- This article explains the three types of taxes that foreign companies exporting to or importing from China must be aware of – value added tax (VAT), consumption tax and customs duties.
- From January 1, 2022, China will further adjust some tariffs, including most-favored-nation tariffs, regular tariffs and tentative tariffs for some imported products. Read the section on tariffs in this article for more information.
China has introduced a series of regulations to reduce import and export tariffs to promote higher levels of opening up and domestic consumption. These changes may affect companies importing and exporting taxable goods and services with China.
Managing this intricate system is a core list of general principles that foreign companies must adhere to. Below, we will explain the three types of taxes that apply to companies importing from or exporting to China – Value Added Tax (VAT), Consumption Tax (CT) and Customs duties, and outline the most important issues related to these taxes and Obligations of foreign companies to be aware of.
Value-added tax (VTA) for imported goods
According to the State Administration of Taxation’s announcement on deepening foreign trade reforms, from April 1, 2019, China’s import value-added tax on imported goods will be lowered from the previous 10% or 16% to 9% or 13%. VAT (State Administration of Taxation Announcement  No. 39).
The 9% tax applies to certain goods that fall primarily into the agricultural and utility categories, while the 13% tax applies to other goods subject to VAT, such as manufactured goods.
Taxable services provided by foreign entities or individuals in China are subject to 6 % of VAT as before.
The import VAT can be calculated based on the following formula:
Import VAT = Composite Assessable Price × VAT Rate
= (Duty-Paid Price + Import Duty + Consumption Tax) × VAT Rate
= (Duty-Paid Price + Import Duty) / (1-Consumption Tax Rate) × VAT Rate
Consumption tax (CT) for imported goods
China levies Consumption Tax (CT) on companies and organizations that produce and import taxable products, sell taxable products on an agency basis, or sell taxable products.
Imported products subject to consumption tax in China include products that are harmful to human health such as tobacco and alcohol, luxury goods such as jewelry and cosmetics, and high-end products such as passenger cars and motorcycles.
For imported goods, the excise rate depends on the type of product brought into the country.
Excise tax can be calculated using the ad valorem tax method, the quantity tax method or the compound tax method. The formula for calculating consumption tax is as follows:
- Ad valorem method
Consumption Tax Payable = Taxable Sales Amount × Tax Rate
- Quantity-based method
Consumption Tax Payable = Taxable Sales Quantity × Tax Amount per Unit
- Compound tax method
Consumption Tax Payable = Taxable Sales Amount × Tax Rate + Taxable Sales Quantity × Tax Amount per Unit
Customs duties include import and export duties.
Import duty rates include most-favored-nation (MFN) rates, regular rates, special preferential rates, tariff-rate quota (TRQ) rates, general rates and provisional rates for imports that may be implemented for a specified period of time.
Export duty rates are set as one type. But again, there may also be temporary tax rates on exports that can be implemented for a specific period of time.
According to the “2022 Tariff Adjustment Plan” (Shui Committee Announcement  No. 18), from January 1, 2022, my country will impose tariffs on 8,930 imported goods and 106 exported goods.
Customs duty rates on import goods consist of:
- Most-favored-nation duty (MFN) rates;
- Conventional duty rates;
- Special preferential duty rates;
- Tariff rate quota (TRQ) duty rates;
- General duty rates; and
- Provisional duty rates.
MFN duty rates
MFN duty rates apply to the following goods imported to China:
- Imports originating from WTO member countries that apply the MFN treatment clause;
- Imports originating from countries or territories that have concluded bilateral trade agreements containing provisions on MFN treatment with China; and
- Imports originating from China.
The most-favored-nation rate is the most commonly used import duty rate. They are well below the general rates that apply to non-MFN countries.
From January 1, 2022, China will implement provisional tax rates on a total of 954 imported goods that were previously subject to MFN tariffs – provisional rates lower than MFN tariffs.
Among them, some anticancer drugs, medical products, aquatic products, sports equipment, oil paintings and antique artworks, high-efficiency auto parts, environmental restoration materials, and mineral resources enjoy lower tariff rates.
In addition, China abolished provisional tax rates and reinstated MFN rates for some amino acids, lead-acid battery parts, gelatin, pork and m-cresol.
In addition, from July 1, 2022, the MFN tax rate will be further reduced for 62 IT products, including medical diagnostic machines, signal generators, and parts for speakers and printers.
Conventional duty rates
Traditional tax rates apply to imports originating from countries or regions that have signed regional trade agreements with China that include preferential tariff clauses.
So far, China has signed 19 bilateral or multilateral free trade agreements with more than 29 countries or regions. Imports originating in these countries and regions will be subject to regular tax rates, which are usually lower than the most-favored-nation rate.
From January 1, 2022, China will implement regular tariff rates on products from 29 countries.
China’s bilateral free trade agreements with New Zealand, Peru, Costa Rica, Switzerland, Iceland, South Korea, Australia, Pakistan, Georgia and Mauritius, as well as the Asia Pacific Trade Agreement (APTA), will further reduce the regular tariff rates for certain products originating in the contracting countries.
The RCEP and the China-Cambodia Free Trade Agreement will come into effect on January 1, 2022, which will also trigger tariff reductions.
In addition, except for products that mainland China has made special commitments in relevant international agreements, zero tariffs are applied to all products originating in Hong Kong and Macau.
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.
Tariff rate quota duty rates
China’s tariff rate quota (TRQ) rates apply to eight categories of goods: wheat, corn, rice, sugar, wool, cotton, and fertilizers.
Under the Tariff Rate Quota (TRQ) scheme, lower tariff rates apply to goods imported within the quota, and higher rates apply to imports that exceed the quota.
For example, TRQs for imported wheat products within quotas are as low as 1%, 6%, 9% or 10%, well below the MFN tariff rate of 65% and general tariff rates as high as 130% or 180%
General duty rates
General duty rates apply to imported goods originating from countries or territories that are not covered in any agreements or treaties or are of unknown places of origin.
Provisional duty rates
China usually renews temporary tax rates on certain imported goods annually to increase imports and meet domestic demand.
If there is a provisional tax rate for imported goods subject to the most-favored-nation tax rate, the provisional tax rate shall be applied. If the temporary tax rate applies to imports to which regular or special preferential tax rates apply, the lower of the applicable tax rates shall apply. The provisional tax rate does not apply to imported products subject to general duties.
Export duties are only imposed on a few resource products and semi-manufactured goods.
From January 1, 2022, China continues to impose export tariffs or impose provisional export duties on 106 export commodities with fixed and unchanged tax rates.
Other duty rates
Depending on China’s regulations on dumping, countervailing and safeguard measures, quite high tax rates may be imposed. Retaliatory tariffs may also apply to goods from countries or regions that violate trade agreements.
During the Sino-U.S. trade war, China slapped retaliatory tariffs on $185 billion worth of U.S. goods, including beef, lamb, pork, vegetables, juices, cooking oil, tea, coffee, refrigerators and furniture. Many other items.
Duty relief for key technical equipment
At the end of 2021, China released the Catalogue of Key Technical Equipment and Products Supported by the State (2021 Edition), the Catalogue of Key Components and Raw Materials for Imported Key Technical Equipment and Products (2021 Edition), and from January 1, 2022 Implemented the Catalogue of Imported Main Technical Equipment and Products Not exempted from Tax Exemption (2021 Edition).
Importing some key components and raw materials to qualified Chinese domestic enterprises, or exporting some key technical equipment and products listed in the Catalog to qualified Chinese domestic enterprises, are exempt from import value-added tax and customs duties.
Duty paying value for imported goods
The amount of import duties and duties payable is calculated based on the price or value of the imported goods. This value is called the duty paid value (DPV).
DPV is determined based on the transaction price of the goods, that is, the actual price paid or payable by the domestic buyer directly or indirectly to the foreign seller, with certain adjustments.
DPV includes transportation-related costs and insurance costs before unloading the goods at the point of arrival in China. Import duties and taxes levied by customs are not included in the 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:
Import taxes and duties payable can be calculated after determining the DPV and the tax and tariff rates of the goods. Similar to consumption tax, customs duties are also computed either on an ad valorem basis, quantity basis, or compound formula. The formulas are:
- Ad valorem basis:
Duty payable = DPV x Tariff rate
Duty payable = Quantity of imported goods x Amount of duty per unit
- Compound formula:
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 are borne by the seller, are excluded.
Content comes from < China Briefing >