New Tax Regulations for Cross-Border E-Commerce

In March 2016, the Chinese government issued two new regulations, which have changed the taxation of imported products bought online from businesses abroad (B2C) via e-commerce platforms. Previously, cross-border online purchases for personal use were mainly treated as individual postal items and taxed as such.

In March 2016, the Chinese government issued two new regulations, which have changed the taxation of imported products bought online from businesses abroad (B2C) via e-commerce platforms. Previously, cross-border online purchases for personal use were mainly treated as individual postal items and were normally subjected to a tax rate of 10% with taxes below 50 RMB being exempted.

According to two new regulations, the Announcement on the Tax Policy on Cross-Border E-commerce Retail (Cai Guan Shui (2016) 18) and the Notice on Relevant Issues Concerning the Adjustment of Import Duties on Imported Articles (Shuiweihui〔2016〕2), imported goods bought online will now be subjected to Customs Duties, VAT, and Consumption Tax. This brings the taxation of cross-border e-commerce closer to that of general trade.

This regulation affects all foreign companies, which are offering online transaction, payment and shipment services (mainly B2C). Companies or individuals, which are unable to provide these services (mainly C2C) do not fall under these regulations and will be, for the time being, treated according to existing regulations and taxed under the parcel tax.

A foreign business engaged in trans-border e-commerce have to register with the General Customs Administration (GAC) and provide information of the transaction to the Chinese cross-border e-commerce customs clearance service platform. The submission of information to the platform can also be done by online-platforms and courier services on behalf of the foreign business (GAC Announcement No. 26, 2016).

Tax reductions for trans-border e-commerce

The new policy also raises the value of duty-free shipments from 1000 RMB to 2000 RMB. Now, single shipments worth less than 2000 RMB and orders having a cumulative value of less than 20 000 RMB annually are exempt from Customs Duty. However, a reduced VAT and Consumption tax amounting to 70% of the normal tax amount applies. For products exceeding these limits, usual customs duties apply and the entire value will be taxed. If the buyer returns the goods within 30 days to the customs supervision, customers can apply for a tax refund and no import taxes will be levied.

Which foreign articles can be sold online?

A List of Cross-Border E-commerce Retail Imported Articles was issued on 4 April 2016 by 11 ministries and includes 1142 articles, each marked with an 8-digit tax code (MOF Announcement No. 40, 2016).

Surprisingly, this list initially excluded some popular products, such as milk, which is high in demand among Chinese citizens due to the low level of trust into domestic brands. This caused some concern among foreign companies selling these goods and also raised questions with regard to goods stored in bonded areas and those already sold but not yet shipped.

Responding to the criticism, the Ministry of Finance published an updated version of the list on April 15^th, which added another 151 products and now also includes milk (MOF Announcement No. 47, 2016). The list of the added goods can be found here.

Who has to transfer the tax?

In general, the main tax burden will fall upon the customer. Nonetheless, there are differences as to who will withhold the taxes.

Option 1: Transaction via E-Commerce-Platforms (e.g. JD Worldwide, Tmall Global)

If the transaction happens via E-commerce-platforms, the platform’s owner will usually withhold the taxes and transfer them directly to Chinese tax authorities. This is the most convenient method for both businesses and customers.

Option 2: Direct sale via your business website

If the customer buys the good directly on a foreign company’s website, there are two possibilities:

1. The customer pays the taxes in person. In this case, the business only receives the payment for the product without the additional tax amount. The customer then has to pay the levied taxes directly to the Chinese customs authorities.

This, of course, is rather cumbersome for the buyer, since customs authorities might retain the purchased good until all taxes are paid.

1. b) In most cases, however, the courier service (e.g. EMS, DHL) will withhold the tax for the customer.

Revised tax rates for other imported articles

The new policy also adjusts tax rates for articles imported through personal channels (GAC Announcement No. 25, 2016). They will now fall into three categories, instead of the previous 4:

The parcel tax, whose Chinese name xingyoushui is a combination of luggage (xingli) and postal (youjian) tax (shui), applies to all products imported through personal or postal channels, and for which no e-commerce filling exists. The parcel tax is a composite tax which combines customs duty, import VAT, and consumption tax. The taxable amount includes all transaction costs (retail price, shipment, insurance, etc.). The principle of waiving taxes below 50 RMB remains intact.

For further information please feel free to contact us under service@ecovis-beijing.com or visit the website of ECOVIS Beijing.