How to Claim Tax Refunds for U.S. Companies? A Clear Guide to the Process and Key Points to Note

How to Achieve Tax Refunds for U.S. Companies A Practical Guide

In today’s globalized business environment, more and more Chinese companies are setting up operations in the United States to expand their markets through cross-border investments and operations. However, while running a company in the U.S., many business owners are concerned about how to legally and efficiently claim tax refunds. Especially in the current complex and ever-changing global economic climate, proper tax refunds can not only reduce the tax burden but also improve capital efficiency.

This article outlines the basic procedures and key considerations for tax refunds for U.S. companies, incorporating the latest tax developments.

1. Types of U.S. Company Tax Refunds

In the U.S., a tax refund refers to the return of taxes paid by a business or individual when certain conditions are met. Common types of tax refunds include

Corporate Income Tax Refund Applicable to businesses with a physical presence in the U.S., such as C-Corporations.

Withholding Tax Refund For foreign companies or individuals earning income in the U.S. without a physical presence, such as dividends, interest, or royalty income.

Sales Tax Refund Some U.S. states allow businesses to apply for sales tax refunds on purchases of specific equipment or goods intended for export.

For most Chinese companies, the most relevant type is the Withholding Tax Refund, especially when receiving dividend, interest, or royalty income in the U.S. The IRS typically withholds 30% tax on such income, but under the China-U.S. tax treaty, this rate can be reduced to 10% or even lower. The difference can be claimed as a refund.

2. Step-by-Step Tax Refund Process

1 Prepare Required Tax Documents

Before applying for a refund, companies need to prepare the following

U.S. Federal Tax ID EIN

U.S. bank account for receiving the refund

U.S. tax forms, such as Form 1120-F

Income proof, such as Form 1042-S

Tax treaty eligibility documents, such as Form W-8BEN-E

Business license, articles of incorporation, and other corporate identity documents

2 Submit the Refund Application

Depending on the type of refund, the application process varies

Income Tax Refund Usually handled through the annual tax return e.g., Form 1120. If the tax paid exceeds the amount due, the IRS will automatically issue a refund.

Withholding Tax Refund Requires a separate application using Form 1120-F or Form 1040-NR, along with supporting documents.

Sales Tax Refund Apply directly to the state tax authority; procedures vary by state.

3 Wait for Review and Refund Disbursement

The IRS typically takes 6 to 12 months to process a complete refund application and transfer the funds to the designated account. Due to increased scrutiny in recent years, it’s important to plan your timeline carefully.

3. Key Considerations for Tax Refunds

1 Stay Updated on Tax Treaty Changes

The China-U.S. tax treaty remains valid in 2025, but international tax rules are changing rapidly, especially with the OECD’s global minimum tax agreement. Always consult a tax professional before applying to ensure compliance with the latest regulations.

2 Keep Complete Financial and Tax Records

The IRS conducts strict reviews of refund applications, especially for foreign entities. Maintain all contracts, bank records, and tax filings related to U.S. income for audit purposes.

3 Be Mindful of Filing Deadlines

Generally, companies must apply for a refund within three years of the income being received. Missing the deadline means losing the refund opportunity. For example, if a company received royalty income in 2025, the refund application should be submitted by 2028.

4 Avoid Double Taxation and Reporting Errors

Some companies overlook the fact that income has already been reported in China, leading to double taxation or reporting mistakes. It’s wise to coordinate with Chinese tax authorities to ensure consistency in cross-border tax treatment.

4. Recent Policy Updates

According to IRS announcements in October 2025, the agency is upgrading its electronic refund system to improve efficiency. Foreign companies are encouraged to use IRS e-file, the electronic filing system, to submit refund applications.

Additionally, the IRS has introduced a pre-review process for foreign refund applications to check document completeness early and reduce rejection rates.

Starting in 2025, several U.S. states, including California and New York, have introduced stricter requirements for sales tax refunds for foreign companies. Businesses are advised to prepare in advance.

5. Recommendations and Conclusion

For Chinese companies operating in the U.S., claiming tax refunds is not only a way to reduce costs but also a sign of responsible, compliant business practices.

To maximize refund success

Plan your tax structure in advance and make full use of applicable tax treaties.

Maintain accurate and complete financial and tax records.

Seek help from professional tax advisors to avoid operational errors and reduce tax risks.

Given the complexity and frequent changes in the U.S. tax system, staying informed and proactive is key to achieving tax efficiency and maximizing profits while staying compliant.