In March 2016, the Chinese government issued two new regulations, which have changed the taxation of imported products bought online from businesses abroad (B2C). Previously, cross-border online purchases for personal use were mainly treated as individual postal items and were normally subjected to a tax rate of 10% with taxes below 50 RMB being exempted.
According to two new regulations, the Announcement on the Tax Policy on Cross-Border E-commerce Retail (Cai Guan Shui (2016) 18) and the Notice on Relevant Issues Concerning the Adjustment of Import Duties on Imported Articles (Shuiweihui〔2016〕2), imported goods bought online will now be subjected to Customs Duties, VAT, and Consumption Tax. This brings the taxation of cross-border e-commerce closer to that of general trade.
This regulation affects all foreign companies, which are offering online transaction, payment and shipment services (mainly B2C). Companies or individuals, which are unable to provide these services (mainly C2C) do not fall under these regulations and will be, for the time being, treated according to existing regulations and taxed under the parcel tax.
Foreign business engaged in trans-border e-commerce have to register with the General Customs Administration (GAC) and provide information of the transaction to the Chinese cross-border e-commerce customs clearance service platform. The submission of information to the platform can also be done by online-platforms and courier services on behalf of the foreign business (GAC Announcement No. 26, 2016).
Tax reductions for trans-border retail e-commerce
The new policy also raises the value of duty free shipments from 1000 RMB to 2000 RMB. Now, single shipments worth less than 2000 RMB and orders having a cumulative value of less than 20 000 RMB annually are exempt from Customs Duty, but will be subjected to a reduced VAT and Consumption tax amounting to 70% of the normal tax amount. For products exceeding these limits usual custom duties apply and the entire value will be taxed. If goods are returned within 30 days to the customs supervision, customers can apply for a tax refund and import taxes will not be levied.
||value of single product less than 2000 RMB, and less than 20 000 RMB annualy
||value of more than 2000 RMB for single product and more than 20 000 RMB in the same year
||taxed like General Trade
||70% of total tax
Which foreign articles can be sold online?
A List of Cross-Border E-commerce Retail Imported Articles was issued on April 4th, 2014 by 11 ministries and includes 1142 articles, each marked with an 8-digit tax code (MOF Announcement No. 40, 2016).
Surprisingly, this list initially excluded some popular products, such as milk, which is high in demand among Chinese citizens due to the low level of trust into domestic brands. This caused some concern among foreign companies selling these goods and also raised questions with regard to goods stored in bonded areas and those already sold but not yet shipped.
Responding to the criticism, the Ministry of Finance published an updated version of the list on April 15th, which added another 151 products and now also includes milk (MOF Announcement No. 47, 2016). The list of the added goods can be found here.
Who has to transfer the tax?
In general, the main tax burden will fall upon the customer. Nonetheless, there are differences as to who will withhold the taxes.
Option 1: Transaction via E-Commerce-Platforms (e.g. JD Worldwide, Tmall Global)
If the transaction is carried out via E-commerce-platforms, the platform’s owner will usually withhold the taxes and transfer them directly to Chinese tax authorities. This is the most convenient method for both businesses and customers.
Option 2: Direct sale via your business website
If the good is purchased directly on a foreign company’s website, there are two possibilities:
- The customer pays the taxes in person. In this case the business only receives the payment for the product without the additional tax amount. The customer then has to pay the levied taxes directly to the Chinese customs authorities.
This, of course, is rather cumbersome for the buyer, since the purchased good might be retained by custom authorities until all taxes are paid.
- b) In most cases, however, the courier service (e.g. EMS, DHL) will withhold the tax for the customer.
Revised tax rates for other imported articles (excluding General Trade and E-Commerce)
Parallel to the new policy, tax rates for articles imported through other personal channels (Parcel Tax or 行邮税) were also adjusted (GAC Announcement No. 25, 2016). They will now fall under three categories, instead of the previous 4:
||Books and newspapers, publications, audio and video materials for educational use; computers, video cameras, digital cameras and other IT products; food and beverages; gold and silver; furniture; toys, gaming products, and festive and other recreational products
||Sporting goods (excluding golf balls and clubs), fishing tools; textiles and their manufactured goods; TV cameras and other electrical appliances; bicycles; and other items not included in the other two categories
||Alcohol and tobacco; valuable accessories, jewelry and gemstones; golf balls and clubs; luxury watches; cosmetics
The parcel tax, whose Chinese name xingyoushui is a combination of luggage (xingli) and postal (youjian) tax (shui), applies to all products, which are imported through personal or postal channels, and for which no e-commerce filling exist. The parcel tax is a composite tax which combines customs duty, import VAT, and consumption tax. The taxable amount includes all transaction costs (retail price, shipment, insurance, etc.). The principle of waiving taxes below 50 RMB remains intact.
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