The Ministry of Finance, General Administration of Customs and State Administration of Taxation of China jointly issued a circular (“Joint Circular”) relating to the taxation policy on the cross-border e-commerce retailing imports, with effect as from April 8, 2016.
New Customs Taxation Policy for Retailing Imports via Official E-Commerce Platforms
Targeting at the cross-border B2C e-commerce, the new taxation policy tends to treat all the relevant retailing imports as commercial goods, i.e., goods under general trade. Compared to personal articles, China Customs applies higher import duty rates and more strict supervision measures to commercial goods. However, the Joint Circular sets out an exemption from the 100% customs duty and as well as 30% of value added taxes (“VAT’) and consumption taxes (if applicable) for a single transaction of RMB 2000 or less and within the annual quota of RMB 20,000 for each individual in online overseas purchase. Accordingly, even within the prescribed limit, an individual buyer still needs to pay 70% of the VAT and consumption tax (if applicable) for his/her purchase.
According to the Joint Circular, for those online purchases beyond the above prescribed limit, individual buyers must pay the full customs duty, VAT and consumption tax (if applicable) as a matter of general import trade.
Customs Taxation Policy for Those Imports via Non Official E-Commerce Platforms
However, the above new taxation policy ONLY applies to those online cross-border transactions via e-commerce platforms either connected to the customs system or with the associated express carriers or postal offices being able to provide the customs with all electronic data relating to the transactions, payments and logistics (“Official E-Commerce Platforms”).
Otherwise, the previous relevant taxation policy would still apply, in which case, most customs district offices tend to categorize online purchases overseas into two types, personal articles or commercial goods, depending on whether or not for personal use and within a reasonable amount. If yes to both, the individual buyers may eventually need to bear the duty rates for personal articles. In practice, the maximum value test (RMB 1000 from foreign districts or countries and 800 RMB from Hong Kong, Macau or Taiwan) might apply. In case of exceeding such value test, China customs district offices may apply more strict rules by directly treating such online purchases overseas as commercial goods. If treated as commercial goods, the individual buyers may, without any exemption, bear the full customs duty and other import taxes in general trade.
Nonetheless, even the duty rates for personal articles are becoming much higher than before. Almost at the same pace, the Customs Tariff Commission of State Council (“Tariff Commission”) issued a new nomenclature of import duty rates for personal articles at the entry, with effect as from April 8, 2016. Depending on the types of personal articles, the new nomenclature sets out a 3-level hierarchy for import duty rates, 15%, 30% and 60%. Compared to the previous rates (10%, 20%, 30% and 50%), the Tariff Commission raised the tax burden for personal articles at the entry. For example, the duty rates for foods, beverages, consumer entertainment products, tobaccos, alcohols, luxury products and cosmetics all dramatically increase.
In terms of cross-border B2C e-commerce regulation, our observation is that China Customs tends to give more clearance privileges to those B2C imports via Official E-Commerce Platforms and streamline the relevant customs supervision process by focusing on official B2C importation channels (whether e-commerce platforms or logistics providers) and having such channels responsible for each B2C import clearance.
On the other hand, the relevant import tax burden seems not more favorable to consumers in such business model. Moreover, given the imports under such model are all treated as commercial goods under general trade, the license control requirements might still apply, such as the permit for importation of cosmetics or health food or a 3C certificate. The relevant authorities, such as AQSIQ (Administration of Supervision, Inspection and Quarantine) might still enforce stringent supervision and inspection measures over those imports subject to license control.
Given the import duty rates for personal articles increase dramatically, those retailing imports not via an Official E-Commerce Platform might become the target of customs supervision. Anticipating more customs risks associated with clearances of personal articles, more individual buyers might be more willing to choose Official E-Commerce Platforms for online shopping overseas.