Import-Export Taxes and Duties in China
Since 2018, China has promulgated a series of regulations to reduce import-export taxes and duties to promote a higher level of openness and domestic consumption, made more urgent due to the ongoing US-China trade war.
These changes could affect companies that import and export taxable goods and services with China. The new regulations expand on previous import and export taxes and duties, which vary depending on the products involved.
However, governing this intricate system is a central list of general principles for foreign companies to abide by. Below, we outline the most significant issues relating to these taxes and duties that foreign companies should take note of.
The following three types of taxes are applicable to companies importing products from or exporting products to China:
- Value-added tax;
- Consumption tax; and
- Customs duties.
Value added tax for imported goods
From April 1, 2019, all goods imported into China are subject to the value added tax (VAT) of either nine percent or 13 percent.
The nine percent tax is available for certain goods that fall mainly within the categories of agricultural and utility items, while the 13 percent tax applies to other goods subject to the VAT.
The VAT rates were originally 11 percent or 17 percent but were decreased to 10 percent or 16 percent in May 2018, then to nine percent or 13 percent in April 2019.
The input VAT (Sales x VAT rate), which is the VAT amount paid when purchasing products or taxable services, can often be used for deduction against output VAT, which is the VAT amount charged to the buyer by the seller of a good or taxable service.
The complete list of products affected by VAT can be found here.
Consumption tax for imported goods
China’s consumption tax (CT) is imposed on companies and organizations who manufacture and import taxable products, process taxable products under consignment, or sell taxable products.
Imported products taxable under China’s consumption tax include those that are harmful to one’s health like tobacco or alcohol, luxury goods like jewelry and cosmetics, and high-end products, such as passenger cars and motorcycles.
For imported goods, the consumption tax varies depending on the type of product being brought into the country. Calculating consumption tax can be done by using either the ad valorem or quantity-based method.
Customs duties include import and export duties, with a total of 8,549 items taxed, according to China’s 2019 Customs Tariff Implementation Plan (“2019 Tariff Plan”).
Customs duties are computed either on an ad valorem basis or quantity basis.
Starting January 1, 2019, China has further adjusted parts of its customs duties, including MFN duty rates, temporary duty rates, conventional duty rates, etc., covering agricultural, medical, manufacturing, and information technology industries.
The updated complete master list of products affected by customs duties can be found here.
Duty rates on import goods consist of:
- Most-favored-nation duty (MFN) rates;
- Conventional duty rates;
- Special preferential duty rates;
- General duty rates;
- Tariff rate quota (TRQ) duty rates; and
- Temporary duty rates
MFN duty rates
MFN rates are the most commonly adopted import duty rates. They are much lower than the general rates, which apply to non-MFN nations. They apply to the following goods:
- Goods imported to China from WTO member countries;
- Goods originating from countries or territories that have concluded bilateral trade agreements containing provisions on MFN treatment with China; and,
- Goods that originated from China.
From July 1, 2019, MFN duty rates on 298 of 484 information technology products will be reduced, including on medical diagnosis machines, speakers, and printers.
The complete list of products affected by MFN duty rates can be found here.
Conventional duty rates
Conventional duty rates are applied to imported goods that originate from countries or territories that have entered into regional trade agreements containing preferential provisions on duty rates with China.
So far, China has signed bilateral or multilateral free trade agreements with more than 20 countries or regions. Imported goods originating in these countries and regions will be subject to conventional duty rates, which is normally lower than the MFN duty rates.
From January 1, 2019, China has reduced conventional duty rates with New Zealand, Peru, Costa Rica, Switzerland, Iceland, South Korea, Australia, Georgia, and Asia-Pacific Trade Agreement countries.
Also, except for the products to which mainland China has made special commitments in relevant international agreements, zero tariffs will be applied to all products originating in Hong Kong and Macao (refer to the master list).
Special preferential duty rates
Special preferential duty rates are applied to imported goods originating from countries or territories with trade agreements containing special preferential duty provisions with China. They are generally lower than MFN rates and conventional duty rates.
According to the provisions of the Asia-Pacific Trade Agreement, the special preferential tariff rate under the Asia-Pacific Trade Agreement has been further reduced in 2019 (refer to the master list).
General duty rates
General duty rates are applied to imported goods originating from countries or territories that are not covered in any agreements or treaties or are of unknown places of origin.
Tariff rate quota duty rates
Under tariff rate quota (TRQ) schemes, goods imported within the quota are subject to a lower tariff rate, and goods imported beyond the quota are subject to higher tariff rates.
For example, the TRQ rate for importing wheat products within the quota is as low as one, nine, or 10 percent – substantially lower than the MFN duty rate of 65 percent and the general duty rate of as high as 130 percent or 180 percent.
The complete list of products affected by Tariff rate quota duty rates can be found here.
Temporary duty rates
China also sets temporary duty rates for certain imported goods in order to boost imports and meet domestic demand.
In 2019, China implemented temporary tax rates, which are even lower than the MFN tariffs on 706 imported commodities, including on more than 50 kinds of raw materials of anti-cancer drugs (zero percent), diapers (zero percent), sunglasses (six percent), and kaolin (one percent).
The complete list of products affected by temporary duty rates can be found here.
Export duties are only imposed on a few resource products and semi-manufactured goods.
From January 1, 2019, China continues to impose export tariffs or impose provisional export duties on 108 export commodities with fixed and unchanged tax rates.
Among them, the provisional export tax rate is canceled for 94 taxable items, such as fertilizer, apatite, iron ore, etc.
The complete list of products affected by export duties can be found here.
Other duty rates
Considerably higher rates may be implemented according to Chinese regulations regarding dumping, anti-subsidies, and safeguard measures. Retaliatory tariffs could also be applied to goods originating from countries or regions that violate trade agreements.
Over the course of the US-China trade war, China has imposed retaliatory tariffs on US$110 billion worth of US goods, including beef, lamb, pork, vegetables, juice, cooking oil, tea, coffee, refrigerators, and furniture, among many others.
Duty relief for key technical equipment
At the end of 2018, China had released the Catalogue of State-supported Key Technical Equipment and Products (2018 version) and the Catalogue of Imported Key Components and Raw Materials of Key Technical Equipment and Products (2018 version), which took effect on January 1, 2019.
Importing certain key components and raw materials or exporting certain key technical equipment and products listed in the catalogue to eligible Chinese domestic enterprises is exempt from import VAT and customs duties.
Duty paying value for imported goods
The amount of import taxes and customs duty payable is calculated based on the price or value of the imported goods. This value is called the duty paying value (DPV).
The DPV is determined based on the transacted price of the goods – that is, the actual price directly and indirectly paid or payable by the domestic buyer to the foreign seller, with certain required adjustments.
DPV includes transportation-related expenses and insurance premiums on the goods prior to unloading at the place of arrival in China. Import duties and taxes collected by customs are excluded from DPV.
Calculating import–export taxes and duties payable
Import taxes and duties payable can be calculated after determining the DPV and the tax and tariff rates of the goods. The formulae are:
Ad valorem basis:
Duty payable = DPV x Tariff rate
Duty payable = Quantity of imported goods x Amount of duty per unit
Duty payable = DPV x Tariff rate + Quantity of imported goods x Amount of duty per unit
Import taxes and duty payable should be calculated in RMB using the benchmark exchange rate published by the People’s Bank of China.
The tax base for export duties is the same as import duties – that is, the DPV.
The DPV for export duties is based on the transacted price, that is, the lump sum price receivable by the domestic seller exporting the goods to the buyer.
Export duties, freight-related expenses, and insurance fees after loading at the export spot, and commissions borne by the seller, are excluded.
This article was originally published in March 2013 and has been updated as per the latest regulatory developments.
China Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Dalian, Beijing, Shanghai, Guangzhou, Shenzhen, and Hong Kong. Readers may write to firstname.lastname@example.org for more support on doing business in China.