On 28 November 2016, the General Administration of Customs (GAC) introduced new rules for regulating outward processing by issuing the GAC Announcement [2016] No. 69 (Announcement 69) which took effect on 30 November 2016. Announcement 69 can be briefly summarized as follows: 

1. Definition of outward processing

Outward processing refers to business activities where qualified enterprises in China consign raw materials, parts, components or semi-finished goods to overseas enterprises for manufacturing or processing, and subsequently reimport the processed goods within the prescribed period and pay the processing fee, price of materials sourced from overseas, and other related fees to the overseas enterprises.

2. Requirements for Chinese enterprises engaging in outward processing

• The Chinese enterprises must have a credit rating of general or above under the customs credit authentication system.

• The exported and re-imported goods are not prohibited or restricted from being exported or imported.

• The exported goods are not subject to export duties.

• The Chinese enterprises must not be, due to suspected involvement in any cases of smuggling or breach of regulations, under customs investigation or audit, where such investigation or audit has not yet been concluded.

• The Chinese enterprises must report to the customs authority any expired customs accounts within the prescribed period.

• The port of exit through which the materials to be processed are exported and the processed goods are re-imported must be the same.

3. Documents and information required for establishing a customs account for outward processing

A Chinese enterprise must provide the following documents and information to the competent customs house where it is registered in order to establish a customs account for outward processing:

• Contract for outward processing.

• Production process description.

• Pictures or samples of the goods to be exported or re-imported.

• Information including the port for import/export, description, tariff code, quantity, type and specification, price, and country of origin of the imported/exported goods.

• Quantity and value of materials sourced overseas, if applicable.

• Other documents and materials required by the customs.

4. Verification and cancellation of a customs account for outward processing

The valid period of each customs account for outward processing is one year. The Chinese enterprise must report the actual export and re-import information to the competent customs house for the verification and cancellation of its customs account within 30 days after the expiration of the customs account.

5. Tax implications

Re-imported goods under an outward processing arrangement are subject to import tax. The customs will determine the dutiable value of the re-imported goods based on the amount of processing fee, price of raw materials sources from overseas, freight and insurance fee. Announcement 69 should be able to supplement regulatory gaps in the customs supervision of outward processing activities in order to enable more flexibility in such activities in China. However, some provisions of Announcement 69 conflict with the provisions stipulated in the Administrative Measures of the Customs for the Levying of Duties on Imported and Exported Goods (Revised in 2014). For example, the latter Measures allow goods which are subject to export customs duty to be exported for processing upon a bank guarantee provided by the exporter. It is still unclear which regulation will prevail in case there is such a conflict.