Originally published in March 2013 and most recently updated on December 22, 2021, this article provides insights into the tax landscape for foreign companies engaged in trade with China. It delineates three main categories of taxes – value-added tax (VAT), consumption tax, and customs duties – crucial for businesses importing to or exporting from China.
As of January 1, 2022, China has implemented adjustments to various aspects of its customs duties, encompassing most-favored-nation (MFN) duty rates, conventional duty rates, and provisional duty rates for specific import items. These alterations represent part of China’s broader strategy to foster openness and domestic consumption, potentially impacting companies involved in trading taxable goods and services with China.
Guiding this multifaceted system are fundamental principles that foreign entities must adhere to. Below, we delve into the three tax types applicable to companies engaged in trade with China and highlight pertinent issues related to these taxes and duties.
Value-added tax (VAT) for imported goods Effective April 1, 2019, China adjusted its import VAT rates, setting them at either 9 percent or 13 percent, down from the previous 10 percent or 16 percent. This adjustment, outlined in the Announcement of the State Taxation Administration (STA) on Deepening the Reform of VAT (STA Announcement [2019] No.39), applies to various goods, with agricultural and utility items generally subject to the lower 9 percent rate, while manufactured goods fall under the 13 percent bracket.
Consumption tax for imported goods China imposes consumption tax (CT) on entities engaged in manufacturing, importing, or selling taxable products, including items detrimental to health like tobacco and alcohol, luxury goods, and high-end products such as automobiles. The tax rates vary depending on the type of imported product and can be calculated using different methods, including the ad valorem, quantity-based, or compound tax approach.
Customs duties Customs duties encompass various rates applicable to both import and export goods. Import duty rates include MFN rates, conventional duty rates, special preferential duty rates, tariff rate quota (TRQ) duty rates, general duty rates, and provisional duty rates. From January 1, 2022, China will impose taxes on a specified number of imported and exported items, as outlined in the 2022 Tariff Adjustment Plan (Tariff Commission Announcement [2021] No.18).
While these adjustments aim to streamline trade and enhance transparency, businesses must navigate this intricate tax landscape with care, ensuring compliance with relevant regulations and understanding the implications for their operations.
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