Calculating Taxes and Duties for Import into China

Posted by Reading Time: 5 minutes

By Dezan Shira & Associates
Editor: Jake Liddle

Companies planning to either sell or import goods to China should have a strong understanding China’s import tax environment before signing sales contracts.

Importing goods to China implicate three types of taxes – customs duties, value-added tax (VAT), and consumption tax (CT) – depending on the nature of the imported good and whether it falls under CT specified categories.

The amount of import tax liability and who is ultimately responsible for paying them generally depends on how the sales contract is concluded between buyer and seller.

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Terminology of import taxes

The International Chamber of Commerce’s (ICC) International Commercial Terms are the most commonly used terminology for expressing pricing or risk related issues associated with goods transit. The most commonly used when signing a contract are:

  • CIF (Cost, Insurance, and Freight) – meaning that the seller is responsible for the cost of freight and insurance to facilitate safe delivery of the goods to the port of destination; and,
  • FOB (Free On Board) – meaning that the buyer is responsible for the above expenses.

The amount of import tax and customs duties payable are calculated based on the price or value of the imported goods, which is called Duty Paying Value (DPV), and is determined based on the transacted price of the goods. This includes transportation-related expenses and insurance premiums on the goods prior to unloading at the port of arrival in China.

Taxes, such as VAT or CT, are not included in the determination of the DPV. Another notable term is Composite Assessable Price (CAP), which is a combination of DPV, import duty, and CT if applicable.

Tax calculation

The following formulae show how DPV and CAP are calculated:

DPV = Cost of goods + Transportation cost + Cargo insurance

Import duty = DPV x Tariff rate

CAP = DPV + Import duty = DPV x (1+tariff rate)

VAT = CAP x VAT rate

To illustrate, suppose a Chinese company is importing machinery from a European company, and has signed a contract according to FOB pricing. Therefore, all the shipping and insurance costs would be borne by the Chinese buyer.

This means that the European company’s primary responsibility is to load the machinery (goods) onto the ship arranged by the Chinese buyer, and clear the goods at customs ready for export. In this case, the following expenses need to be considered:

Cost of the machinery: US$1,000,000

  • Freight: US$30,000
  • Insurance premium: US$4,000
  • Import tariff rate: 10%
  • Import VAT rate for machinery: 17%
  • Port handling: US$3,000
  • VAT rate for port handling service: 6%
  • Import duty and VAT:
  • DPV = 1,000,000 + 30,000 + 4,000 = US$1,034,000
  • Import duty = 1,034,000 x 10% = US$103,400
  • CAP = 1,034,000 x (1+10%) = US$1,137,400
  • VAT = 1,137,400 x 17% = US$193,358
  • Port handling VAT = 3,000 x 6% = US$180

Under the FOB agreement, the import VAT (17 percent) and VAT levied on the service for port handling (six percent) would both be borne by the Chinese buyer.

The only possible way to reduce the import VAT liability for the imported goods would be to negotiate a lower transportation cost and insurance premium with the nominated freight forwarder and insurance company so as to reduce the CAP value and therefore import VAT. However, if the buyer is classified as a general VAT taxpayer, VAT paid for imported goods would be able to offset output VAT, potentially reducing their total tax burden.

In addition to this, there are certain items exempt from import VAT:

  • Imported instruments and equipment to be used directly in scientific research, scientific experiments, or education;
  • Imported materials and equipment donated as non-reimbursable assistance by foreign governments or international organizations; and
  • Articles directly imported by organizations for special use by the disabled.

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Professional guidance advised

When calculating import taxes and duties, it is essential for importers to be aware of the sort of contract being signed, and have understanding of the commonly used International Commerce Terms. Type of good being imported will also affect the amount of tax liability, and in some cases will be eligible for exemption from VAT. Consulting professional advisers on import tax and duties can ultimately help businesses save time and money.

Editor’s note: This article was originally published on January 31, 2014, and has been updated to include the latest regulatory changes.


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14 thoughts on “Calculating Taxes and Duties for Import into China

    Roche says:

    Exporting Shiraz wine to China value £45000 how much is all taxes in China?

    Helen Schultz says:

    Very helpful article, especially the sample tax calculations!
    I am importing two pieces of original fine art. What are the rates for the following:

    Import tariff rate:
    Import VAT rate for fine art
    Port handling:
    VAT rate for port handling

    Thank you.

    China Briefing says:

    Hello Helen,

    Thank you for the feedback. Please contact our international tax specialists for more information on importing particular items into China: http://www.dezshira.com/services/international-tax-planning

    Sally smith says:

    ImpoRting $125 K of framed original commervial art work to China, / Shanghai , what should taxes duty insurance etc etc be?…this is not FOB, but CIF contract…

    We want to send more than 10 year old digital printing equepment to China and import this to use at my company in Shanghai.
    Can you tell me what % import tax etc we have to pay?
    Thanks in advance

    China Briefing says:

    Hello Andre,

    Please contact our international tax specialists for more information on importing particular items into China: http://www.dezshira.com/services/international-tax-planning

    Dear sir;

    I would like to know that IU want to import from China LED light and solar panel what about the charges for tax

    Please send some details to my mail : Razeen.albilad@yahoo.comza

    Darrell Robert says:

    I want to import a $3999 Audio amplifier into China.
    What are the total costs for Duty,VAT, or other taxes to bring this item in???

    The item was made in France.

    Erin says:

    Quick question:

    I am buying some technology through a distributor in Hong Kong. The technology (server hardware and software) will be purchased in country and shipped to a location also in country. I unclear whether or not the servers are made in China or imported by the manufacturer.

    My customer has asked me to handle the tax liability as a part of my service to them.

    My few questions is as follows:

    1. Is there any VAT tax associated with this purchase?
    2. Is there any sales tax or additional fees associated with this purchase?
    3. If there are taxes, where would I make the payment and is there a link to a website that would give me that information?

    Any guidance would be appreciated!

    Gilberto Robles says:

    Hello My name is Gilberto Robles
    and I have plans to Import Wine from Mexico
    what is our Tax duty to Import to China?
    do we have any trade with Mexico with Wine for
    any special Taxes?
    Thank You
    titoktm@yahoo.com

    China Briefing says:

    Hi Darrell,

    Thank you for your inquiry. Tax and duties depend on if it is just a single item being imported one time, or if it is large commercial trade of a product. For more information, please contact our specialists at china@dezshira.com

    China Briefing says:

    Hi Erin,

    Thank you for your inquiry. Please contact our international tax team for answers to your questions: http://www.dezshira.com/services/international-tax

    China Briefing says:

    Hi Gilberto,

    Thank you for your inquiry. A member of our service team will be in contact with you shortly. For any more questions, please contact us at china@dezshira.com

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