One of the major issues that companies often face when doing business in or with China is the issue of taxes and duties imposed on merchandise imported into China. Companies shipping their products to China will have to be prepared to pay customs tariffs depending on the value and volume of the goods. B2C shipments do not belong to the category of personal effects and theoretically (I hope you are getting the meaning of my use of italics!) cannot be cleared as such. They should normally go through the general customs clearance process, in which case, the importer or receiver of the products needs to register at the local customs authority. Customs tariffs are likely to discourage Chinese consumers from purchasing goods directly from foreign e-commerce websites based outside of China. Although there are variations in rates and regulations from product to product, there are general tax norms to be followed by merchants.
There are three types of taxes your company will most probably go through when importing products into China: VAT (value-added tax), consumption tax, and customs duties.
VAT for Imported Goods
All goods imported to China are subject to a VAT. The applicable tax rates are the same as the ones applied to goods sold in the domestic market (typically 13–17 percent for most product categories). VAT is generally payable on the customs clearance day.
Consumption Tax for Imported Goods
Imported goods subject to consumption tax include luxury products such as high-energy consumption goods, high-end watches, and non-renewable petroleum goods. Import consumption tax is normally calculated on a value or quantity basis with considerable variations in tax amounts and rates. It should be paid within two weeks counting from the day that the consumption tax bill of payment is issued.
This category includes both import and export duties with a total of more than 8,200 taxed items. Customs duties are calculated based on product value or product quantity. Import duties depend on a number of variables.
General Duty Rates
General duty rates are normally applied to imports originating from countries or territories that are not included in any agreements or treaties with China, or imports from unknown places of origin.
Conventional Duty Rates
This type of rate is applied to imports originating from countries that have signed regional trade agreements with China, including the following agreements:
• The Asia-Pacific Trade Agreement conventional duty rates which are applied to 1,875 imports from South Korea, India, Sri Lanka, Bangladesh, and Laos.
• Products imported from ASEAN (Association of Southeast Asian Nations) member countries.
• Chile, Pakistan, New Zealand, Singapore, Peru, and Costa Rica are subject to conventional duty rates under the relevant free trade agreements. Some imports from Hong Kong, Macau, and Taiwan enjoy tariff-free policies.
MFN Tax Rates
Most-favored-nation (MFN) tax rates are the most common duties applied to imports. They are generally much lower than the tax rates imposed to non MFN countries. They apply to the following categories of goods:
• Imports from WTO (World Trade Organization) member countries
• Imports from countries or territories that have signed bilateral agreements with China
• Imports originated from China
Special Preferential Tax Rates
Special preferential tax rates are typically applied to imports originating from countries or territories included in trade agreements, which contain special preferential tax provisions with China. The rates are generally lower than MFN rates and conventional duty rates.
Under the 2013 Tariff Plan, special preferential duty rates are applied to certain goods originating from the 40 least developed countries as classified by the United Nations. These countries include Ethiopia, Rwanda, and Afghanistan.
Tariff Rate Quota Tax Rates
Under tariff rate quota (TRQ) schemes, lowered tariff rates are applied to products imported within the quota. For example, according to the 2013 Tariff Plan, the TRQ rate for importing wheat within the quota is 1 percent, substantially lower than the MFN duty rate of 65 percent and the general duty rate of 80 percent.
Temporary Duty Rates
China occasionally imposes temporary tax rates to a number of imported goods. To boost imports and meet domestic demand in 2013, China implemented temporary tax rates lower than the MFN tariff on more than 780 imported commodities, including seasoning products, pacemakers, special-formula infant milk powder, and resources, including kaolin, alfalfa, and eiderdown.
Considerably higher rates are generally implemented to goods originating from countries or regions that violate trade agreements with China: Chinese regulations regarding anti-dumping, anti-subsidies, and safeguard measures. Retaliatory tariffs could also be applied.
So far, Chinese e-commerce has benefited from low shipping fees, but otherwise, it has been significantly impeded by an inadequate logistics infrastructure. Most e-sellers are obliged to rely heavily on local small delivery companies. It is, in fact, the e-commerce industry that is the major driving force behind the growth of the parcel delivery infrastructure in China. It is estimated that 75 percent of revenues from package deliveries in 2017 came from e-commerce activities. Taobao alone accounted for more than half of all domestic deliveries.
As the logistics infrastructure is still in its nascent stages of development in China, it is not uncommon to experience late deliveries, damaged or lost goods, unprofessional attitudes from delivery staff, and disappointing return procedures. A lack of capabilities is one of the major issues impeding the development of the Chinese e-commerce industry. Given the inefficiency of the infrastructure, delivery concerns are cited among the top reasons that make consumers feel hesitant to buy products online. Very often, their major concern is not a high shipping cost or the risk of their goods getting damaged or lost during delivery, but the worry that their goods will be substituted with fakes. For these reasons, many online consumers often choose e-tailers whose distribution centers are based in their city.
Most Chinese e-commerce companies usually hire third-party express delivery service providers. Merchants selling through Tmall are required to choose one of those express delivery companies. Providers such as Shunfeng, Shentong, or Yuantong offer basic delivery services and do not provide services such as COD, exchanges, or returns. International companies like FedEx, UPS, TNT, and DHL cover smaller areas, but have a reputation for providing more reliable and consistent delivery services. Other services these companies offer include COD, customized delivery, and warehousing.
I always recommend foreign companies to use regional service providers if they want to target specific cities. In the event they need to ship inland or to remote provinces, they should consider companies such as EMS or providers covering larger areas. The latter tend to be most costly though. If your company deals with large volumes of goods or if your goods need special handling, a good idea might be to consider setting up your own distribution network.