Shipping to China for Cross Border eCommerce
Part 3: The bonded warehouse model
The bonded warehouse model
An increasingly popular option is to ship products in bulks from overseas to bonded warehouses in China. The basic requirement here is that the warehouse needs to be located in a Free Trade Zone. Being able to store and clear goods without the necessity of registering or filing with Chinese authorities is a clear advantage. Products can move freely in the free trade zones and be transported back overseas without the necessity to pay any taxes. Duties are only paid before customs clearance. The tax rates for the bonded model are comparably low to traditional imports as you can enjoy a 30% ‘discount’ of the traditional import rates. Even if the bonded model reduces shipping lead times significantly, down to 2-4 days, it’s more suitable in case you have a narrow product segment and understand your sales volume in China. Not to forget, the bonded model requires CIQ clearance. Using the direct shipping model at a start is a preferred choice to get a grip of the sales volumes.
In recent years, some CBEC operators have set up offline experiential stores to display overseas products sold on their website and provide a
physical touchpoint for customers to see and feel the products before placing orders. Customers still need to buy products online via authorized
CBEC platforms and the imported products will be sent to their home by courier.
More recently, some CBEC players, after gaining approval from relevant authorities, have opened a new form of offline stores where customers can purchase and pickup the bonded imported products directly in the stores (the “bonded area import + offline store” model). The bonded
imported products go through customs clearance only after the customers have placed the orders.
In February 2018, Kaola.com opened its first offline store in Hangzhou; it then opened the second store in Zhengzhou in August 2018.
Customers can purchase bonded imported products directly in the store. After choosing the products they want to purchase, customers can go straight to the cashier, provide their ID card number and telephone number and settle payment; the customs clearance process will then be
processed immediately. The process reportedly will take around 4 minutes. Customer will receive a SMS notification if the customs clearance is successful. After showing the cashier the SMS, customers can pickup the goods directly in the store without the need to wait for the products to be sent to their home.
The offline store is de facto an extension of the bonded area import model whereby overseas products in the bonded warehouse in China can be sold in the approved experiential store, and they will go through customs clearance only after customers have placed orders in-store or via the CBEC website.
Tax Rates for the Bonded Warehouse Model
The tax rate is normally set to 9.1% as of 2019 and for products like: Baby formula, mom & baby products, nutritional supplements, food and beverage, accessories, watches, perfume (non-luxury), cosmetics (non-luxury), personal care products (non-luxury), home appliances.
How to calculate the tax: VAT x 70% = 13% x 70% = 9.1%
Occasionally, exporters need to pay an extra consumption tax of 10-20% for cosmetics (luxury) for lips, eyes, and foundation makeup, perfume (luxury), skin care (luxury). The consumption tax is applied when the value exceeds RMB 10 per gram or milliliter.
How to calculate the tax:
(VAT + Consumption tax) / (1 – Consumption tax) x 0.7 = (13% + 15%) / (1 – 15%) x 70% = 23.1%
Cross-border Trade and Forex
Option to use Alipay Cross-Border and WeChat Payment Cross-Border. With both of these services, upon transaction:
Chinese user will pay in RMB
Alibaba or Tencent will handle currency conversion with their partner bank (usually they will apply a charge around 2.5%)
Payment amount will be sent to an overseas account
A transfer will be made to the merchant’s account once the settlement amount is reached
Join us next week for Part 4 of this cross-border eCommerce series on the benefits of the new eCommerce regulations from 2019.
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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.