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Hello, this is Dong from ApparelX’s International Strategy Office.
Among ApparelX’s Japanese users, I think there are many apparel brands looking to expand into China, but do you know how to calculate the comprehensive tax on cross-border exports to China?
Today, I’d like to introduce the following topics.
I am not a trade professional, but I would like to share the information I know.
(Please use the information provided in this article at your own discretion and responsibility. ApparelX strives to provide information as accurately as possible, but please understand that ApparelX and the author cannot accept any responsibility for any disadvantage or other harm incurred by users in connection with the content provided in this article.)
When exporting to China, the Chinese government collects the following four taxes.
(1) Chinese import duty: A tax imposed on imported goods passing through the customs territory of a country.
(2) Shipping and postal tax: Refers to import tax on luggage and postal items.
(3) Value-added tax (VAT): China sets the basic VAT rate at 17%, and at 13% for important national goods and daily necessities.
(4) Consumption tax: At present, the country levies consumption tax on only four types of products. First, consumer goods such as tobacco, alcohol, and firecrackers, where excessive consumption harms health; second, luxury brand goods; third, high-energy-consumption products; and fourth, consumer goods made from non-renewable petroleum.
The total of these four taxes is called the e-commerce comprehensive tax.
First, in China there are tax incentives for individual consumers purchasing imported goods through cross-border e-commerce. Based on the Notice on Improving Tax Policies for Cross-Border E-Commerce Retail Imports (Caiguan Shui [2018] No. 49, issued on November 29, 2018 and effective January 1, 2019), regarding the tax rate of the e-commerce comprehensive tax, if the transaction limit per user is 5,000 yuan or less per purchase and the annual purchase total is 26,000 yuan or less, you can receive preferential treatment with the tariff rate set at 0% and VAT and consumption tax at 70% of the statutory amount, respectively. If the above amount is exceeded, or if the aforementioned conditions for application are not met, the e-commerce comprehensive tax cannot be applied, and as general trade, customs duties at the normal rate and VAT (and consumption tax depending on the imported goods) will be collected.
General formula: E-commerce comprehensive tax = customs duty + value-added tax + consumption tax
Now, I will explain how taxes are calculated within the preferential limit. Within the preferential limit, customs duty is zero, and only 70% of the (VAT at the import stage + consumption tax) is collected!
E-commerce comprehensive tax = customs duty * 0 + (VAT at the import stage + consumption tax) * 70%
For example, if you buy a dress for 1,000 yuan within the per-transaction limit, the tariff rate is 0%, and VAT and consumption tax are taxed at 70% of the statutory rate.
However, if you try to buy a Chanel bag for 10,000 yuan, the per-transaction limit of 5,000 yuan is exceeded, so customs duties, VAT, and consumption tax must all be collected in full, and these taxes will add up to more than the price of the bag.
Also, even if you buy a dress for 1,000 yuan, you still have 25,000 yuan remaining within the year, and the tax preference can still apply to other products.
If you make multiple purchases within one year, each not exceeding 5,000 yuan, and buy a lot, but the total amount is 28,000 yuan, only 26,000 yuan will be tax-free, and customs duty will be imposed on the remaining 2,000 yuan worth of goods in accordance with general trade regulations.
This JETRO article is very detailed and highly valuable, so please use it as a reference.
Overview and key points of cross-border e-commerce in China: Exporting to China
Methods of E-Commerce in China
1. Sell through your own online store by using a base established in China
2. Sell to China through an overseas online store operated by a foreign corporation
3. Open a store on a Chinese EC (Electric Commerce) site
These three methods are possible.
(Source: JETRO)
Considering the difficulty and risk of the three methods above, I think “3. Opening a store on a Chinese EC (Electric Commerce) site” is the easiest. I will introduce the EC sites.
1. Tmall Global (recommended for apparel brands)
Market share: 39.6%
Tmall International, launched in 2014, is currently China’s largest cross-border e-commerce platform for international brands. Tmall International accepts only companies with a physical presence outside mainland China and does not open its doors to companies in mainland China. It provides a platform solution that combines Alibaba’s direct import sales model (B2B2C) and the model where companies open stores themselves (B2C). Over the past five years, Tmall Global has been positioned as a trusted platform for consumers when purchasing imported products.
Market share: 25%
Kaola is a relatively new player in the cross-border e-commerce market. In autumn 2019, Alibaba acquired Kaola, and the Tmall International + Kaola team became a leading cross-border e-commerce player in China.
Market share: 20.1%
To compete with Alibaba, Tencent established JD Global to compete in the cross-border market. Jingdong International was launched in 2015 and has successfully leveraged Jingdong’s large existing user base in China’s two major markets.
4. Vipshop (Vip International) (recommended for apparel brands)
Market share: 8.6%
Founded in 2008, Vipshop pioneered an innovative e-commerce model in China of “brand-name discount + limited-time shopping + authenticity guarantee,” and has continued to evolve into a true fashion outlet model of “carefully selected brands + major discounts + limited-time shopping.” It is an electronic shopping mall specialized in fashion items such as apparel and accessories.
Market share: 2.5%
Amazon’s overseas version is committed to providing customers with opportunities to buy overseas brands and imported products on Amazon, offering consumers a more convenient, efficient, and reliable overseas shopping experience.
About Payments
In China, in addition to cash on delivery and bank transfers, online payment services such as “Alipay” and “WeChat Pay,” as well as payments by UnionPay cards (debit cards), are widely used (the use of credit cards appears to be declining).
If you find this useful, I will continue updating information on imports and exports (by country), translations, foreign languages, and country-specific information, so please follow the ApparelX blog!
