Highlights of the New Tax Policies
China’s State Administration of Taxation, the Ministry of Finance and the General Administration of Customs released Circular on Tax Policies for Cross-border E-commerce Retail Imports (Circular) on March 24, 2016. The Circular, together with List of Imported Commodities through Cross-Border E-commerce Retail (List) promulgated by the Ministry of Finance and other 10 administrations or ministries of China on April 6, 2016 in Announcement No.40  (Announcement 40), reflects that the tax policies for Cross-border E-commerce Retail Imports (new tax policies) has basically established.
According to the Circular, the new tax policies take effect on April 8, 2016, which encompass the following changes:
- Changes in types of taxes: commodities imported through the cross-border e-commerce retail (Imported Commodities) shall follow the requirements on imported goods, be levied import duties, import value-added tax (VAT), and import consumption tax.
- Changes in commodities list: the new tax policies adopt a positive list and 1,142 commodities together with their eight-digit HS codes are included in the List of Announcement 40.
- Changes in the value limit: the value of Imported Commodities shall be set to limit of RMB 2,000 per single transaction and limit of RMB 20,000 per individual per annum.
- Changes in tax rates: the import duty rates for commodities imported within the foregoing transaction limits shall be fixed at 0% temporarily; the import VAT and consumption tax shall be temporarily fixed at 70% of the statutory tax payable while the exemption amount is cancelled.
- Clarified tax paying subject: individuals purchasing Imported Commodities shall be the taxpayers; and e-commerce enterprises, e-commercial transaction platform enterprises or logistic enterprises could be the withholding agents for withholding and payment of duties and taxes.
1 New taxation system
It is noticeable in the Circular that the Imported Commodities is no longer subject to previous import tax on baggage and articles, but shall be levied import duties, import value-added tax ("VAT"), and import consumption tax. Therefore, within the value limit of the new tax policies, the import duty, VAT and consumption tax of Imported Commodities shall be levied as follows:
- Import duty: the new tax policies stipulate that the Imported Commodities within the limited value as set forth shall be subject to a duty rate of 0% temporarily. In other words, the import duty of Imported Commodities within the limited value shall be 0 while those beyond the limited value shall be levied based on the corresponding duty rate.
- Import VAT: according to the new tax policies, the import VAT is temporarily levied at 70% of the statutory tax payable. Take the VAT rate of 17% for most imported commodities for example, from April 8, 2016, the Imported Commodities within the limited value would actually apply to an import VAT rate of 11.9% (＝17%×70%).
- Import consumption tax: the major tax objects in cross-border e-commerce retail shall be liquor and some cosmetics and the new tax policies provides that the import consumption tax is also temporarily levied at 70% of the statutory tax payable. To be noticed, due to the different calculation formulae of ad valorem consumption tax and specific consumption tax, the new tax policy cannot be simply interpreted as 70% of import consumption tax rate.
Thus, the new tax policies have different influences on different types of commodities. For instance, within the value limit, the tax payable for commodities such as mother & baby products, food and health care products would increase, while the tax payable for commodities such as some expensive cosmetics would decrease.
2 Import Models of Cross-border E-commerce
There are two major models of cross-border e-commerce in China:
- Model of Direct Express Delivery: refers to the arrangement that the commodities are delivered directly from overseas countries or regions by air express, mail, sea mail etc. to the end users (consumers who purchase cross-border e-commerce platform);
- Model of Bonded Status: refers to the arrangement that the enterprise delivers the overseas products into the warehouses in special customs surveillance zone e.g. bonded areas in China first; and then expresses the products to end users after the end users purchase online.
3 Management on a Positive List
As a new supervision policy on imported commodities, it changes from the previous negative list to the present positive list. And the new positive List specifies the product descriptions and corresponding HS codes from where the cross-border e-commerce enterprise can refer to and ensure the commodities which are allowed to be imported into China. However, the cosmetics which are imported into China for the first time and the powdered formulas for infants which shall be registered but have not been registered are not included in the List.
The commodities included in the List are exempted from submitting licenses or certificates to the Customs but are subject to inspection and quarantine by CIQs in accordance with relevant laws and regulations. Besides, based on the two models of cross-border e-commerce, commodities imported by direct express delivery are exempted from inspection; while commodities enter the bonded areas under the model of Bonded Status shall be subject to inspection and quarantine by reference to goods but exempted from inspection when they exit the bonded area.
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