be able to save time and frustration if you engage PassageMaker to get some competitive quotes and do a VAT survey to see if you are being respected by your current partners. This can be done without making it public who is asking.