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Who is responsible for paying VAT on a product exported into China? The buyer or the seller?

Posted: 2013-01-10

Full Question

We are selling copper concentrate from our company in Philippines to a company in China. The Chinese company is saying they want a 17% discount because of VAT. We don't understand why we have to pay for their tax liability. Isn't it their problem to pay taxes to their government?

Answer

The importer into China will need to pay VAT and applicable duties. I assume you are selling from the Philippines rather than selling via your own China-based office. If you sold via your own China office, then it would be logical for the buyer in China to ask for receipts with VAT paid. But generally when you ship from overseas and the buyer handles the importation, then VAT is their issue, especially if you are quoting FOB (Free On Board or Freight On Board) China port, rather than DDP (Delivered Duty Paid) China buyer warehouse.

The VAT system is often used like smoke and mirrors as a negotiation tactic. So focus on FOB price and let the buyer worry about VAT. But, if your buyer is small and doesn't have their own import license, then you may want to work with an agent who can deliver the product to the buyer while sorting out the VAT for you in a transparent process.

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