Customs Update

Ecovis Beijing offers tax and legal consulting as well as accounting and auditing services for foreign invested enterprises (FIE) in China. During our work with some manufacturing and trading companies, we came across several issues our clients encountered in the field of customs supervision. In the following article we would like to give you an update on the customs regulations area in the PRC: 

As the custom taxes make the lion´s share of the total tax revenue of the government, the recent trend on tax is, that the collection by the customs house is becoming wider and stricter. The situation of the tax authorities is similar, due to the fact that the economic situation is not improving while the responsible authorities still have growth targets to meet each year.

The customs investigation focuses on certain areas. For example wrong classifications of HS codes when a company imports goods. Thus for companies importing parts/goods or commodities, it is useful to get confirmation of the in-charge customs house on the HS code.

As the HS code system is complicated, sometimes within the customs house there may be different opinions on the application of the HS code on a specific part/product. In practice, the customs house has challenged companies who have imported a part/product for years using a certain HS code, resulting in large supplementary duty amounts to be paid.

Improper declaration of HS codes could be categorized into the following cases:

• Incorrect declaration
• False declaration
• Smuggling act
• Smuggling crime

The first one can be negotiated within the customs house for a re-classification. The next three ones are subject to investigations by the anti-smuggling bureau in the customs house and are considered as serious offense.  Companies should pay special attention not to commit actions of these three types.

For the past two years, there are reported cases of the customs houses encashing duty on royalties. Since the Chinese laws and regulations are vague on these areas, there is no clear guideline for arguing with the customs house on the legitimacy of such encashments.

The basis for the customs house to encash duty on royalty is the following: The royalties are not separable from the goods sold; Payment of the royalty constitutes a criteria for the sales of such products. For example, if a Chinese company signs a contract with a foreign company for purchasing machinery: In the contract it might be stated that there is a special software to run these machinery with. Then the fee for the software should also be considered as part of the machinery´s price and is therefore dutiable.

If your company encounters any customs investigation, or has any problem with the compliance of customs regulations, don’t hesitate to contacts us at: grace.shi@ecovis.com