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China Updates Cross-Border E-Commerce Retail Import Policy

At the first China International Import Expo in November 2018, President Xi Jinping said China was committed to opening up the vast Chinese market and unleashing the economic potential of the domestic market. This commitment includes stepping up the development of cross-border e-commerce (CBEC), which has grown rapidly in recent years. The volume of CBEC retail imports reached RMB78.58 billion in 2018, an increase of 39.8% on the year before [1]. More than 100 million Chinese consumers have made purchases through CBEC, according to some reports. [2] China has implemented a series of new policies over the last 12 months, which are designed to improve the regulation of CBEC retail imports and promote the development of this sector. This article looks at these policies and what they might mean for companies interested in developing the mainland retailing market.

State Council Institutional Reform

In March 2018, the State Administration for Industry and Commerce, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and the China Food and Drug Administration were merged to form the State Administration for Market Regulation. The administration of entry-exit inspection and quarantine previously handled by the AQSIQ was put in the hands of the General Administration of Customs (GAC). This means that the record-filing, tax payment, supervision and quarantine of goods entering China via CBEC is now handled by local customs authorities.

New Pilot Zones

In July 2018, the State Council approved the establishment of an additional 22 CBEC comprehensive pilot zones in cities including Beijing, Zhuhai, Dongguan and Yiwu. The State Council document says the comprehensive pilot zones must highlight local characteristics and advantages when exploring new ways to promote the development of CBEC across the country. This move to encourage the new pilot zones to adopt a more localised approach will be boosted by ensuring that the implementation plans for the zones will be drawn up by the provincial-level governments of the cities involved. Since July, the number of comprehensive pilot zones has been increased from 13 to 35, four of which are in Guangdong, namely Guangzhou, Shenzhen, Zhuhai and Dongguan.

The implementation plans for the comprehensive pilot zones not only cover local policies for CBEC imports but also provide all-embracing policies for CBEC in each city. In the case of the four Guangdong zones, for instance, Guangzhou will encourage traditional foreign trade businesses to transform and upgrade through CBEC to become pioneers for innovative development. Shenzhen will use the Qianhai-Shekou Area of the China (Guangdong) Pilot Free Trade Zone as a leader in building an integrated Shenzhen-Hong Kong ecosphere for comprehensive services in CBEC. Zhuhai will use its proximity to Macao to build a platform for CBEC co-operation between China and Portuguese-speaking and Latin American countries. Dongguan, as the manufacturing centre of Guangdong, will promote the transformation and upgrading of its manufacturing industry through CBEC, with the intention of becoming a CBEC import and export hub in the Guangdong-Hong Kong-Macao Greater Bay Area.

The 35 pilot zones are all located in cities with fairly strong economic clout and good business support. Establishing the zones in these cities enables them to make use of their well-developed supply chains to serve the surrounding areas. It also allows them to help local industries adapt better to the global internet economy by encouraging them to engage in CBEC. The mainland government hopes that developing CBEC in this way will not only serve to satisfy consumer needs but also help to improve industrial development and encourage local enterprises to develop import/export business.

Specifying the Responsibilities of CBEC Participants

The E-Commerce Law of the People’s Republic of China (the Law) came into effect on 1 January 2019. As well as expressing the government’s support for CBEC, the Law also provides the legal framework for the supervision of CBEC activities by various government departments. Article 9 of the Law defines an e-commerce operator as “a natural person, legal person or unincorporated organisation that engages in the business activities of selling goods or providing services via the internet or any other information network”. Articles 10 and 11 stipulate that e-commerce operators must register as a market entity and pay tax in accordance with the law. These provisions set forth the business norms for CBEC operators, including C2C “purchasing agents” (commonly known as daigou), stipulating that they must register with the government and pay taxes on their earnings. The Law also makes specifications about the business practices of e-commerce platform operators.

In November 2018, several ministries jointly issued the Circular on Improving the Oversight of Retail Imports in Cross-Border E-Commerce, specifying the responsibilities of various CBEC participants, as summarised in the table below.

Responsibilities of CBEC Participants
ParticipantDefinition Responsibilities
CBEC enterpriseOverseas-registered enterprise which sells CBEC retail imports to domestic consumers on a cross-border basis, and is the owner of the goods• Protect consumers’ rights and interests

• Discharge the obligation of reminding and informing consumers

• Establish a mechanism for prevention and control of quality and safety risks of goods and a system of quality traceability of imported goods

• Transmit electronic data of CBEC retail import transactions with electronic signatures to Customs in real time
CBEC platformOperator who provides web space, transaction rules, information dissemination and other services and sets up platforms for both parties to conduct transactions• Complete customs registration and business registration in China

• Transmit electronic data of CBEC retail import transactions with electronic signatures to Customs in real time, and verify the authenticity of transactions and consumer identity

• Provide clear marks to differentiate CBEC retail imports from non-CBEC goods

• Establish a system for addressing consumer disputes and protecting consumers’ rights and interests

• Establish a quality and safety risk prevention and control mechanism for goods

• Prevent false transactions and re-sale of CBEC retail imports

 

Domestic service supplierBusiness entity engaged by CBEC enterprises to provide declaration, payment, logistics, warehousing and other services, and accept follow-up supervision by Customs and other authorities• Complete Customs registration and business registration in China, and obtain permits from the regulatory departments concerned. For instance, a logistics enterprise must obtain the Express Delivery Business Licence issued by the State Post Bureau

Transmit electronic data of CBEC retail import transactions with electronic signatures to Customs in real time

• If the actual delivery information in China is inconsistent with the logistics information declared at the time of Customs clearance, the delivery in question shall be terminated and reported to Customs
ConsumerDomestic buyer of CBEC retail imports• Pay tax on the CBEC retail import goods

• Carefully read in detail the risk notices published on the e-commerce websites, and make judgment based on one’s own risk tolerance level

• Shall not resell the goods purchased through CBEC retail import
Source: Circular on Improving the Oversight of Retail Imports in Cross-Border E-Commerce (Shang Cai Fa No. 486 [2018])

 

In December 2018, the body which regulates CBEC retail imports, the GAC, issued the Announcement on Matters Pertaining to the Supervision of Cross-Border E-Commerce Imports and Exports [3]. It lists the latest regulatory measures in different areas, including enterprise management, taxation, management of customs supervision sites and management of returns, and supersedes GAC Announcement No. 26 [2016]. Since Customs is responsible for entry-exit inspection and quarantine, it will conduct quality and safety monitoring of CBEC retail imports and issue warnings as appropriate.

The Chinese government has made several updates to its regulatory regime for CBEC retail imports in recent years, suggesting that it attaches importance to the development of China’s CBEC retail import market. These revisions and updates should help to rectify irregular business practices in the market to protect consumers’ rights and interests and promote the development of CBEC retail imports.

Expanded Product Range and Higher Purchase Limit

In November 2018, the Ministry of Finance (MOF) and several other authorities jointly issued the Announcement on Adjusting the List of CBEC Retail Imports and the List of CBEC Retail Imports (2018 Version) (known as the ‘positive list’). The list contains 1,321 categories of goods, at least 60 more than were on the preceding version. The MOF, the GAC and the State Administration of Taxation (SAT) also issued the Circular on the Improvement of Tax Policies on Cross-Border E-Commerce Retail Imports in the same month, raising the maximum value of any single CBEC retail import transaction from RMB2,000 to RMB5,000, and the annual per person limit from RMB20,000 to RMB26,000. The new measures took effect on 1 January 2019.

Under existing regulations, CBEC platforms must be linked to the online system of Customs and must transmit to Customs all information regarding orders, payments and logistics in real time. If domestic consumers buy goods on the positive list through CBEC platforms and the order amount does not exceed the single transaction or annual limit, they are eligible for a 0% tariff, 70% of the import value-added tax (VAT) and 70% of the consumption tax (also known as integrated tax for CBEC). If the order amount exceeds either the single transaction or annual limit, consumers have to pay tax in full under general trade terms. The above measures will be to give mainland consumers greater choice when buying foreign products.

Lowering VAT and Personal Postal Articles Tax

In March 2019, Premier Li Keqiang delivered the 2019 Government Work Report, setting out measures to widen the scope of VAT reform. Subsequently the Ministry of Finance, GAC and SAT issued the Announcement on Policies for Deepening VAT Reform, reducing the VAT levied on imported goods from 16% to 13%. This adjustment came into effect from 1 April 2019. For goods on the positive list ordered via CBEC platforms, the VAT payable by domestic consumers was cut from 11.2% to 9.1%. The central government did not lower consumption tax, which means consumers still have to pay consumption tax on imported cosmetics and jewellery purchased through CBEC platforms. At present, consumption tax is levied at 15% on imported high-end cosmetics and 5% or 10% on fine jewellery. For details, please see the Provisional Regulations of the People’s Republic of China on Consumption Tax and the Circular on Adjusting the Policy of Consumption Tax on Cosmetics.

In April 2019, the State Council issued the Circular of the State Council Customs Tariff Commission on Issues Concerning the Adjustment of Import Tax on Personal Effects. Under this, Personal Postal Articles Tax was reduced to 13% from 15% on imported goods such as food and medicines and to 20% from 25% on goods such as textiles and electrical appliances. The reduction of Personal Postal Articles Tax will benefit goods imported via haitao, or overseas online shopping. Chinese consumers can pay less tax ordering directly from overseas e-commerce sites. See Appendix for the calculation of taxes on CBEC retail imports.

Conclusion

In July 2018, the central government issued the Circular of the State Council General Office on Transmitting the Opinions of the Ministry of Commerce and Other Departments on Expanding Imports and Promoting Balanced Development in Foreign Trade. It says China’s aim is to expand imports to improve the quality of life of its people and increase the competitiveness of its manufacturing industry while promoting balanced development in foreign trade. This makes it clear that expanding imports has become one of the principal economic policies of the central government. Throughout the second half of 2018 and the first half of 2019, the central government has introduced measures to support the development of CBEC retail imports, such as establishing additional comprehensive pilot zones, formulating all-embracing laws and regulations and increasing the purchase limits of CBEC retail imports. As the income of mainland residents continues to grow, their demand for foreign goods of high quality, especially the sort of consumer goods on the positive list, is expected to increase. Hong Kong companies can consider making good use of CBEC retail imports to open up the Chinese market and introduce mainland consumers to premium products from all over the world.

 

Appendix: Tax Payable on Goods Imported Via CBEC

As well as via general trade channels, foreign goods may also enter China through cross-border e-commerce (CBEC), the main channels of which include: 1) entering China by “bonded import” or “direct purchase import” via mainland CBEC platforms, and 2) importing goods sold on overseas online shopping sites as “personal postal articles”. Both forms of import are subject to Customs supervision.

Bonded Import vs Direct Purchase Import

Import via bonded import: Whole batches of foreign goods on the positive list are put in storage in special customs supervision areas or bonded supervision sites. After the consumer places an order, the CBEC platform linked to Customs will transmit all the information regarding order, payment and logistics in real time and clear Customs for each item on the order. After Customs inspection and clearance, the goods will be directly dispatched to the customer from the bonded areas.

Import via direct purchase import: After the consumer places an order for foreign goods on the positive list on a CBEC platform linked to Customs, the CBEC platform will transmit all the information on the order, payment and logistics to Customs in real time. The goods will be directly dispatched from an overseas warehouse using international logistics services to customs-supervised sites for CBEC in China, to be delivered to the consumers upon completion of Customs clearance, inspection and quarantine formalities.

China Customs levies duty on goods imported via bonded import and as direct purchase import using the formula of 0% tariff, 70% import VAT and 70% consumption tax (also known as integrated tax for CBEC). The formula is as follow:

[(Consumption Tax rate + VAT rate) / (1 - Consumption Tax rate)] x 70%

The following scenario is the duty payable on goods imported via bonded import vs direct purchase import after the government cut VAT rates in April 2019:

Duty Payable on Goods Imported via Bonded Import vs Direct Purchase Import
 Goods Exempt from Consumption Tax (e.g. food)Goods Subject to Consumption Tax (e.g. high-end cosmetics taxed at 15%)
Price of goods is RMB200RMB200 x
[(0% Consumption Tax + 13% VAT) / (1 - 0% Consumption Tax)] x 70%
= RMB18.2
(tax payable on the commodity is RMB18.2)
RMB200 x
[(15% Consumption Tax + 13% VAT) / (1 - 15% Consumption Tax)] x 70%
= RMB46.1
(tax payable on the commodity is RMB46.1)
Source: Circular on Tax Policies for CBEC Retail Imports (Cai Guan Shui No. 18 [2016]), Announcement on Policies for Deepening VAT Reform (MOF, SAT and GAC Announcement No. 39 [2019]), Provisional Regulations of the PRC on Consumption Tax (PRC State Council Order No. 539), Circular on Adjusting the Policy of Consumption Tax on Cosmetics (Cai Shui No. 103 [2016]).

 

Personal Postal Articles

Instead of selling through mainland CBEC platforms, businesses may also choose to sell goods on overseas websites for mainland consumers shopping online. The goods enter China as personal postal articles and Customs levies import duty (also known as Personal Postal Articles Tax) on the imports.

The difference between levying Personal Postal Articles Tax and integrated tax for CBEC is that integrated tax for CBEC is based on the unit buying price of the goods while Personal Postal Articles Tax is based on their dutiable value. Dutiable value is calculated on the basis of the transaction price appraised by Customs, which includes the price of the goods and packing, shipping, insurance and other fees. Customs will levy Personal Postal Articles Tax on personal imports according to their dutiable values and tariff rates specified in the Schedule of Dutiable Values of Personal Imports of the People’s Republic of China. In other words, the dutiable value may be different from the actual price of the goods.

The following scenario is the duty payable on goods imported by post after the government cut the Personal Postal Articles Tax rates in April 2019. It is needed to point out that, based on the Announcement on Matters Pertaining to the Adjustment of Administrative Measures for Personal Imports and Exports [4], the maximum value of personal imports is RMB800 if posted through Hong Kong, Macao and Taiwan and RMB1,000 if posted from other countries or territories. Goods exceeding the maximum value must be returned to the consignor or clear customs according to existing regulations. On the other hand, the import levy will be waived by Customs if the duty payable does not exceed RMB50.

Duty Payable on Goods Imported by Post
Goods subject to 13% Personal Postal Articles Tax
(e.g. food with dutiable value of RMB200)
Goods subject to 20% Personal Postal Articles Tax
(e.g. electrical appliance with dutiable value of RMB200)
Goods subject to 50% Personal Postal Articles Tax
(e.g. high-end cosmetics with dutiable value of RMB200)
RMB200 x
(13% Personal Postal Articles Tax)
= RMB26 (Duty payable is zero. Duty is exempted by Customs because the amount is below RMB50)
RMB200 x
(20% Personal Postal Articles Tax)
= RMB40 (Duty payable is zero. Duty is exempted by Customs because the amount is below RMB50)
RMB200 x
(50% Personal Postal Articles Tax)
= RMB100 (Duty payable is RMB100)
Source: Circular of the State Council Customs Tariff Commission on Issues Concerning the Adjustment of Import Tax on Personal Effects (Shui Wei Hui No. 17 [2019]), Announcement on Matters Pertaining to the Adjustment of Administrative Measures for Personal Imports and Exports (GAC Announcement No. 43 [2010]), and Announcement on the Adjustment of the Schedule of Classification of Personal Imports of the People’s Republic of China and the Schedule of Dutiable Values of Personal Imports of the People’s Republic of China (GAC Announcement No. 63 [2019])

This shows that the amount of duty payable on imports depends on the price of the goods, whether Consumption Tax is payable on the goods, the quantity of the goods, and the dutiable value and Personal Postal Article Tax rate of the goods. The ultimate price of the goods may be affected by factors such as the cost of displaying the goods on CBEC platforms, packing and shipping fees, and spot checks by Customs.


Notes:

[1] Source: General Administration of Customs (GAC)

[2] Source: “Report for China’s Cross-Border E-Commerce Market, 2018-2019”, iiMedia Research, March 2019

[3] GAC Announcement No. 194 [2018]

[4] GAC Announcement No. 43 [2010]

Content provided by Picture: C.H. Poon
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