China expands the application of VAT refund policies

The Ministry of Finance and the State Administration of Taxation jointly issued in March 2022 Announcement “on Further Enhancing the Implementation of the Policy for the Refund of Period-end Uncredited VAT” (MOF SAT Announcement [2022] no. 14). The State Administration of Taxation subsequently issued the Announcement “on Relevant Tax Collection and Administration Matters Concerning Further Enhancing the Implementation of the Policy for the Refund of Period-end Uncredited Value-added Tax” (SAT Announcement [2022] no. 4) with the application procedure.


Both Announcement no. 14 and no. 4 will be effective from 1 April 2022 and enhance the implementation of the refund of period-end uncredited VAT extending to micro and small enterprises, advanced manufacturing taxpayers (including individual businesses) and to taxpayers operating in six industries, namely “manufacturing”, “scientific research and technical services”, “electricity, heating, gas and water production and supply”, "software and information technology services", "ecological protection and environmental governance" and "transport, warehousing and postal”, together referred to as “Manufacturing and Other Sectors”. Previously, only taxpayers operating in the advanced manufacturing industry were eligible (MOF SAT Announcement [2021] no. 15).


Micro and small enterprises (including individually owned businesses) will be eligible to apply for the full refund of the incremental VAT credit on a monthly basis and the refund of the existing VAT credit in a lump sum. Eligible taxpayers can apply for the refund of the incremental VAT starting from the filing period of April 2022. The refund of the existing VAT credit can be applied beginning in April 2022 (for micro-enterprises) and May 2022 (for small enterprises).


Taxpayers operating in Manufacturing and Other Sectors will be eligible to apply for the refund of the incremental VAT credit on a monthly basis and the refund of the existing VAT credit amount. Those taxpayers can apply for the refund of the incremental VAT credit starting from the tax filing period of April 2022 and for the refund of the existing VAT credit from July 2022 (for medium enterprises) and from October 2022 (for large enterprises).


Micro, small, and medium enterprises shall be classified according to the total assets and the VAT taxable sales in the previous year, while in order to be classified as an enterprise operating in Manufacturing and Other Sectors, the taxpayer shall derive more than 50% of its VAT taxable sales from one of the sectors.


To be eligible, the applicant taxpayers shall meet all the following conditions:

  • The tax credit grade is A or B;

  • In the 36 months prior to the application, they have not obtained a VAT refund or export refund fraudulently and not been subjected to penalties on two or more occasions

  • They have not benefited from the “Refund upon Payment” and “Refund after Payment” policies for refunding the excess VAT since 1 April 2019.

Announcement no. 14 also specifies how to compute the incremental and existing VAT credit amount and the refundable part.

For the incremental VAT credit amount, before the taxpayer obtains the refund of the existing VAT credit amount, the incremental VAT credit amount shall be calculated as the increased VAT credit amount between its VAT credit amount at the end of the current period and that as at 31 March 2019. Once the taxpayer receives the existing VAT credit amount refund, the incremental VAT credit amount shall be the VAT credit amount at the end of the current period.


The existing VAT credit amount is the VAT credit amount as of 31 March 2019 or at the end of the current period, whatever is lower. Once the taxpayer receives the refund of its existing VAT credit, the existing VAT credit amount shall be zero.


For the calculation of the refundable VAT credit amount:

  • Refundable incremental VAT credit amount: Incremental VAT credit amount * input VAT ratio * 100%

  • Refundable existing VAT credit amount: Existing VAT credit amount * input VAT ratio * 100%

Where the input VAT ratio is calculated as the ratio of the deducted input VAT stated in the special VAT invoices and Customs certificates for import VAT to the total deducted input VT of the same period.


Optionally, a taxpayer can continue to carry its input VAT credit forward to the next period.



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