Apr. 24 – In order to enjoy zero tariffs under the Closer Economic Partnership Agreement (CEPA), goods exported from Hong Kong to Mainland China must fulfill the rules of origin and show evidence of being “made in Hong Kong.”
The execution of the rules of origin is detailed in the “Customs Provisions of the People’s Republic of China on Executing the Rules of Origin for Trade in Goods under the Mainland/Hong Kong Closer Economic Partnership Arrangement (haiguanshuling No.106, hereinafter refers as ‘Provisions’),” which was promulgated in December 2003 and came in effect from January 1, 2004.
Under the Provisions, “Hong Kong” as the origin of goods shall be determined according to the following principles:
Goods entirely obtained in Hong Kong
According to the Provisions, goods entirely obtained in Hong Kong include:
Substantial processing, transformation, or manufacturing
The criteria of determining whether the products are “substantially manufactured, transformed, or processed” in Hong Kong should include the following:
Manufacturing or processing operations
The goods should be endowed with essential characteristics after principal manufacturing or processing operations in Hong Kong.
Change of tariff number
Change of tariff number refers to a change of the four-digit tariff numbers and taxation categories after the manufacturing or processing operation of non-Hong Kong materials in Hong Kong. Moreover, no further manufacturing or processing should happen outside Hong Kong.
Ad valorem percentage
Ad valorem percentage is the ratio between the total value of raw materials, components, labor and product development that are fully acquired in Hong Kong, and the FOB value of the finished product for export.
Products with an ad valorem percentage equal to or greater than 30 percent, and with the last manufacturing or processing procedures completed in Hong Kong, shall be regarded as “substantial processing.” The following stipulations apply:
The “other criteria” refer to other criteria agreed by authorities of both Mainland China and Hong Kong in determining the origin of the products, besides the three above-mentioned criteria.
The “mixed criteria” means that two or more of the above-mentioned criteria are used in determining the origin of the products.
Manufacturing or processing for the purpose of transporting or storing the goods, facilitating the packaging of the goods, or better packaging and displaying the goods is not considered as “substantial processing, transformation, or manufacturing.”
Simple diluting, blending, packaging, bottling, desiccation, assembling, sorting or decorating will not be regarded as “substantial processing, transformation, or manufacturing.”
Package, packaging materials, containers and accessories, spare parts, tools and explanatory materials accompanying the goods should be ignored in determining the origin of the goods.
Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. For further advice, please email firstname.lastname@example.org, visit www.dezshira.com, or download the firm’s brochure here.
Hong Kong City Guide
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The Greater Pearl River Delta: Business Guide to South China (Fourth Edition)
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China Customs Revises Hong Kong CEPA Ad Valorem Definition
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