Editor's Note: In our articles Legal Consequences of Non-compliant Document Filing Under the New Export Tax Refund (Exemption) Rules and What Impacts Do the New Rules Have on "Fake Self-operation, Real Agency" Practices?, we analyzed and discussed issues related to document filing and "fake self-operation, real agency" practices in conjunction with the new rules. This article intends to trace the origin of the regulations on export foreign exchange receipts, analyze the changes brought by the new rules and their impacts on enterprises, for readers' reference.

I. Historical Evolution of Foreign Exchange Receipt Rules

(I) Phase 1: Establishment of the Linkage Between Foreign Exchange Receipts and Tax Refunds

Around 1991, although China's export tax refund policy had been restarted and gradually advanced, the imperfect supervision system led to many loopholes. A small number of export enterprises resorted to fraud to obtain export tax refunds; some enterprises violated the tracking settlement and foreign exchange retention policies, arbitrarily repaid foreign exchange loans overseas with export proceeds, resulting in a decline in the net foreign exchange settlement rate and endangering the security of the country's foreign exchange reserves. At the same time, the model where export tax refunds were solely borne by the central finance was under pressure, making it necessary to standardize the refund process through strengthened supervision and coordinate with the export tax refund plan management.

Against this background, in January 1991, six departments including the State Taxation Bureau, the Ministry of Foreign Economic Relations and Trade, the General Administration of Customs, the Ministry of Finance, the People's Bank of China, and the State Administration of Foreign Exchange jointly issued the Joint Notice on Strengthening the Administration of Export Product Tax Refunds, which explicitly required that export tax refunds be linked to the export foreign exchange earning tasks and the central foreign exchange handover tasks of export enterprises. In March of the same year, the State Taxation Bureau and the State Administration of Foreign Exchange issued the Notice on Several Issues Concerning the Provision of Bank Advices for Exchange Settlement and Certificates of Verified Export Foreign Exchange Receipts by Export Enterprises Applying for Export Product Tax Refunds (Guo Shui Fa [1991] No. 55, now repealed). This notice required the implementation of the principle of linking tax refunds with export foreign exchange receipts, and specified the specific requirements for export enterprises to provide bank advices for exchange settlement and certificates of verified export foreign exchange receipts when applying for tax refunds, marking the formal establishment of the foreign exchange receipt administration rules for export tax refunds.

In May 1992, in response to inconsistent implementation standards reported by grassroots authorities, the two departments issued the Notice on Amending the Relevant Provisions on the Provision of "Bank Advices for Exchange Settlement" and "Certificates of Verified Export Foreign Exchange Receipts" by Export Enterprises Applying for Tax Refunds (Guo Shui Fa [1992] No. 106, repealed), which stipulated circumstances where bank advices for exchange settlement were not required to be attached.

To strengthen the administration of export product tax refunds and curb export tax fraud, the two departments decided to jointly implement an electronic administration project for export tax refunds, and issued the Notice on Conducting Electronic Administration of Export Tax Refunds Using Electronic Data of Export Foreign Exchange Receipt Verification and Cancellation (Guo Shui Fa [1993] No. 7, repealed). This notice promoted the pilot of electronic verification and cancellation of foreign exchange receipts, optimized supervision methods, and realized the preliminary linkage between foreign exchange receipt verification and cancellation data and export tax refund data.

In 1994, China established the value-added tax (VAT) system. The State Taxation Administration issued the Measures for the Administration of Export Goods Tax Refund (Exemption) (Guo Shui Fa [1994] No. 31, repealed), which uniformly expressed the previous "bank advice for exchange settlement" as "export foreign exchange receipt documents", and clarified that export foreign exchange receipt documents were mandatory vouchers for export tax refunds.

To further strengthen the administration of export tax refunds and curb tax fraud, the State Council issued the Notice of the State Council on Lowering Export Tax Refund Rates and Strengthening the Administration of Export Tax Refunds (Guo Fa Ming Dian [1995] No. 3) in 1995. This notice strengthened the administration of foreign exchange receipts at the State Council level, strictly implemented the linkage between exchange settlement and tax refunds, and explicitly required export enterprises to apply for tax refunds with the verified and cancelled Export Foreign Exchange Receipt Verification and Cancellation Form, further consolidating the principle of "linkage between foreign exchange receipts and tax refunds".

(II) Phase 2: Abolition of the Foreign Exchange Receipt Verification and Cancellation Form and Shift to Data-based Supervision

With the rapid development of China's foreign-related economy, the import and export verification and cancellation administration method based on "one-to-one correspondence and item-by-item review" could no longer adapt to changes in the international situation. To promote trade facilitation and strengthen the foreign exchange administration of goods trade, the State Administration of Foreign Exchange, the State Taxation Administration, and the General Administration of Customs jointly launched a pilot reform of the foreign exchange administration system for goods trade, and built a new administration model featuring aggregate screening, dynamic monitoring, and classified supervision.

In September 2011, the three authorities issued the Announcement on the Pilot Reform of the Foreign Exchange Administration System for Goods Trade (Announcement No. 2 [2011] of the State Administration of Foreign Exchange, repealed), launching the pilot in Jiangsu, Shandong, Hubei and other regions. Export enterprises in the pilot areas no longer needed to provide the paper Export Foreign Exchange Receipt Verification and Cancellation Form when declaring export tax refunds, and the foreign exchange bureau implemented dynamic classified administration on the pilot areas according to the compliance of enterprises' trade foreign exchange receipts and payments. In December of the same year, the State Taxation Administration issued the supporting Notice on Issues Concerning Export Tax Refunds After the Pilot Reform of the Foreign Exchange Administration System for Goods Trade (Guo Shui Han [2011] No. 643).

In June 2012, the State Administration of Foreign Exchange, the General Administration of Customs, and the State Taxation Administration decided to implement the reform of the foreign exchange administration system for goods trade nationwide from August 1, 2012, and issued the Announcement on the Reform of the Foreign Exchange Administration System for Goods Trade (Announcement No. 1 [2012] of the State Administration of Foreign Exchange, repealed). The announcement officially abolished the Export Foreign Exchange Receipt Verification and Cancellation Form, and enterprises no longer needed to provide the verification and cancellation form when handling export customs declaration; foreign exchange administration was changed from "on-site item-by-item verification and cancellation" to "off-site aggregate verification", comparing the flow of goods and capital through a monitoring system; tax authorities reviewed tax refunds based on the foreign exchange receipt data and enterprise classification from the foreign exchange administration department, marking that the administration of export foreign exchange receipts for tax refunds officially entered the data-based supervision stage.

To clarify that the export foreign exchange receipt verification and cancellation form was no longer required for export tax refund processing, the State Taxation Administration issued the Announcement on Relevant Issues of the <Measures for the Administration of VAT and Consumption Tax on Exported Goods and Services> (Announcement No. 12 [2013] of the State Taxation Administration, repealed) in March 2013, stipulating that the provisions involving the export foreign exchange receipt verification and cancellation form in Announcement No. 24 [2012] of the State Taxation Administration would no longer be implemented.

At the same time, to accurately calculate, review and handle export tax refund (exemption), and verify the authenticity of export business, the State Taxation Administration issued the Announcement on Issues Concerning the Provision of Foreign Exchange Receipt Materials by Export Enterprises Declaring Export Goods Tax Refund (Exemption) (Announcement No. 30 [2013] of the State Taxation Administration, repealed). This announcement linked the foreign exchange receipt period with the declaration period: it required that for exported goods for which enterprises declare tax refund (exemption), foreign exchange must be received and relevant materials must be provided in accordance with regulations before the deadline of the tax refund (exemption) declaration period (April 30 of the year following the customs declaration and export of the goods); for goods for which foreign exchange was not received before the deadline of the declaration period, the VAT exemption policy shall apply, except for exported goods that cannot receive foreign exchange or cannot receive foreign exchange before the deadline of the declaration period in accordance with regulations.

(III) Phase 3: Facilitation and Refined Supervision of Export Tax Refunds

The rigid deadline of April 30 was inconsistent with the actual payment terms of cross-border transactions, resulting in many enterprises being unable to enjoy the export tax refund policy due to objective reasons such as the foreign exchange receipt cycle and delayed overseas payments. Many export enterprises repeatedly reported that the deadline was out of line with the actual account period of cross-border transactions, increasing the compliance cost of enterprises.

In response, the Ministry of Finance and the State Taxation Administration issued the Announcement of the Ministry of Finance and the State Taxation Administration on Clarifying VAT Policies for the Lease of State-owned Agricultural Land and Other Matters (Announcement No. 2 [2020] of the Ministry of Finance and the State Taxation Administration, partially repealed) in January 2020. The announcement abolished the original mandatory declaration deadline for export business before April 30 of the following year, and explicitly stipulated that for export business where foreign exchange is not received or the formalities for deemed non-receipt of foreign exchange are not completed within the prescribed time limit, enterprises may declare and handle tax refunds after receiving the foreign exchange or completing the formalities for deemed non-receipt of foreign exchange, effectively solving the problems of taxpayers.

Affected by the COVID-19 pandemic, many export enterprises were in dire straits. To alleviate the difficulties of enterprises, stimulate vitality and potential, promote the steady development of import and export, and actively serve the overall situation of stabilizing foreign trade, the State Taxation Administration issued the Announcement of the State Taxation Administration on Further Facilitating the Processing of Export Tax Refunds and Promoting the Stable Development of Foreign Trade (Announcement No. 9 [2022] of the State Taxation Administration, partially repealed) in April 2022. The announcement improved the administration of foreign exchange receipts for export tax refund (exemption), implemented refined administration on enterprises: low-risk enterprises do not need to submit foreign exchange receipt materials when declaring tax refunds, only need to retain them for future inspection, while high-risk enterprises still need to submit them in accordance with regulations, raising the level of facilitation.

II. Changes and Key Notes of the Foreign Exchange Receipt Administration Rules

The abolition of the export foreign exchange receipt verification and cancellation form and the rigid deadline for export tax refund declaration directly led to a large number of export tax fraud cases through illegal trading of foreign exchange and false foreign exchange receipts in recent years, with many major tax fraud cases exposed.

Earlier this year, the Regulations on the Implementation of the Value-Added Tax Law came into force. Article 48 stipulates that taxpayers engaged in export business applicable to tax refund (exemption) or VAT exemption shall declare within the prescribed time limit; those who fail to declare after the expiration shall pay VAT in accordance with the provisions on deemed domestic sales.

Subsequently, the Ministry of Finance and the State Taxation Administration issued the Announcement on VAT and Consumption Tax Policies for Export Business (Announcement No. 11 [2026] of the Ministry of Finance and the State Taxation Administration) and the Announcement of the State Taxation Administration on the Measures for the Administration of VAT and Consumption Tax Refund (Exemption) for Exported Goods and Services (Announcement No. 5 [2026] of the State Taxation Administration). These announcements made specific provisions on the declaration period, integrated Cai Shui [2012] No. 39, Announcement No. 24 [2012] and Announcement No. 9 [2022] of the State Taxation Administration, uniformly incorporated the foreign exchange receipt administration rules into the new system and linked them with the export tax refund (exemption) declaration period, so as to strengthen the administration of foreign exchange receipts and crack down on tax fraud through illegal trading of foreign exchange. The details are as follows:

(I) Inclusion of "Foreign Exchange Receipt in Accordance with Regulations" as a Condition for Export Goods Eligible for VAT Refund (Exemption) Policies

Under the old rules, "export goods eligible for VAT refund (exemption policies refer to goods that are declared to the customs, actually departed from the territory, and sold to overseas units or individuals", without any requirements on foreign exchange receipt elements. The new rules add foreign exchange receipt as a constituent element of export goods eligible for VAT refund (exemption) policies. In other words, if a taxpayer fails to receive foreign exchange in accordance with regulations, the goods sold by it to overseas parties cannot be eligible for the VAT refund (exemption) policies, and the tax refunds already obtained shall be returned.

(II) Clarification of Legal Consequences for Different Foreign Exchange Receipt Scenarios

Previously, the provisions that "export goods that cannot receive foreign exchange and do not meet the provisions on deemed foreign exchange receipt are subject to the exemption policy" and "export business with false or fraudulently used foreign exchange receipt materials for declaration is subject to the levy policy" were regulated in the normative documents of the State Taxation Administration, separated from Cai Shui [2012] No. 39 and Announcement No. 24 [2012] of the State Taxation Administration. This failed to form a unified and complete institutional system, which was not conducive for export enterprises to systematically learn and accurately grasp the policy requirements, and easily led to tax-related risks for export enterprises due to deviations in policy understanding.

The new rules integrate and sort out the legal consequences corresponding to different foreign exchange receipt scenarios, and make holistic and systematic provisions, further clarifying policy boundaries and liability consequences. This helps prevent and curb illegal and irregular acts such as false foreign exchange receipt and export tax fraud at the institutional level, and maintain a fair and orderly foreign trade tax order.

In practice, some export enterprises, after overseas customers refuse to pay for the goods on the grounds of product defects after receipt, seek to minimize losses by paying for the goods to themselves through accounts unrelated to their business in Hong Kong in the name of their overseas customers, thus forming a complete closed loop of foreign exchange receipt and settlement, and declaring export tax refund (exemption). Such a situation falls under export business with false foreign exchange receipt materials, and the corresponding exported goods are subject to the VAT levy policy.

We recommend that, for the failure to receive foreign exchange due to reasons such as the quality of exported commodities, enterprises shall provide supporting documents such as relevant letters from the importer and certification from the commodity inspection institution of the importing country to the tax authorities in accordance with the requirements of Announcement No. 5 [2026] of the State Taxation Administration, so as to meet the provisions on deemed foreign exchange receipt before declaring export tax refund (exemption). In addition, according to the operating conditions, enterprises may also consider purchasing export credit insurance to avoid risks caused by the importer's delayed payment or non-payment of goods, and absolutely refrain from providing false or forged foreign exchange receipt materials.

(III) Comprehensive Tightening of the Tolerance Management Requirements for Foreign Exchange Receipts, Closely Linked to the Export Tax Refund (Exemption) Declaration Period

The foreign exchange receipt administration rules are closely related to the export tax refund (exemption) declaration period. Under the old rules, it was first stipulated that export enterprises shall declare tax refund (exemption) within the period from the month following the date of customs declaration and export of goods to April 30 of the following year after collecting all tax refund vouchers, otherwise they shall not declare tax refund (exemption). Later, the declaration period rules were optimized to allow supplementary declaration after the expiration, without rigid provisions on the declaration period. This means that even if the taxpayer fails to receive foreign exchange within the prescribed time limit, it may declare and handle tax refund (exemption) after completing the foreign exchange receipt formalities before the payment date agreed in the contract.

The new rules make a hierarchical provision on the declaration period: the first level is from the date of customs declaration and export to April 30 of the following year; the second level is from after April 30 of the following year to within 36 months from the date of customs declaration and export. This hierarchical provision has a significant impact on the administration of foreign exchange receipts.

Taking exported goods as an example, tax refund for exported goods shall be declared within each VAT declaration period before April 30 of the year following the date of customs declaration, and foreign exchange shall be received in accordance with regulations; for those that fail to declare tax refund (exemption) within the above-mentioned period, supplementary declaration may be made within each VAT declaration period from after April 30 of the following year to within 36 months from the date of customs declaration and export, provided that all vouchers are collected and foreign exchange receipt materials are provided at the same time.

If the final date for full foreign exchange receipt agreed in the export contract is after April 30 of the year following the date of customs declaration and export, the foreign exchange receipt shall be completed within the time limit agreed in the contract, and no later than 36 months from the date of customs declaration and export. This means that if the time limit of 36 months is exceeded, even if the foreign exchange receipt is completed, the tax refund (exemption) policy will no longer apply.

It should be noted that for goods declared for export before December 31, 2025, the original policies shall still apply, not subject to the 36-month time limit, nor the new foreign exchange receipt requirements.

In this regard, enterprises shall establish an integrated linkage management mechanism of "export - foreign exchange receipt - tax refund declaration". For export business carried out on or after January 1, 2026, enterprises shall complete foreign exchange receipt and handle tax refund declaration before April 30 of the year following the export; in case of overdue supplementary declaration, it is necessary to ensure full receipt of foreign exchange, and properly keep supporting documents such as bank foreign exchange receipt vouchers and bank advices for exchange settlement.

When signing export contracts, the foreign exchange receipt clauses and payment period shall be clearly defined in advance; if foreign exchange cannot be received due to special circumstances such as the buyer's bankruptcy, enterprises shall timely collect and retain the supporting materials for deemed foreign exchange receipt in accordance with the new rules. In addition, enterprises shall also establish an export business management ledger or upgrade the internal management system to monitor the progress of foreign exchange receipt and declaration in real time, so as to avoid being deemed as domestic sales for tax levy due to failure to declare in accordance with regulations beyond 36 months.

III. Conclusion

The changes in the foreign exchange receipt administration rules have always adhered to the goals of standardizing the foreign trade order, preventing tax fraud risks, and promoting the development of foreign trade. From the "linkage between foreign exchange receipts and tax refunds" to data-based supervision, and then to the refined upgrade of the new rules, the supervision system for foreign exchange receipt administration has been improved in combination with practice.

This new set of rules is not a simple policy integration, but a targeted measure against issues such as false foreign exchange receipt and tax fraud through illegal trading of foreign exchange. By clarifying foreign exchange receipt as a prerequisite for tax refunds, defining legal consequences, and closely linking with the declaration period, it strengthens the rigidity of collection and administration, and draws a clear boundary for the compliance of enterprises. Only by strengthening the awareness of export tax refund compliance and improving the management level of export business can export enterprises avoid risks, seize opportunities, and achieve high-quality development in the complex foreign trade environment.