New Chinese tax rule gives allows trade service companies to apply for tax rebates for SMEs

Out-Law News | 03 Apr 2014 | 10:37 am | 1 min. read

A new Chinese tax policy will give trade service companies the right to apply for tax exemptions or rebates on export sales of small to medium-sized enterprises (SMEs), China Daily reports.

The trade service organisations will be allowed to offer the service after signing contracts with SMEs to sell goods in the overseas markets, according to the newspaper.

The new rule, announced by China's State Administration of Taxation last month, is designed to encourage SMEs to exploit foreign markets by helping them to secure quicker tax rebates and lower administration costs. Until now SMEs had to wait at least three months to recoup tax rebates for a single business trade.

"The policy represents a big change in China's export taxation reform," Xiao Feng, deputy general manager of Shenzhen Onetouch Business Service Company told China Daily. "It means that export rebate businesses could be outsourced to trade service companies. More tax rebates will be granted through the service trade platform because there will be more exporters looking for services to ward off declining business. The policy will help boost trade growth."

According to China Daily, the new rule is part of efforts by the authorities to monitor trade service company activity in relation to tax rebates, after some agencies were found to be involved in fraudulent practices. The Chinese authorities were also concerned that some trade service companies were misreporting exports in order to claim tax rebates. The new policy is part of checks designed to better monitor the sector. Under the new regime, trade service companies are only allowed to apply for a tax rebate after being granted the right by SMEs to sell goods in the overseas market.

Chinese exports fell by 18.1 percent year-on-year to $114.1 billion in February, China Daily said, the biggest decline since the global financial crisis in 2008, according to the General Administration of Customs. Xiao said allowing trade service companies to recoup taxes for SMEs should encourage manufacturers to engage in overseas trade.

"Chinese manufacturers are still facing difficulties as they lose their traditional competitive edge in pricing because of higher production and labor costs, intensifying competition and the fluctuation of the yuan (Renminbi) exchange rate," said Xiao.