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When I pay the factory in US dollars in China, can the factory get a tax refund?
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We have a batch of goods to export, but we want to pay the factory directly in US dollars within China. Could you please tell us if the factory can still handle the payment normally in this case?What about that? Could there be any compliance risks involved?
Cindy ChenYears of service：3Customer Rating：5.0
Key Account ManagerStart a Chat
For cases like yours involving domestic payments in foreign currencies，the key lies in whether they comply with foreign exchange management regulations and the "Three Flows Unified" principle for tax refunds. Firstly，it's not entirely prohibited for domestic enterprises to settle transactions in foreign currencies，but this must be based on genuine trade backgrounds and require the payer to have legitimate foreign exchange sources. For tax refunds，the tax authorities focus on verifying whether the export transaction involves genuine customs declaration，receipt of foreign exchange，and invoicing. If the factory，as the export entity，declares the goods and can provide receipt of foreign exchange certificates consistent with the customs declaration information (even if the US dollars come from your domestic payment)，this theoretically does not affect the tax refund. However，the risk lies in ensuring that the information on the payment voucher，customs declaration，and VAT invoice fully matches and can prove that the domestic payment actually originates from the foreign customer's payment. It is recommended to confirm the relevant policies with the local tax and foreign exchange authorities before proceeding to avoid having the application rejected due to "abnormal fund flows" during the subsequent audit process.
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
From the perspective of logistics and documentary operations, you need to ensure a closed-loop process across the entire supply chain to enable customs and tax systems to identify this as an export transaction. The core document is the export declaration form, and the exporter must be the factory itself. As the payer, you must indicate the corresponding export contract number or invoice number in the remarks column when making USD payments to establish a traceable link. Additionally, after receiving the payment, the factory needs to submit a trade credit report in the foreign exchange monitoring system to demonstrate that the domestic receipt of funds actually represents overseas payment. If using general trade, it is recommended to adopt the EXW clause, where the factory directly declares and exports the goods, and you are responsible for the overseas logistics. In this case, the consignor on the declaration form is the factory, and the recipient of the payment is also the factory, ensuring the most clear logical chain. It is crucial to avoid engaging in "one-day trade" or fraudulent transactions, as this will not only result in tax refund denials but may also trigger customs inspections.
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
This payment method is quite common in practice, but the prerequisite are that the factory is willing to cooperate and you need to incorporate risk clauses into the contract. Firstly, when negotiating with the factory, don’t directly say "pay in USD domestically," but instead say, "After I receive the overseas payment, I’ll transfer it directly to your foreign exchange account, helping you save on exchange rate losses." This sounds more beneficial. Secondly, clarify in the procurement contract that the factory is responsible for export declaration and tax refund, while you provide the necessary payment receipts. If the tax refund fails due to the payment method, how will the responsibilities be shared (e.g., price reduction or compensation)? Thirdly, you can proactively offer to share part of the tax refund or use the payment method as a bargaining chip to lower the procurement price. Lastly, ensure the factory provides copies of the export declaration forms and tax refund application records for your records. Remember, the factory’s main concern is ensuring the tax refund arrives safely. As long as you can prove the operation is compliant, they’ll usually be willing to cooperate.