Preferential policies for the export of VAT-taxable services include:

  1. VAT zero-rated policy —no output VAT is charged on exported services, and input VAT on their provision is recoverable through offset against output VAT on domestic taxable activities or refunded; and 
  2. VAT exemption policy —no output VAT is charged on exported services, and input VAT on their provision is not recoverable. Therefore, it is a cost for the service exporter.

To date, the VAT zero-rated policy was limited to resident taxpayers providing international transportation, R&D and design services, while the VAT exemption policy had a wider scope.

Aiming at further encouraging the export of services, circular Caishui [2015] No. 118 expands the scope of the VAT zero-rated policy to cover the following services previously under the VAT exemption policy:

  1. Radio, film and television production and distribution services.
  2. Technology transfer services, software services, circuit design and testing services, information system services, business  process management services and energy management services when the contract object is located abroad.
  3. Offshore outsourcing business services, including information technology outsourcing, technical business process outsourcing and technical knowledge process outsourcing.

General VAT zero-rated policy rules apply. This means that the VAT “exemption, credit, refund” method (in the case of manufacturers or trading companies exporting self-provided taxable services) or the VAT “exemption and refund” method (in the case of trading companies exporting taxable services provided by third parties) will apply to general taxpayers exporting these services. For small-scale taxpayers exporting these services, the simplified method to calculate VAT applies through a VAT exemption policy.

The VAT refund rate for expanded services is 6%, the same as the applicable VAT rate for domestic services. However, if the relevant authorities consider the price is too high or too low, they can adjust the refundable amount accordingly.

To claim a VAT refund, domestic companies must submit relevant export documents and payment receipts to the tax authorities and maintain a sound accounting control system to manage input VAT on the provision of services.

Date of issue: October 30, 2015. Effective date: December 1, 2015