China’s Ministry of Finance (MOF), General Administration of Customs (GAC) and State Administration of Taxation (SAT) jointly promulgated the Circular on Taxation Policy on Cross-Border E-Commerce Retail Importation (circular 18), which entered into force in April 2016.
Circular 18 has two major implications: (1) new types of taxes are to be levied on goods imported under the cross-border e-commerce programme; and (2) the regime changes from a previous negative list to a positive list of goods permissible under the programme. Within 10 days, two positive lists (positive list I and positive list II) were issued by the tax, customs and quality supervision authorities under circular 18’s framework, together with two clarifications to the positive lists issued by the China Food and Drug Administration (CFDA). On top of those, the GAC further circulated a notification to explain certain practices under the new regime.
NEW CATEGORIES OF TAXES
Previously, Personal and Parcel Article Tax (PPT), a duty designed to facilitate importation of articles for personal consumption by postal and courier services, or carry-on luggage, was applicable to the programme. This caused an unfair price advantage on goods sold under the programme and the same goods imported under normal commercial channels, because goods would be subject to import duty and value-added tax (VAT) under normal commercial import. One of the objectives is to remedy the situation by changing the tax payable under the programme.
Under circular 18, goods under the programme are subject to other import taxes instead, specifically: (a) customs duty; (b) VAT; and (c) consumption tax.
The rates of these taxes vary depending on the product’s tariff classification under the Tariff Schedule. For a parcel valued lower than RMB2,000 the customs duty will be exempted, and a 30% discount will be given on VAT and consumption tax.
The tax authorities also amended the current PPT schedule, providing for substantially higher tax rates. Under the revised schedule, PPT will continue to be applied to “personal articles” but are not imported under the programme.
By increasing PPT rates, China intends to divert sales from unregulated foreign websites to the approved and closely supervised e-commerce platforms under the programme.
Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mailing Danian Zhang (Shanghai) at: danian.zhang@bakermckenzie.com
