Understanding VAT Carry-Forward Refunds: How to Reclaim Your Funds

Business owners in Yiwu who are involved in jewelry, printing and packaging, socks, and seamless underwear may often hear their accountants say: “Boss, there’s still a carry-forward VAT amount on the books, and the money is tied up in the tax return.” For processing plants near the International Trade City, old stalls in Huangyuan Market, and e-commerce warehouses in Beixiazhu, when large purchases or new equipment are made, input invoices often exceed output invoices, making this “carry-forward” amount visible but unattainable.

Good news has arrived. On August 22, 2025, the Ministry of Finance and the State Taxation Administration issued an announcement to further improve the VAT carry-forward refund policy, effective from September 1, 2025. By September 2026, the new policy will have been in effect for one year. The latest data from the State Taxation Administration shows that over the past year, a total of CNY 281.8 billion in carry-forward VAT refunds have been processed, with real cash flowing back into businesses.

1. First, Let's Calculate: How Is the Carry-Forward VAT Amount Generated?

VAT is only levied on the “value-added portion.” If the current period output VAT - input VAT > 0, taxes must be paid; if output VAT < input VAT, the difference is the “carry-forward VAT amount.” It is essentially the input VAT that the company has already paid but has not yet fully offset, which is your money, just temporarily sitting on the books.

Do you see? It’s not that you’re not making money, it’s that the money has “turned into” a carry-forward VAT amount. For many business owners in Yiwu who are involved in processing and foreign trade, this situation occurs almost every year.

2. What Has the New Policy Changed? Monthly Full Refunds for Four Industries

According to the announcement, starting from September 2025, the state will provide monthly full refunds of carry-forward VAT for the manufacturing, scientific research and technical services, software and information technology services, and ecological protection and environmental governance industries, while also adjusting the refund ratios and conditions for some industries. Unlike the previous “phased, partial industry” approach, this time a set of clearly categorized, long-term stable carry-forward VAT refund policies has been established.

The results of the new policy after one year (as reported by the State Taxation Administration on September 29, 2026):

• National cumulative carry-forward VAT refunds of CNY 281.8 billion;
• The four key industries—manufacturing, scientific research, software, and ecology—cumulatively received CNY 212 billion, a 10.4% increase compared to the same period before the new policy was implemented;
• The proportion of these four industries in the national carry-forward VAT refund amount increased to 75.2%, a 21.4 percentage point increase compared to the same period before the new policy;
• Among them, the manufacturing sector is the largest, reaching CNY 191.4 billion, accounting for 67.9%, a 20.2 percentage point increase compared to the same period before the new policy.
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In short: those engaged in real economy, R&D, and environmental protection have become the key beneficiaries of this round of policies. Businesses in Yiwu involved in jewelry processing, knitting, printing and packaging, environmental materials, and software services are right at the center of the policy focus.

3. Refund vs. Gradual Offset: The Difference Is One Year’s Cash Flow

Many business owners think, “I can offset it later, no rush.” But the calculation should be as follows:

• No Refund, Gradual Offset: Assuming a monthly average carry-forward of 80,000 yuan, that’s 960,000 yuan of funds tied up on the books for a year, and you might need to rely on loans for turnover. At an annual interest rate of 5%, you would pay about 48,000 yuan in interest alone;
• Monthly Refund: 960,000 yuan returned to the company account in the same year, which can be used to pay for goods, salaries, and equipment, equivalent to obtaining zero-cost working capital;
• Especially Critical for R&D and Environmental Protection Companies: With high R&D investment and slow returns, the carry-forward VAT refund is almost like “returning the money you’ve advanced.” In the official report, a single R&D company received a refund of 7.31 million yuan, equivalent to 39.3% of its total expenditure over the previous eight months.
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4. To Get This Money, Check These Five Basic Conditions

Carry-forward VAT refunds are not available on demand. According to current regulations, the following conditions must typically be met simultaneously:

• Being a general VAT taxpayer;
• Having a tax credit rating of A or B;
• Not having engaged in fraudulent activities such as obtaining carry-forward VAT refunds, export VAT refunds, or issuing false VAT special invoices in the previous 36 months;
• Not having been penalized by the tax authorities for tax evasion twice or more in the previous 36 months;
• Not having enjoyed immediate refund or advance collection and refund (refund) policies since April 1, 2019.
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Note: Small-scale taxpayers are not eligible for carry-forward VAT refunds; if your credit rating drops to C or D, or if the sources of your input invoices are questionable, this path will be blocked. The specific applicable criteria are subject to the current regulations of the competent tax authority.

5. Four-Step Application Process, Follow These Steps

1. Self-Check Eligibility: Verify your taxpayer status, credit rating, and any record of violations;
2. Collect Documentation: Organize all input VAT deduction vouchers for fixed asset purchases and raw material acquisitions, ensuring consistency between invoices, payments, and goods;
3. E-Tax Bureau Filing: Submit the carry-forward VAT refund application during the VAT filing period, and the system will automatically capture data and pre-fill the forms;
4. Wait for Refund: With the streamlined process between the tax bureau, treasury, and banks, the efficiency of refunds has significantly improved, and many regions have achieved “quick refunds after application.”
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6. Avoid These Three Types of Risks

• Falsifying Input, Fabricating Vouchers: This is considered fraud and, if discovered, will result in the recovery of the refunded amount, fines, and potentially criminal liability;
• Unverified Sources of Input Invoices: If the upstream party issues false invoices or the invoices do not match the goods, the refunded amount must be returned, and additional taxes and late fees will apply;
• Failure to Apply for Refunds, Irregular Bookkeeping: Long-term large carry-forward amounts without applying for a refund not only tie up funds but may also lead the tax system to consider your business data abnormal.
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A reminder: refunds must be accurate. Ensure that the vouchers, contracts, financial transactions, and logistics documents align, which is the true measure of safety.

7. Four Most Common Questions from Yiwu Business Owners

Q1: I am an individual business owner. Can I apply for a carry-forward VAT refund?

Carry-forward VAT refunds apply to general VAT taxpayers. Most individual business owners are small-scale taxpayers and are not eligible. However, if your individual business is registered as a general taxpayer, you must follow the rules for general taxpayers.

Q2: I am in the wholesale business. Am I included in the four industries?

The wholesale and retail industry is not among the four industries eligible for monthly full refunds. Whether you qualify for other refund conditions and the refund ratio depends on your actual business scope and the determination of the competent tax authority. It is recommended to have a professional accountant review your situation first.

Q3: Will carry-forward VAT refunds conflict with export VAT refunds?

These are different policy measures. Export companies use the exemption, offset, and refund method and cannot simultaneously claim the same part of the input VAT. Business owners in foreign trade should ensure that their accountants separate these two accounts and avoid duplicate claims.

Q4: Will I be scrutinized more after getting a refund?

The new policy emphasizes “fast, accurate, and stable refunds.” As long as the business is genuine, the vouchers are complete, and the filings are compliant, the refund is a normal policy benefit. Conversely, abnormal data and mismatched invoices and goods are the real risk points.

Sources and References

• State Taxation Administration: VAT Carry-Forward Refund New Policy Implementation One-Year Anniversary — Cumulative Refunds of CNY 281.8 Billion, Effective Targeted Support Released (2026-09-29)
• Ministry of Finance, State Taxation Administration: Announcement No. 28 of 2025 of the Ministry of Finance and the State Taxation Administration (财政部 税务总局公告2025年第28号) — Providing for monthly full refunds of carry-forward VAT for the manufacturing, scientific research and technical services, software and information technology services, and ecological protection and environmental governance industries, and adjusting the refund ratios and conditions for some industries. State Taxation Administration Official Website · Policy and Regulations
• Zhejiang Taxation · State Taxation Administration of Zhejiang Province: http://zhejiang.chinatax.gov.cn/
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Final Note

Carry-forward VAT refunds are a policy to help business owners in the real economy “recharge,” but the details matter: credit ratings, voucher collection, and industry recognition. Any issue in any of these areas can prevent the refund and even bring risks.

Jinfan (Yiwu) Finance & Tax Management Co., Ltd. has been providing local finance and tax services in Yiwu for 10 years and is familiar with the actual situations of various business entities in the International Trade City, Huangyuan Market, and Beixiazhu. We can help you conduct a carry-forward VAT refund eligibility check: to see if you qualify, how much you can get, and what documents you need to prepare. If you need assistance, feel free to contact Jinfan Tax & Finance, and we will help you calculate everything clearly before proceeding.