25 Jul Along the Silk Road – Edition 3 – What You Need to Know about Taxes in China

In recent years, China has been gradually opening up its import and export policies to further trading opportunities. Importing to and exporting from China generally involves three types of taxes –

  • Value-added tax
  • Consumption tax and
  • Customs duties

Value-added tax

17% is the VAT rate levied on the sale or import of goods and the provision of processing, repair and installation services. Goods such as books, newspapers, magazines, cereals, edible vegetable oils, tap water, heaters, coal products for residential use and other goods as prescribed by the State Council has a lower rate of 13%. In respect of goods sold by certain small scale taxpayers, a special VAT rate of 6% is applied.

Consumption tax

In China, consumption tax is imposed on all individuals and organizations which manufacture and import taxable products, process taxable products under consignment, or sell taxable products. China’s consumption tax revenue amounted to RMB 890.7 billion in 2015.

Consumption tax is levied on the following five categories of products –

  • Products of which the over-consumption of such is harmful to health, social order and the environment, e.g., tobacco, alcohol, and fireworks
  • Luxury goods and non-necessities, such as jewelry and cosmetics
  • High-energy consumption and high-end products, such as automobiles
  • Non-renewable and non-replaceable petroleum products, such as gasoline and diesel oil
  • Financially significant products, such as motor vehicle tires

Customs duties

According to China’s 2013 Customs Tariff Implementation Plan (“2013 Tariff Plan”), there are a total of 8.238 items included in China’s Custom Duties which include both import duties and export duties. Customs duties are computed either on an ad valorem basis or quantity basis.

Duty rates on import goods consist of:

  • Most-favored-nation duty (MFN) rates
  • Conventional duty rates
  • Special preferential duty rates
  • General duty rates
  • Tariff rate quota (TRQ) duty rates; and
  • Temporary duty rates

China’s Import tax policies under the cross-border e-Commerce model

China has recently released a circular to clarify import tax policies for goods imported under the new cross-border e-Commerce model, in order to regulate the cross-border e-Commerce market.

The Circular, which came into effect on April 8, 2016, stipulates that import taxes including tariffs, VAT, and consumer tax (if applicable) will need to be paid by consumers purchasing goods imported under both the direct shipping model and the bonded warehouse model.

There are also transaction limits to the new cross border e-Commerce retail import tax policy – settling at RMB 2,000 for a single transaction and RMB 20,000 for yearly transactions.

In recent years, China has been providing strong support on the development of cross-border e-Commerce. In 2014, cross-border e-Commerce trade volume in pilot cities exceeded RMB 3 billion; growth potential for this area cannot be ignored. In 2013, Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, Chongqing and Shenzhen were selected as pilot cities to implement bonded importation for cross-border online shopping.

This is an opportune time for multinational corporations and retail companies to take advantages to further expand their business in China, and to adjust production and supply chain management systems in China in order to meet business needs.

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