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My supplier is missing licenses and I can’t export! What to do

Posted: 2015-07-10

Full Question

I am aware that VAT is applicable on the tooling owned by the customer at the supplier’s location in China, to produce a plastic part for export to Japan. Is there any option available to the buyer (Tool owner) to recover the VAT? If we request supplier to amortize the tooling cost as piece price on manufactured goods, who will get benefit of VAT?

Answer

Thanks for your question. If I understand it correctly, the tooling will stay in China, but the product made from the tooling will be exported. If that is the case, then the tooling itself will not be exported and since it is not exported, there is no VAT rebate and thus no easy way to recover the VAT.


But, while it is in the gray area of tax code, sometimes the supplier will offer the tooling at a “w/out taxes paid and w/out official receipts” price. That could reduce the price a bit, and while it is common in China, technically it is not 100% legal as the supplier should be paying tax, but in practice, most suppliers don’t.


You should also be warned that it’s quite common that suppliers charge the overseas buyers for VAT, but they don’t actually pay the VAT and end up putting the money in their own pockets!


If you pay the supplier inclusive of VAT and they then dance around and avoid showing you the receipts…then you know they are keeping the VAT. I’ve even seen suppliers send fake receipts!


BTW, you talked about amortization of your tooling. I would advise you to be very cautious. On my YouTube channel I explain why in more detail, but in short, if you amortize the tooling then technically you don’t own it. If something goes wrong and you need to pull the tooling from the supplier, you will find it very difficult to extract the tooling. In my contracts, I like to own the tooling outright from day one. You should also consider having the tooling looked after by a 3rd party. See Tool & Die steward service for reference.

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