Core conclusions:Take a order with an export FOB price of 10 million yuan, a processing rate of 40%, and an export tax rebate rate of 13% as an example: Under general trade methods, the tax refund amount would be 10 million yuan multiplied by 13%, which equals 1.3 million yuan. In the case of processing imports, the taxable amount would be reduced by 4 million yuan for the bonded imported materials used in the process. Thus, the tax refund amount would be 6 million yuan multiplied by 13%, which equals 780,000 yuan. The difference between the two amounts is 520,000 yuan. This difference reflects the additional taxes that need to be paid at the import stage for those 4 million yuan of bonded materials, compared to the savings achieved under general trade methods.
1. The difference between the two modes in terms of algorithms
This is based on the announcement number 11 of 2026 issued by the Ministry of Finance and the State Taxation Administration. For manufacturing enterprises, the exemption, credit, and refund method applies. The amount of exemption, credit, and refund for the current period is calculated as follows: it is equal to the export price of goods multiplied by the exchange rate of foreign currencies, multiplied by the export tax rate. Then, this amount is reduced by the amount offset by the exemption, credit, and refund amount for the current period. The amount offset by the exemption, credit, and refund amount is calculated as follows: it is equal to the price of raw materials purchased without taxes during the current period, multiplied by the export tax rate.
The key lies in the definition of “tax-exempt raw material prices purchased during the current period”. This includes two components: the price of tax-exempt raw materials purchased domestically during the current period, where no input tax is charged; and the price of materials imported for processing under bonded import procedures. The price of materials imported for processing under bonded import procedures is calculated using the composite assessment method. The formula for calculating this price is: Composite assessment price = Offshore price of exported goods from processing imports × Exchange rate conversion factor for RMB × Planned allocation rate. This calculation uses the actual consumption method.
In other words, under the general trade method, the full amount of the ex-factory price is used as the basis for tax refund. In the case of processing imports, the value of the bonded imported materials must be deducted first, and only the value-added portion within China will be eligible for tax refund. This does not mean that less tax is refunded; rather, those materials that were not subject to VAT in the first place are not included in the tax refund process.
II. How to determine the planned allocation rate? There are three levels, corresponding to three types of enterprises.
The definition of the planned allocation rate is simply the total planned imports divided by the total planned exports. In practical applications, there are three rules outlined in Announcement No. 11, which apply to enterprises in different operational states.
| enterprise state | Planned allocation rate value | Points to keep in mind |
|---|---|---|
| Launched the import processing business for the first time | The planned allocation rate based on the first import processing ledger. | The manual filing process needs to be carried out with precision. |
| It has been processed for cancellation in the previous year. | Actual distribution rate based on the total amount written off in the previous year’s books/accounts | Determined at the beginning of the year; will be continued throughout the year. |
| There were no accounts to be written off in the previous year. | Based on the most recent determined comprehensive actual distribution rate for the previous year that has been written off. | Avoid having no values available at the beginning of the year. |
The third rule is designed for companies that experienced a break in their business activities last year. Factories with unstable order schedules may not have any records available for verification during the New Year period. With this rule in place, there will be no data available at the beginning of the year.
III. Manual verification of balances: Overpayments will be refunded, while underpayments will be corrected in this step.
The planned distribution rate is determined based on the initial plan at the beginning of the year. However, the actual amount of materials used often differs from the planned value. Therefore, according to policy regulations, taxpayers must apply to the competent tax authorities for the cancellation of tariffs related to processing trade operations. The adjusted amount of tax exemptions and deductions should be calculated based on the actual distribution rate confirmed by the competent tax authorities. This is the process of “giving back the excess and compensating for the deficiency”: if the planned distribution rate is set too high, and the actual amount of materials used is less, then the excess amount calculated should be deducted during the cancellation process; conversely, if the rate is set too low, the adjustment should be done in the opposite direction.
There is also a rule that is often overlooked in conjunction with the cancellation of taxes: VAT input tax amounts that were erroneously written off in the past due to inconsistencies in tax rates at different stages can now be transferred back into the input tax account after being verified and confirmed. Currently, except for products categorized as “two high-value resources,” there are no longer any new instances where taxes cannot be exempted or deducted. However, for those historical deductions that have not been fully utilized, they can be transferred back into the input tax account upon approval according to Announcement No. 11. For older enterprises, this represents a valuable opportunity that requires proactive application to obtain.
IV. Two case studies: The same production line, but two different customs declaration methods
Suppose a factory exports a batch of goods, with the ex-factory price amounting to 10 million RMB. The export tax rebate rate is 13%. All components used in the export are imported under bonded conditions, and the planned distribution rate is 40%. The differences in tax rebates for the two methods are as follows:
| project | general trade | import processing |
|---|---|---|
| The basis for calculating tax refunds | 1000 million Yuan | 1000 minus 1000, multiplied by 40%, equals 6 million yuan. |
| A refundable amount of 13% of the total amount spent | 1.3 million yuan | 780,000 Yuan |
| difference | - | 56,000 yuan less |
The difference of 520,000 yuan is just a rough estimate. Looking further down the chain: in the case of general trade, these 4 million yuan worth of goods must first be subject to customs duties and value-added tax at the import stage. The input tax can be deducted, but the funds still need to be paid in advance. In the case of processing imports, the goods are imported under bonded conditions, so there is no need to pay any additional taxes. The real comparison lies in whether the 520,000 yuan that needs to be returned or the cash flow that doesn’t need to be paid in advance is more important for the factory.
The criteria for judgment can be quantified: when the total time required for purchasing materials, manufacturing, and receiving payments exceeds 4 months, and the tariff rate for imported materials exceeds 5%, then processing imports is generally more advantageous from a cash flow perspective. On the other hand, when orders are small and scattered, and the costs associated with manual management cannot be evenly distributed among all orders, then importation may be more convenient.
5. When should we switch to a different approach?
In three cases, it is recommended to switch from general trade to processing trade: when the proportion of imported materials in the total export value exceeds 30%; when the tariff rate on imported materials is high, and such tariffs cannot be refunded under general trade arrangements; or when there is a shortage of cash flow, and paying the value-added tax on imports poses a real burden.
Conversely, there are two situations in which it is not necessary to change the method of tax payment: First, for small-scale businesses with annual exports of less than 5 million yuan, the management costs associated with bookkeeping and tax settlement will outweigh any potential profits. Second, when the proportion of imported materials is less than 10%, the impact of tax deductions on the tax base is minimal, and the complexity of the operation does not justify the resulting profits.
6. Common questions
Is the tax refund for material processing less than that of regular trade?
It’s not a matter of reducing the amount of tax paid, but rather the different groups to which the tax refunds apply. For goods imported for processing, no value-added tax is paid at the import stage, so such goods are not eligible for tax refunds. Tax refunds are only applicable to the domestic value-added portion of the goods. In general trade, a refund of 1.3 million yuan is granted, which includes a return of the upfront value-added tax paid. For goods imported for processing, a refund of 780,000 yuan is given, but this eliminates the need to pay the import taxes on those goods worth 4 million yuan. Ultimately, both methods result in similar tax burdens, with the main differences lying in the capital requirements and operating costs involved.
2. If there is a significant difference between the planned distribution rate and the actual distribution rate, what will be the consequences?
During the cancellation process, the amount of tax credits and refund amounts to be claimed should be adjusted according to the actual distribution rate determined by the relevant tax authorities. If the planned value is higher, it should be reduced; if it is lower, it should be increased. Significant deviations will not result in immediate penalties, but they can lead to discrepancies between declared data and actual tax liabilities, thereby increasing the likelihood of being inspected. It is advisable to use the actual distribution rate from the previous period for the first annual filing, rather than the ideal value specified in the manual.
3. Which set of regulations applies to foreign trade enterprises (not manufacturing enterprises)?
Foreign trade enterprises that export goods are eligible for VAT exemption and refund policies. The amount of VAT to be refunded is calculated by multiplying the base amount for VAT calculation by the export tax rate. There is no need to consider any offsets or adjustments related to the planned distribution rate. Logically, this process is simpler compared to manufacturing enterprises. Foreign trade enterprises that engage in commissioned processing, repair, or maintenance services require a separate calculation method. Therefore, it is necessary to determine one’s taxpayer status and business model before choosing the appropriate calculation method.
For factories that engage in import processing and export, tax refunds aren’t determined based on a fixed amount at one time. If there are discrepancies between the planned allocation rate, actual usage amounts, and recorded data, these discrepancies will be corrected during the refund process. After comparing the proportion of materials used, customs duty rates, and other relevant factors, a decision can be made regarding which customs declaration method to use.
Qihang Zhilian Foreign Trade Research Institute·Let China's intelligent manufacturing industry set sail to sea·Tel: 180-0327-6609
