China Adjusts Export VAT Refund Rates
Global Services Tax Alert, July 2007

On June 19, 2007, the Chinese government announced the adjustment of the Export Value-Added Tax Refund Rates (EVRRs) for certain items. EVRRs are used to determine the rate of Value-Added Tax (VAT) refund upon exportation of goods, and range from 0 (non-refundable) to 17 percent (fully refunded). EVRRs are determined from the exported product’s PRC tariff number.

This adjustment removed or reduced the VAT rebate for more than 2,800 commodities. The goal of this adjustment is to reduce China’s trade surplus. In detail, the adjustments will:

• Eliminate export tax rebates on 553 “highly polluting products that consume heavy amounts of energy and resources”
• Reduce export VAT rebates on 2,268 commodities, including clothing and footwear

The adjustments took affect on July 1, 2007. Previous EVRRs are grandfathered in for products under export contracts signed before July 1, 2007 and building materials.

EVRRs are significant for manufacturers that export goods in China because they determine the net VAT cost for the manufacturers. If the EVRRs are reduced, the VAT costs will increase. The Chinese government believes that the increases in cost will incite capital investment in higher technology and help the country develop economically. Exporters need to assess the impact of the adjustments and determine if their operations need to be restructured to avoid or minimize VAT costs.

Plante & Moran Global Services assists companies in determining if their Chinese-made products are affected and by what amount. For questions or help regarding the adjustments, contact Scott Sneckenberger at 248.375.7348, scott.sneckenberger@plantemoran.com, or Tim Martinez at 312.899.4460, Timothy.Martinez@plantemoran.com, both of Plante & Moran Global Services.

Disclaimer: The information provided in this memorandum is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.