15 Questions to Figure out the Process of Rebate of VAT Retained

　　To implement the decisions and deployment of the Party Central Committee and the State Council on tax cut and fees reduction in depth, the Ministry of Finance and the State Taxation Administration have successively developed a series of preferential policies and supporting documents this year. In order to help the taxpayers and tax staff correctly understand relevant policies and effectively solve relevant problems in work, the tax cut and fees reduction implementation leading team off of State Taxation Administration has sorted out the problems reported in the implementation of various places for the reference of taxpayers.

　　China began partial rebate of VAT retained for some industries in 2018. According to the Announcement of the Ministry of Finance, State Taxation Administration and General Administration of Customs on Policies Related to the Deepening of VAT Reform (Announcement No. 39 of the Ministry of Finance, State Taxation Administration and General Administration of Customs, 2019), the rebate of VAT retained shall be comprehensively implemented from April 1, 2019, without differences between industries; as long as the ordinary VAT payers are eligible, they can apply for the rebate of incremental VAT retained. In order to support the development of advanced manufacturing industries, recently, the Ministry of Finance and the State Taxation Administration have published the Announcement of the Ministry of Finance and State Taxation Administration on Clarifying the Rebate of Period-end VAT Retained for Some Advanced Manufacturing Industries (Announcement No. 84 of the Ministry of Finance and State Taxation Administration, 2019, hereinafter referred to as “Announcement No. 84”), further relaxing the preferential policies by increasing the amount of rebate for some advanced industries and allowing full-amount rebate of qualified incremental VAT retained.

　　Save and read the following 15 questions to better understand the rebate of VAT retained.

　　1. What is the incremental VAT retained?

　　A: The incremental VAT retained refers to the newly increased period-end VAT retained compared with that in the end of March 2019.

　　2. Why is only the incremental portion rebated?

　　A: Only the incremental portion is rebated because on the one hand, we’d like to encourage the enterprises to expand reproduction, and on the other hand, it is unbearable for the finance in a short term to rebate all the stock and incremental VAT retained at one time. So only the incremental VAT retained is to be rebated this time, and the stock portion shall be gradually handled as appropriate.

　　3. Why must the incremental VAT retained be larger than zero for six consecutive months and that of the sixth month no less than CNY 500,000?

　　A: It’s mainly a consideration out of rebate efficiency and cost effectiveness. When the incremental VAT retained is larger than zero for six consecutive months, it indicates that the ordinary VAT payer has VAT retained on a regular basis, which can hardly be handled with its own production and operation, thus necessitating the rebate. “No less than CNY 500,000” is a threshold of the rebate amount; rebate lower than this standard will impact the administrative efficiency and increase the tax burden of the taxpayers.

　　(Note: according to the “Announcement No. 84”, one of the conditions for applying for the rebate of VAT retained in some advanced manufacturing industries is “The incremental VAT retained shall be larger than zero from June 1, 2019”.)

　　4. Is a new ordinary VAT payer with the tax credit rating of M eligible to apply for the rebate of VAT retained?

　　A: One of the conditions for the rebate of VAT retained is that the tax credit rating must be A or B; taxpayers with the rating of M are not eligible according to the Announcement of the Ministry of Finance, State Taxation Administration and General Administration of Customs on Policies Related to the Deepening of VAT Reform (Announcement No. 39 of the Ministry of Finance, State Taxation Administration and General Administration of Customs, 2019).

　　5. The tax credit rating of which period shall prevail to judge whether the taxpayer is eligible?

　　A: The tax authority shall judge whether the taxpayer is eligible according to its tax credit rating of the current period. If the taxpayer is eligible in the current period but is adjusted to C or D later, the tax authority shall not recover the rebated amount. But if the taxpayer reapplies for the rebate of VAT retained with the rating of C or D, it shall not be eligible.

　　6. Why mustn’t the taxpayer be punished twice or more times for tax evasion within 36 months before the application for the rebate?

　　A: According to Clause 4, Article 201 of the Criminal Law of the People’s Republic of China, “Anyone with the behaviors in Clause 1 who, upon the lawful notice of the tax authority, made a supplementary payment of the tax payable, paid the overdue fine, and received administrative punishment shall not be investigated for criminal responsibilities, except for those who have received criminal punishment or more than two administrative punishments for tax evasion in the past five years.” The standard of the rebate of VAT retained complies with the Criminal Law.

　　7. What are the conditions for applying for the rebate of VAT retained?

　　A: There are five conditions. 1. From April 2019, the incremental VAT retained shall be larger than zero for six consecutive months and that of the sixth month shall be no less than CNY 500,000; 2. The tax credit rating shall be A or B; 3. There shall not be any case of fraud for rebate of VAT retained or for export tax rebate or falsifying VAT special invoices within 36 months before the application; 4. The taxpayer shall not be punished twice or more times for tax evasion by the tax authority within 36 months before the application; 5. The taxpayer has not been a beneficiary of rebate upon collection or rebate after collection since April 1, 2019.

　　(Note: According to the “Announcement No. 84”, As of June 1, 2019, taxpayers of some advanced manufacturing industries that satisfy all the following conditions may apply to the tax authority for the rebate of incremental VAT retained for July 2019 and later periods: 1. The incremental VAT retained is larger than zero; 2. The tax credit rating is A or B; 3. There isn’t any case of fraud for rebate of VAT retained or for export tax rebate or falsifying VAT special invoices within 36 months before the application; 4. The taxpayer hasn’t been punished twice or more times for tax evasion by the tax authority within 36 months before the application; 5. The taxpayer has not been a beneficiary of rebate upon collection or rebate after collection since April 1, 2019.)

　　8. In terms of rebate calculation, what’s the meaning of component ratio of VAT paid? How to calculate it?

　　A: The component ratio of VAT paid refers to the proportion of VAT amount indicated in the deducted VAT special invoices (including tax control uniform invoices for motor vehicle sales) from April 2019 to the last taxation period, customs special pay-in warrants for VAT on imports, and tax withholding payment receipts to all the deducted VAT paid in the same period. The proportion of the above invoices shall be calculated after summarizing during calculation.

　　9. Why must the application be made within the reporting period?

　　A: The VAT retained will change along the declaration of the general VAT taxpayer in each period, thus the application for rebate of VAT retained must be completed within the declaration period so as not to affect the calculation of tax rebate amount and subsequent accounting.

　　10. How can an ordinary VAT payer with both export service and cross-border taxable behaviors apply for the rebate of VAT retained?

　　A: Ordinary VAT payers with both export service and cross-border taxable behaviors who are eligible for tax exemption, credit and rebate shall firstly go through the tax exemption, credit and rebate procedures; if they are still eligible to apply for the rebate of VAT retained after the said procedures, they can apply for it. That is to say, the principle of “tax exemption, credit and rebate first, and then rebate of VAT retained” shall be adopted. Meanwhile, the VAT paid eligible for tax exemption, credit and rebate shall not be used for the rebate of VAT retained.

　　11. How can an ordinary VAT payer check the rebated VAT retained?

　　A: After receiving the rebated VAT retained, the ordinary VAT payer shall accordingly reduce the VAT retained of the current period and reflect that in the declaration form and accounting calculation.

　　12. Is the weighted credit amount eligible for the rebate of VAT retained?

　　A: The weighted credit policy belongs to tax preferences, deducting the tax payable of the taxpayer at 10% of the deductible VAT paid. But the weighted credit amount is not the VAT paid by the taxpayer. Based on the formation of the weighted credit amount, weighted credit does not result in any VAT retained, and thus shall not be eligible for the rebate of VAT retained.

　　13. In this deepened VAT reform, how should the urban maintenance and construction tax, education surcharge and local education surcharge related to the rebate of period-end VAT retained be calculated?

　　A: The rebate of period-end VAT retained involved in this VAT reform is also applicable to the regulations of Circular of the Ministry of Finance and the State Taxation Administration on Policy for Urban Maintenance and Construction Tax, Education Surcharge, and Local Education Surcharge Regarding the Rebate of Period-end VAT Retained (CS NO.80-2018), i.e. the taxpayers eligible for the rebate of period-end VAT retained are allowed to deduct the rebated VAT from the taxation base of urban maintenance and construction tax, education surcharge and local education surcharge.

　　14. If a taxpayer does not actually receive the rebate upon collection, is it “not a beneficiary of rebate upon collection”? Can the VAT retained be rebated then?

　　A: If the taxpayer applied for rebate upon collection before March 31, 2019 and was eligible, and received the rebate after April 1, it is deemed “not a beneficiary of rebate upon collection” and can apply for the rebate of VAT retained according to the regulations; if the taxpayer applied for rebate upon collection after April 1, 2019, it is not deemed “not a beneficiary of rebate upon collection”.

　　15. If an enterprise (e.g. a financing and leasing enterprise) gives up its privilege of rebate upon collection, can it benefit from the rebate of VAT retained?

　　A: According to Article 8 of the Announcement of the Ministry of Finance, State Taxation Administration and General Administration of Customs on Policies Related to the Deepening of VAT Reform (Announcement No. 39 of the Ministry of Finance, State Taxation Administration and General Administration of Customs, 2019), the conditions for a taxpayer eligible for the rebate of VAT retained include “The taxpayer has not been a beneficiary of rebate upon collection or rebate after collection since April 1, 2019”. Therefore, taxpayers that have given up their privilege of rebate upon collection and haven’t been beneficiaries of the said policy since April 1, 2019 can benefit from the rebate of VAT retained as prescribed above.