How Can A Contract Manufacturing Company Use VAT To Rip You Off?
The contract manufacturing business that you use could be holding back a key – a hidden weapon where they could somewhat invisibly increase your manufacturing price: Value Added Tax.
China’s Value Added Tax intricacies might be confusing part of the offer. Factories pay the Chinese authorities a value added tax combined the many steps of manufacturing.
Raw material is bought and a tax is paid.
The product that’s created from that substance is sold to a distributor who pays a tax.
Another tax is covered by the export firm that purchases from the distributor.
A VAT rebate may be available once the merchandise is exported – up to 17% depending on the product classification. If the VAT rebate for your product is 15%, and 17% was paid, then the Chinese government keeps 2% and the contract cut and sew manufacturers exporting the merchandise has to collect the 15% VAT rebate.
The Contract Manufacturing Company VAT Discount
When you’re outsourcing production and receiving bids from a mill, do not overlook the effects of the Value Added Tax. Did you know some of the VAT was qualified to be rebated, and you could negotiate your manufacturing cost down in the factory for this?
Without understanding of the VAT rebate on your merchandise, you can’t start price negotiation with factories, since you don’t know your true price. How would you compare a contract manufacturing business in China if you didn’t understand that some manufacturers conceal the fact that they will be maintaining the VAT rebate?
Since the VAT varies by kind of products, and some products are entitled to a larger percentage rebate; and because the item classification can be negotiated with the regional customs agency, a contract manufacturing company can work out a better rebate, not tell you about it, or just give you some of it.
Many factories lack import-export rights and suitable VAT processing facilities. They’re made to use 3rd party trading firms which inflate the purchase price and reevaluate the relationship.
Has VAT been paid whatsoever? A contract manufacturing company might figure out ways to avoid paying VAT in the manufacturing stages, but the tax must be paid sometime. If the plant you are dealing with has avoided the tax, there will be a fee, and a possibly large one for all the taxes yet outstanding when you export. If the VAT isn’t paid the product won’t be exported. Any contract production company offering an attractive”no tax cost” in their bidding ought to be scrutinized. You can not avoid VAT altogether, although it might be attractive at first, it is going to be less so once you buy direct from the factory in China and find out later you can not export from the country due to a lack of tax documentation.
If you start to purchase more of the item in time, the provider can not avoid placing the tax payment on their novels. 1 day once you proudly place a huge order and expect a fantastic discount based on quantity, the cost increases instead because the contract production company can’t conceal or avoid paying the taxes up front. They are not going to cover it for you.