China: Promotion for the Input Value Added Tax Credit Refund Policy

• The amount of incremental uncredited input VAT is larger than zero for six months (or two quarters, if quarterly VAT filing applies) consecutively, and the amount of incremental uncredited input VAT in the sixth month is not less than CNY 500,000;
• The tax credit rating of the enterprise is A or B-rated;
• The taxpayer has been compliant with tax refund, export tax rebate or special VAT invoice for the past 36 months;
• The taxpayer has not received two or more penalties for tax evasion from the tax authority during the past 36 months;
• The taxpayer has not enjoyed the preferential policies of tax collection with immediate refund or tax collection first and refund later since 1 April 2019.

Recently, Announcement (2022) No. 14 was issued by the Ministry of Finance and State Administration Taxation (Announcement No.14) to further promote the input VAT credit refund policy, so that small-/micro-sized enterprises and enterprises from six specific industries (Qualified Enterprises) could apply monthly for the refund of the incremental uncredited input VAT, and are allowed to refund the remaining uncredited input VAT once. The details are as follows:

• Since April 2022, small-/micro-sized enterprises that meet certain criteria could apply for the refund of the incremental uncredited input VAT before December 31, 2022;
• Since April 2022, micro-sized enterprises that meet certain criteria could apply for the refund of the remaining uncredited input VAT once; Since May 2022, small-sized enterprises that meet certain criteria could apply for the refund of the remaining uncredited input VAT once;
• Since April 2022, enterprises from six specific industries that meet certain criteria could apply for the refund of the incremental uncredited input VAT; and
• Since July 2022, medium-sized enterprises from six specific industries that meet certain criteria could apply for the refund of the remaining uncredited input VAT once; Since October 2022, large scale enterprises from six specific industries that meet certain criteria could apply for the refund of the remaining uncredited input VAT once.

Among which,

• The standards of “small-/micro-/medium-sized” should follow those indicated in Gongxinbulianqiye (2011) No. 300 and Yinfa (2015) No. 309. Large scale enterprises refers to enterprises other than small-/micro-/medium-sized enterprises.
• The six specific industries refer to the industries of: 1) manufacturing; 2) scientific research and technical services; 3) electricity, heat, gas and water production and supply; 4) software and IT services; 5) ecological protection and environmental management industry; and 6) transportation, warehousing and postal;
• The remaining uncredited input VAT in general refers to the smaller of: 1) ending balance of the uncredited input VAT in the current month; 2) ending balance of the uncredited input VAT in March 2019;
• The Qualified Enterprises mentioned above should also meet the following criteria to apply for the input VAT credit refund:

Please note that in both policies mentioned in Announcement No. 39 and Announcement No. 14, the refundable input VAT credit does not equal to the total amount of the incremental uncredited input VAT or the remaining uncredited input VAT. The composition of the input VAT (i.e., the proportion of input VAT indicated in specific tax documents such as VAT special invoices among all input VAT) and a fixed refund rate should also be taken into account when calculating the refundable input VAT credit amount.

Whether such refund could be applied is still subject to tax authority’s interpretation and practice. The success of the application also depends on the veracity and strength of the supporting documents (if any required by the tax authority).