Preferential policy on VAT Credit Refund
- Background of the «Announcements»
To support the development of small and micro enterprises and manufacturing industries, etc., boost the confidence and stimulate the vitality of market players, the State Administration of Taxation has issued the «Announcement of the State Taxation Administration on Matters Concerning the Handling of the Refund of Term-End Excess Input Value-Added Tax Credits» [No. 20 [2019]] (hereinafter referred to as “Announcement No. 20″) and the «Announcement of the State Taxation Administration on the Collection Administration Matters Concerning Further Strengthening the Implementation of the Policies Regarding the Refund of Term-End Excess Input Value-Added Tax Credits» [No. 4 [2022]] (hereinafter referred to as “Announcement No. 4“), which clarifies the matters related to the levy and management of the VAT credit refund processing.
After the inclusion of industries such as “wholesale” and “retail trade” into the scope of the policy of full credit refund, under the existing framework of the levy and management of the VAT credit refund and taking into account the specific contents of the newly introduced policy, the Ministry of Finance and the State Administration of Taxation jointly issued the «Announcement of the Ministry of Finance and the State Taxation Administration on Expanding the Scope of Industries to Which the Policy of Refunding Excess Input Value-Added Tax Credits in Full Amount Applies» [No. 21 of 2022] (hereinafter referred to as “Announcement No. 21“) to make additional provisions on relevant
- Beneficiary taxpayers
Eligible small and micro enterprises are manufacturing and other industries (including manufacturing, scientific research and technical services, electricity, heat, gas and water production and supply, software and information technology services, ecological protection and environmental management, transportation, storage and postal services) enterprises.
Medium-sized enterprises, small enterprises, micro-enterprises are divided according to the two “regulations” in the indicators of operating income and the total assets indicators. One is the «Provisions on Criteria for Classifying Small and Medium-sized Enterprises» [No. 300 [2011] of the Ministry of Industry and Information Technology], the other is the «Provisions on the Size Classification Standards for Financial Enterprises» [No. 309 [2015] of the People’s Bank of China]. Among them, micro enterprises are those with VAT sales (annual) of less than 1 million yuan (excluding 1 million yuan), while small enterprises are those with VAT sales (annual) of less than 20 million yuan (excluding 20 million yuan).
VAT sales (annual) = VAT sales during the actual existence of the enterprise in the previous fiscal year / actual number of months of existence of the enterprise * 12.
- Conditions to apply the VAT credit refund
The following 4 conditions needs to be met at the same time.
- The tax credit rating is A or B, where the taxpayer’s is the tax credit rating based on the tax credit rating at the time of submitting the Tax Refund (Credit) Application Form. The tax authorities released the tax credit evaluation results for 2021 in April 2022.
Taxpayers whose current tax credit level is not A or B grade can determine whether they meet the conditions of applying for tax refund with tax credit in accordance with the new tax credit level if they reach tax credit level A or B in the tax credit evaluation in 2021.
- No fraudulent withholding tax refund, fraudulent export tax refund or false invoicing of VAT special invoices has occurred in the 36 months prior to the application for tax refund.
- Not having been punished twice or more by the tax authorities for tax evasion in the 36 months prior to the application for tax refund.
- Not enjoying the policy of immediate refund and refund after levy (refund) since April 1, 2019.
It should be noted that taxpayers can declare both the incremental tax credit refund and the stock tax credit refund within the specified time.
- How to apply the VAT credit refund
Step 1: After completing the VAT declaration for the current period within the declaration period, the taxpayer submits the Application Form for Tax Refund (Credit) through the tax service hall or electronic tax bureau in accordance with the prescribed application period.
Step 2: Upon receipt of the “Notice of Tax Matters” issued by the taxation authority granting the tax credit refund, the amount of the allowed refund of incremental tax credit is offset against the amount of the retained tax at the end of the period in accordance with the approved amount of the taxation authority.
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