3rd Party Assembly and VAT planning

Quoted FOB and EXW by the Chinese supplier.  Who pays the VAT in these circumstances? Who can apply for the refund?

Marisa in S. Florida writes in to explain her situation and ask her VAT questions:

Hi Mike,

I have your book and also have heard you speak at the seminars in Miami and Hong Kong. I have a question/problem regarding the VAT that I feel I’m getting the run around on. I work with many different suppliers of sporting goods components in China.  They send their semi-finished product to an assembler in another part of China.  This finished gift set is then exported to USA.

I have been quoted FOB and EXW pricing.  Who pays the VAT in these circumstances? Who can apply for the export refund of some/all of this VAT?

Not sure if I’m getting the “smoke and mirrors” from the final exporter.


Under FOB incoterms the seller is responsible for sorting out VAT and VAT rebates.  Under EXW, it would be your responsibility.

And as unless you have a legal entity in China that is licensed, has import/export rights and allowed to process VAT, you would be unable to process the VAT on your own if you buy EXW.

For your reference, this link gives and overview of the VAT process:


If you desire to buy EXW, know that 3rd parties like PassageMaker are fully licensed and processes VAT on behalf of the clients. Final assembly and QC can also take place under an ISO system.

This process is explained at:

http://www.psschina.com/services-and-pricing/assembly-inspection-packaging/ and in video form at http://www.psschina.com/about/virtual-tour/


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About the author: Mike Bellamy

Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). Author of “The Essential Reference Guide to China Sourcing” and founder of PassageMaker Sourcing Solutions.


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