Know More

No Roller Coaster

Follow us to grow with confidence

---

If your supplier has suggested that paying in US dollars (or another foreign currency, in fact now even pay RMB from overseas works as well) could lead to better pricing, you might be wondering what's behind this offer. The explanation lies in how export transactions are treated under Chinese tax laws—specifically regarding export VAT rebates.

Here’s a breakdown of why this happens, what it means for you, and how to decide which approach works best for your business.

---

Ⅰ.The Logic Behind the Discount

When a supplier sells goods to a buyer outside the country, it is classified as an export sale. In many countries—especially in manufacturing hubs like China—exporters are eligible for a VAT (Value Added Tax) rebate from the government.

• 1.1 Normal domestic sales: The supplier charges VAT and pays it to the tax authorities.

• 1.2 Export sales (foreign currency): The supplier can claim a refund on certain taxes paid during production.

By paying in USD from an overseas entity, you are helping the supplier classify this transaction as a true export. Because they save money through the tax rebate, they are often willing to share part of that benefit with you in the form of a lower price.

---

Ⅱ. What This Implies for Your Business Structure

For above arrangement to work properly—and to remain compliant with customs and tax regulations—there are two important requirements:

• 2.1 The contract should be signed with your overseas company (not your local domestic entity).

• 2.2 Payment must come from that overseas company's bank account into the supplier’s account.

This creates a clean, traceable export transaction that satisfies both customs declaration and tax rebate requirements.

---

III.What If You Also Have a Local Company?

Let's say you operate through a local entity—for example, a Wholly Foreign-Owned Enterprise (WFOE) or a trading company registered inside China. In that case, you have another option:

You can buy in RMB locally, and let your own company in China claim the export rebate.

If your local company has:

• 3.1 Import/export trading rights, and

• 3.2 Export VAT rebate registration,

...then you can process the purchase in RMB, export the goods yourself, and claim the VAT refund directly.

In many cases, the rebate your company receives will be higher than the discount the supplier would have offered for a USD sale. This is because the supplier's discount only reflects a portion of their rebate—whereas when you claim it, you keep  almost 100% of the benefit, but you may need to pay some paper works which will increase you cost as well.

So how to decide, it depends on each company's special situation.

---

We hope this helps you get started on the right foot. Have questions about your specific situation? Call our hotline at 86+189 1629 8482 (English service available).

Set up in 2009 Focus on Tax& Accoounting +86 189 1629 8482 wcx@ruanyinchina.com