Rather than set up a physical entity in China, sellers can enter a Chinese cross-border e-commerce platform and ship directly from overseas or fulfill orders through a bonded warehouse located in a special Chinese e-commerce pilot zone. The channel has temporary exemptions to tariffs and other regulatory requirements which apply to conventional international trade (B2B).

2016 changes of CBEC:

Tax treatment: A flat tax of 11.9% is applied to the final online retail price at the time of purchase (calculated as a 30% discount on VAT). A discounted rate of consumption tax also applies to luxury goods (14%), cosmetics (14%) and wine (21%). For the individual consumers, they are permitted to buy up to USD 295.00 worth of such goods per order, up to a limit of USD 2946.00 per year.

A ‘Positive List’ of products: The list includes eight categories of products (accounting for 1,293 different tariff lines) and covers food and beverages, clothing, footwear, hats, home appliances, cosmetics, diapers, children’s toys and a host of other items commonly purchased by Chinese consumers on e-commerce platforms.

Extension: There is also a one-year grace period for implementation of the new e-commerce rules. It specifically provides that, until May 11, 2017, in the 10 cross-border e-commerce pilot cities, the supervision of cross-border e-commerce will follow existing requirements and not the new cross-border e-commerce rules.

Since China’s cross border e-commerce sector is still at an early stage of development, these changeable policies should be noted by foreign companies planning their entry strategy into China’s e-commerce industry.

Stay tuned for more on the state of China’s economy and tips for Doing Business in China. Contact our Global Tax Services Team for more information.