Shipping to China for Cross Border eCommerce
Part 4: Benefits of the Jan 1, 2019 new cross border eCommerce regulations
Briefly, the current Cross Border eCommerce regime, initially launched in 2014, permits overseas sellers to sell consumer goods directly to Chinese consumers through certain registered e-commerce platforms (e.g., Tmall.hk, JD.com). The qualifying products can be imported into China on an expedited basis at reduced import tax rates, as compared to the goods imported through the ordinary import channel. The products are either shipped from overseas or stored in a bonded warehouse in China. Aside from the benefits that have already been made available and will continue to apply, the New Cross Border eCommerce Regulations issued Jan 1 2019 create certain new benefits to strengthen the incentives to purchase through the CBE channel. Here are some of the key benefits from the new eCommerce regulations.
Pre-importation registration waiver.
The New CBE Regulations indefinitely extend the waiver of the pre-importation registration requirements on specified categories of products (e.g., cosmetics, infant milk formula, health food, medical device, etc.) which was originally set to expire on 31 December 2018. As pre-importation registration is an important part of the current regime to impose Chinese national standards on certain “sensitive” foreign products, this waiver continues to allow products, which may not be available in the ordinary commercial channels due to market entry barriers, to be imported through the CBE channel.
Value limit relaxation.
The value limit for each shipment of goods under the CBE program is now increased from CNY 2,000 to CNY 5,000, and the annual quota is also increased from CNY 20,000 to CNY 26,000. Moreover, where the value of a product exceeds the per-shipment limit but still falls within the purchaser’s annual quota limit, the product can still be imported under the CBE program and entitled to the registration waiver as discussed above, provided that it is an inseparable piece of product. Nevertheless, the Chinese purchaser is not entitled to the tariff exemption or import tax reduction for this particular shipment. This relaxation permits high-value products to be imported through the CBE channel.
Tariff exemption and tax reduction.
The current tax policy under which customs duties are exempted and import VAT and consumption taxes are collected at a 30% discount for the products imported through the CBE channel continues to be implemented.
Expanded “positive lists”
The scope of the "positive lists", which contains the tariff categories for the products permitted to be sold under CBE, is expanded to include 63 new tariff categories.
FTZ distribution centre
The New CBE Regulations continue to allow a foreign seller to stockpile its products in one of the designated free trade zones (FTZ) in China, from which it can fulfil its customer orders and deliver the products directly to the end consumers. This gives overseas sellers a more efficient delivery option, compared to the alternative option of international parcel delivery. In contrast, sellers not enrolled in the CBE program are not permitted to sell their products directly from an FTZ to Chinese consumers.
“Safe harbour” against retaliatory tariffs
More importantly, in the current climate of trade tension between China and the United States, the CBE program has thus far provided and could continue to be a “safe harbour”, as imports through the CBE channel are not subject to the retaliatory tariffs imposed by Chinese government on the U.S. origin products.
Recommended strategy for overseas retailers
1. Careful design of the supply chain structure and the related operating model to ensure compliance as well as tax efficiency, if possible;
2. Due diligence in selecting its Chinese business partners, including the designated “responsible party” and other service providers, especially if the overseas seller intends to rely on the existing infrastructures offered by the third parties to sell its products in China;
3. Having in place contract terms to allocate the supply chain management responsibilities and risks, and inclusion of appropriate indemnities, with a view toward protecting the overseas seller’s interest, where the contracts are forms provided by dominant platform operators, and
4. An internal compliance program to closely monitor and control the compliance risks with respect to the Chinese “responsible party” and other service providers.
For any questions on developing your cross-border eCommerce strategy contact us.
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DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.