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China’s New Cross Border e-Commerce Import Tax Loophole

October 13, 2016

How can US investors take advantage of cross border e-Commerce import tax?

Making history, the Chinese government recently released a circular to ease import tax policies for goods imported under the cross border e-Commerce model. The Circular, that came into force April 8, 2016, stipulates that consumers purchasing goods imported under both the direct shipping model and the bonded warehouse model need to pay import taxes including tariffs, import value-added tax (VAT), and consumer tax (if applicable).

Limits on transactions

Meanwhile, the new policies set a limit of RMB 2,000 for a single transaction and RMB 20,000 for yearly transactions. Transactions within the limit enjoy a temporary zero percent tariff rate, but are still subject to import VAT and consumer tax.

The Ministry of Finance and relevant departments are still working on a separate “Cross border e-Commerce Retail Imported Commodities List,” which will include the detailed scope of goods that can be imported under the cross border e-commerce model and is expected to be released soon.

No more ‘special parcel tax’

Previously, purchased goods imported via cross border e-commerce zones were subject to a special parcel tax, which was much lower than ordinary custom duties. This offered an obvious price advantage and created an unfair tax burden for goods imported under the general trade model.

New policy?

Aiming to reduce the pressure on local manufacturers and customs, the new policy will inevitably increase costs and tax burdens for foreign exporters engaging in the cross border e-commerce industry. This is particularly true for companies selling luxury goods to Chinese consumers.

If you’re a U.S. investor in the Chinese e-commerce industry, make sure you take heed of this new guidance.

Questions? Contact any member of our Global Tax Services Practice.

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