Full Question
I have been doing research about VAT returns in China. The more research I do, the more confused I seem to get - please help me! I am trying to export construction material from China in to Mongolia and get the VAT returns. So far all I have understood is that - in order to be eligible for VAT returns, the company needs to be China-based, and the rest is kind of blurry. Please help me understand what I need to do to get VAT returns.

Answer
You can find an easy-to-understand explanation of your options in this blog post: What is VAT and why should I worry about it? But here are the highlights.

1. Yes, unless you have set up a legal entity in China, you can’t process the VAT rebate when the goods leave China.
2. If your orders are small-medium, it probably makes sense to keep things simple and buy “FOB port” rather than “ExWorks China factory.” Under FOB terms, the seller is responsible for arranging the export and processing all taxes and rebates on the China side. So negotiate a good FOB price that you can live with, knowing that the VAT rebate amount will not be disclosed. Even if the seller claims to tell you the VAT rebate, there are a lot of smoke and mirrors. It is kind of like when a car dealer gives you a price below the MSRP. VAT like MSRP is easy to manipulate for the purposes of making a sale.
3. If the order is large you may consider appointing an agent with IM-EX rights to process the VAT rebate and export on your behalf. Make sure the agent you hire is both experienced and transparent. There are too many sloppy brokers out there who will cause more harm than good. And many of them will try to re-route the VAT rebate into their pockets rather than yours. So be careful.
4. If the orders are steady and very large, consider setting up your own entity in China to not only process the VAT rebate, but also support QC and vendor relations.

Related content/resources:

• Who gets the VAT rebate?
• Confusion about VAT…Where does it go? What should I expect?
• Why does my supplier fight a move from FOB to EXW terms? What role does VAT play?

Let me know how things work out for you.