18 March 2015
General trade refers to the import or export of goods by enterprises in China with import-export rights. In China’s customs statistics, the scope of general trade covers: imports and exports using loans or aids; the import of materials and parts by FIEs for processing of goods for sale in the domestic market; the export of goods purchased by FIEs or manufactured by processing domestically-produced materials; the import of food and beverages by restaurants and hotels; the supply of domestically-produced fuel, materials, parts and components to foreign vessels or aircraft; the import of goods as payment in kind in lieu of wages in labour service cooperation projects with foreign countries; and the export of equipment and materials by enterprises in China as investment in kind for their investment abroad.
Quota and Licensing Control
After joining the WTO, China has greatly reduced its direct administrative measures for import and export such as quota and licensing control. As part of its WTO commitments, starting from 1 January 2004, China has removed its import quota licensing control over refined oil products, natural rubber, vehicle tires, motor vehicles under certain tariff codes and key parts thereof. At the same time, as WTO members have lifted restrictions on certain Chinese exports (such as textiles), China has also cancelled the quota and licensing requirements on the export products concerned. In addition, China has introduced reforms in the import management of agricultural products. Certain bulk agricultural produce such as wheat, grain and cotton which used to be under absolute quota management are now subject to tariff-rate quota management.
Following its WTO accession, China has promulgated a series of measures for import and export administration. These include Regulations of the People’s Republic of China on the Administration of the Import and Export of Goods, Measures for the Administration of Import Licensing Control, Provisions for the Administration of Export Licensing Control, Measures for the Administration of the Import of Mechanical and Electronic Products, Measures for the Administration of Designated Operators of Certain Imports, Measures for the Administration of Quotas for Export Commodities, Measures for the Administration of Automatic Import Licensing Control, Implementing Rules for the Administration of Import Quotas for Mechanical and Electronic Products, as well as the amended Foreign Trade Law. These rules have formed a new administrative framework for the quota management and licensing control of imports and exports.
(a) Import Quotas and Licensing
According to the amended Foreign Trade Law, import goods and technologies are divided into four categories, namely prohibited imports, restricted imports, free imports, and goods under tariff-rate quota management. Among these, import goods under quantitative restrictions are subject to quota management and licensing control while restricted technology imports are under licensing control. The import of goods and technologies under the free imports category is not subject to any restrictions. However, due to the need to monitor import goods, the commerce department under the State Council has introduced the automatic licensing system on certain free import goods and has published a catalogue on them. For the import of technologies under the free imports category, registration and record filing of the contract are required.
For the import of goods and technologies subject to quota and licensing control in general trade, it is necessary to obtain prior approval from the commerce department under the State Council or from the commerce department in conjunction with other relevant departments under the State Council. For the import of commodities subject to automatic import licensing, the consignee should apply for automatic licensing before customs declaration and obtain prior approval from the commerce department or its designated organs.
China has also revised certain documents governing the administration of imports by FIEs in accordance with its WTO commitments. FIEs importing items subject to quota and licensing control for investment purpose or own use, or for manufacturing products for domestic sale, or for domestic sale in China directly, should apply for the required import quota, import licence or automatic import licensing. FIEs importing within their investment limit raw materials, parts and components for investment purpose or own use, or goods subject to automatic licensing, are not required to obtain an Automatic Import Licence. Commodities subject to licensing control which are imported for processing trade are exempt from import licence, with the exception of controlled chemicals, precursor chemicals and ozone depleting substances.
(b) Export Quotas and Licensing
China imposes restrictions on the export of certain commodities. These include domestic resources that might be depleted and are in short supply or need conservation in China, and goods destined for countries or regions with limited market capacity and whose exports therefore have to be restricted. Goods under export restriction are subject to quota and licensing management while technologies under export restriction are subject to licensing control. For commodities subject to export quota control in general trade, it is necessary to apply for an export licence by presenting the export quota certificate. For the export of commodities subject to export licensing, it is necessary to apply for an export licence by presenting the export contract. However, FIEs exporting items subject to quota management and licensing control must first obtain approval from MOFCOM before applying to the relevant department for an export licence. For the export of commodities whose export quotas are obtainable through open tender, utilisation with compensation or bidding without compensation, application for the licence should be made after a successful bid has been made and the quota amount confirmed.
Foreign Exchange Control
China practises a foreign exchange settlement system. Under normal circumstances, an enterprise should sell its foreign exchange receipts to designated banks and make foreign exchange payments at designated banks by buying foreign exchange or transferring the foreign exchange in its account. FIEs may open foreign currency accounts and retain a portion of their foreign exchange income under the current account.
In August 2007, the Chinese government abolished its mandatory foreign exchange settlement system. According to the Regulations on Foreign Exchange Administration amended by the State Administration of Foreign Exchange (SAFE) in August 2008, the provision for mandatory repatriation of foreign exchange receipts was removed. It is now stated that “foreign exchange receipts of domestic entities and individuals may be repatriated to the country or placed offshore”. The conditions and timeframes for repatriating foreign exchange receipts or placing them offshore are also given, with the foreign exchange administration departments under the State Council responsible for formulating detailed rules according to the state’s international balance of payment and need for foreign exchange control.
On 31 December 2010, the SAFE issued the Circular on Issues Regarding the Administration of Offshore Deposit of Export Receipts from Trade in Goods, whereby starting from 1 January 2011 enterprises across the country may deposit their export receipts from trade in goods offshore.
Tax Levy and Exemption
(a) Taxes on Imports
China imposes import tariffs and import-related value-added tax (VAT) on goods imported in general trade. Import-related consumption tax is also levied on certain goods.
(b) Taxes on Exports and Tax Rebate/Exemption
Tariffs. China does not impose levies on exports with the exception of a few types of raw materials and vital resources.
VAT and consumption tax. China applies a zero tariff rate on exports with the exception of certain restricted or prohibited goods and technologies. In other words, there is no need to pay VAT or consumption tax on exports, and tariffs already paid will be rebated. The State Administration of Taxation (SAT) stipulates that starting from 1 July 2004, goods exported by foreign trade operators with export production capacity are eligible for export rebate/exemption under the “VAT exemption, deduction and rebate” system; goods exported by foreign trade operators with no export production capacity are eligible for export rebate/exemption according to existing regulations on export rebate for foreign trade enterprises; while goods exported by foreign trade operators recognised as small-scale VAT taxpayers are exempt from VAT and consumption tax according to existing regulations.
The export rebate policy is applicable to FIEs under the “VAT exemption, deduction and rebate” system.
Customs Management by Enterprise Categorisation
(a) Enterprise Categorisation
Under the Measures of the Customs of the PRC for the Classified Management of Enterprises, the Chinese Customs divides import-export enterprises into five categories, namely AA, A, B, C and D. Category AA and Category A enterprises are entitled to corresponding customs clearance facilitation measures. Category AA enterprises, in addition to enjoying other customs facilitation measures applicable to Category A enterprises, are eligible for release of goods on confidence principle. Customs authorities also appoint dedicated staff to settle and resolve problems encountered by them in the course of handling customs clearance, and grant them exemption on inspection of import-export goods. Category B enterprises are subject to conventional management measures; while Category C and Category D enterprises are subject to strict supervision measures.
Import-export goods consignors/consignees:
Category AA import-export goods consignors/ consignees must meet the following conditions:
(1) Have been subject to Category A management for over one year;
(2) Import-export customs declaration error rate under 3% in the preceding year;
(3) Checked and confirmed by Customs to have met requirements in terms of customs management, enterprise operation and management, and trade security;
(4) Submit the Report on Operation and Management and the audit report of the preceding year prepared by the accounting firm every year; and submit the Report on Import-Export Business every half year.
Category A import-export goods consignors/ consignees must also meet the following conditions:
(1) Have been subject to Category B management for over one year;
(2) Have no record of conviction for smuggling, acts of smuggling, or violation of customs supervision regulations for a whole year;
(3) Have no record of customs administrative penalty for infringement of intellectual property rights with regard to import-export goods for a whole year;
(4) Have no overdue payment of taxes or fines;
(5) With total import-export value exceeding US$500,000 in the preceding year;
(6) With import-export customs declaration error rate under 3% in the preceding year;
(7) Accounting system is sound, business records are true and complete;
(8) Cooperate with customs administration, handle all customs formalities promptly; the bills and documents submitted to Customs are true, complete and valid;
(9) Submit the Report on Operation and Management every year;
(10) Renew the Import-Export Goods Consignor/Consignee Customs Declaration Registration Certificate of the PRC Customs and apply for making changes therein in accordance with the relevant regulations;
(11) Have no bad records with administrative departments and organs such as commerce, People’s Bank of China, industry and commerce, tax, quality inspection, foreign exchange, and supervision, for a whole year.
Import-export goods consignors/consignees having one of the following conditions are subject to Category C management:
(1) Have committed acts of smuggling;
(2) Have at least three counts of violation of customs supervision regulations within one year, and the counts of violations exceed one-thousandth of that of declaration forms processed in the previous year, or have been fined a total amount of over Rmb1 million for violating customs supervision regulations within one year;
(3) Have received administrative penalty by Customs on two counts for infringement of intellectual property rights with regard to import-export goods within one year;
(4) With overdue payment of taxes and fines totalling less than Rmb500,000.
Import-export goods consignors/consignees having one of the following conditions are subject to Category D management:
(1) Have been convicted of smuggling;
(2) Have committed acts of smuggling on more than two counts within one year;
(3) Have received administrative penalty by Customs on more than three counts for infringement of intellectual property rights with regard to import-export goods within one year;
(4) With overdue payment of taxes and fines exceeding Rmb500,000.
Import-export goods consignors/consignees which have not committed any of the acts of Category C and Category D enterprises but meet any one of the following conditions are subject to Category B management:
(1) First registration;
(2) After first registration, the management category has not been adjusted;
(3) Category AA enterprises which fail to meet both the conditions applicable to their original management category and the conditions applicable to Category A management;
(4) Category A enterprises which fail to meet the conditions applicable to their original management category.
Category AA enterprises may make application for Category AA status to customs authorities through the customs office at the place they are registered and submit Application Form for Category AA management, Enterprise Management Status Assessment Report and audit report of the preceding year prepared by accounting firm. Category A enterprises are only required to submit Application Form for Category AA management and Enterprise Management Status Assessment Report.
For Category AA application, and not requiring audit and verification upon examination, customs authorities will make a decision of not applicable within one month from the date of acceptance; for those application requiring audit and verification upon examination, a decision of applicable or not applicable will be made by customs authorities within two months from the date of making that conclusion.
For Category A application, customs authorities will make a decision of applicable or not applicable within three months from the date of acceptance.
(c) Impact on Enterprises
Since enterprises under different categories are subject to different measures of management by Customs, implementation of the Measures of the Customs of the PRC for the Classified Management of Enterprises has made a far-reaching impact on import-export enterprises, customs declaration enterprises, and processing trade production enterprises.
For Category A enterprises, Customs implements the “declaration at local customs office, and inspection and release at port” policy, under which the following facilitation measures apply: customs officers are sent to the production or loading/unloading premises of the enterprise to carry out inspection; priority is given in the handling of goods declaration, inspection and release formalities at the business venue; advance customs declaration service is offered to import goods after shipment but before arrival at port, and to export goods before they are delivered to the customs supervised area; priority is given in the handling of urgent customs clearance outside office hours and on statutory holidays; implementation of “nominal” payment of customs duty deposit or waiving the customs duty deposit system; priority is given in the handling of filing, alteration and cancellation formalities for processing trade; priority is given to the handling of customs declaration registration formalities; priority is given to hosting customs declaration training programmes and performance assessments for customs declaration staff.
Category AA enterprises, in addition to enjoying other customs facilitation measures applicable to Category A enterprises, are eligible for release of goods on confidence principle. Customs authorities also appoint dedicated staff to settle and resolve problems encountered by them in the course of handling customs clearance. The electronic information on their customs declaration forms, after being checked electronically, is transmitted directly to the spot where the goods are inspected and released for the processing of verification, inspection and release formalities. Exemption on inspection of import-export goods is also granted.
Category B enterprises are subject to conventional management measures. But for Category C and Category D enterprises, Customs implements strict supervision over documents checking, inspection and verification in terms of customs clearance, processing trade business and follow-up management.