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Cross-Border E-Commerce Comprehensive Pilot Zones

Update Date:2019-9-16 18:29:52     Views:755

Cross-Border E-Commerce Comprehensive Pilot Zones

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On January 15, the State Council decided to set up a new batch of cross-border e-commerce zones in 12 Chinese cities: Shanghai, Guangzhou, Tianjin, Chongqing, Hefei, Zhengzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen and Suzhou. The first comprehensive e-commerce pilot zone of its kind was established in Hangzhou, home to the e-commerce giant Alibaba. These zones are designated exclusively for the development of cross-border e-commerce industry, featuring a slew of preferential tax policies and streamlined customs clearance procedures. Each of these zones has an online e-commerce platform operated by state-backed or licensed companies, where Chinese customers can view and purchase foreign goods (e.g., kuajingtong in the Shanghai Free Trade Zone). 

Goods sold via the online trading platforms launched by these e-commerce zones are subject to the so-called “parcel tax,” which is much lower than the normal custom duties (i.e., import tariffs, value-added tax and consumption tax if applicable). Foreign merchants operating businesses with/in the zones may choose one of the following two approaches when selling directly to Chinese consumers:

Direct Shipping Model
Under the direct sale model, foreign manufacturers maintain warehouses in their home countries and send goods to customers after they have made orders online. Under this model, it becomes easier for the manufacturers to oversee the storage process and provide customers with a variety of products. However, it usually takes longer before the customers receive the goods as it involves a relatively more complicated customs clearance procedure.

Bonded Warehouse Model
Under the bonded warehouse model, investors may set up a warehouse within their respective E-commerce zone. Goods will then be transported and stored temporarily within the warehouse under the Customs supervision before they are delivered to domestic customers. In this case, exporters need to determine if the quantity of their products sent to China is reasonable and can be sold within a given period.

A comparison of the two models can be found below:
Parcel Tax versus Customs Duties As previously mentioned, the special parcel tax implemented within pilot zones is one of the most attractive draws for investors. According to Customs Announcement [2012] No.15, the parcel tax rate can be classed into four levels depending on the categories of goods in question. It should be noted that customers don’t have to pay parcel tax when the tax amount is under RMB 50.

Calculation Method:
Tax payable= Goods price*×parcel tax rate
*Note that the China Custom released a detailed price directory for imported goods in 2012. The price of the goods that are not listed in the directory should be determined by their most recent retail price. In the case where the goods original price is twice as high as (or much lower than) it is in the directory, the exporters should provide the invoice and receipt as a proof.

Compared to the general customs duties levied on imported goods, goods imported via e-commerce zones offer an obvious price advantage as a result of tax reductions. For example, exporting UHT/fresh milk to China under the general trade model is subject to an import tariff of 15 percent and a value-added tax of 17 percent; whilst under the cross-border e-commerce model, customers will only pay 10 percent parcel tax on the imported milk. This enables foreign merchants to sell imported goods at a lower price, and thus makes their products more competitive.


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