On December 29, 2008, the General Administration of Customs (GAC) issued the Administrative Measures for Tax Deductions and Exemptions for Import/Export Goods. The Measures, which came into effect on February 1, 2009, outline the steps that applicants must take in order to obtain tax deductions and exemptions on import or export goods.  

Applicants that wish to take advantage of tax deductions and exemptions must undergo a qualification process before making import/export declarations. To initiate this process, an applicant must apply for a deduction or exemption by submitting to the relevant customs office an application and other required materials, including its business license or a similar certificate evidencing its legal registration, a certificate verifying that the goods under consideration are entitled to preferential tax treatment, and any other material the relevant customs office considers necessary. Customs will then issue a Tax Levy and Exemption Certificate within ten working days after receiving a properly completed application. In addition to the application materials described above, the applicant will also need to submit import/export contracts, invoices and other product information on the goods for final approval of the tax deduction or exemption. Applicants may seek a release of the goods without paying the tax for up to six months during the examination period by posting a tax bond.  

Imported goods that qualify for tax deductions or exemptions are subject to a customs supervision period in which the applicants must abide by customs rules to store and use the goods unless otherwise prescribed by the GAC. This period is eight years for ships and airplanes, six years for vehicles, and five years for all other goods, starting from the date such goods are released from customs. During the supervision period, the importer must submit a report to the relevant Customs office in the first quarter of each year that attests to the way in which the goods are used. Such reports ensure that imported goods that enjoy tax deductions or exemptions when used for one specific purpose are not then used for unauthorized purposes. During the supervision period and for three years afterwards, Customs has the right to inspect the use of such goods in accordance with relevant Customs laws and regulations.

In addition, during the supervision period, applicants are not allowed to transfer, mortgage, pledge, return or dispose of the goods, transport the goods outside the area approved by Customs, or use the goods for any purpose other than their declared purpose, without first obtaining permission from the relevant Customs office. Applicants (or their successors) must also report any changes to their corporate structure, such as splits, mergers, reorganizations or bankruptcies, as these changes may affect whether or not they qualify for tax deductions and exemptions. Applicants will be responsible for any tax payments that result from such changes.