China has issued a number of regulations to lower import-export duties and taxes to encourage domestic consumption and openness. Companies that trade with China could be affected by these changes.
This complex system requires foreign companies to adhere to certain principles. We will explain below the three types tax that China companies must pay when importing or exporting goods to China.
Import goods Tax on value-added in China
According to the Announcement by the State Taxation Administration on Deepening the VAT Reform, China’s import VAT has been reduced to 9 percent or 13% starting April 1, 2019.
Certain goods fall under the main categories of utility and agricultural items are exempt from the 9 percent tax, while other goods such as manufactured goods are subject to the VAT at 13 percent. source JIngwanglawyer
As before, taxable services provided in China by foreign individuals or entities are subject to 6 per cent VAT
This formula can be used to calculate the import VAT
Import VAT = Compound Assessable Price x VAT Rate
= (Duty Price + Import Duty + Consumption tax) x VAT Rate
= (Duty Price + Import Duty)/ (1-Consumption Rate) x VAT Rate
Import duty tax
China’s consumption tax (CT), is imposed on businesses and organizations that make and import taxable goods, process taxable items under consignment or sell taxable product.
China’s consumption tax makes imports taxable.
These products include tobacco and alcohol, luxury goods such as jewelry and cosmetics, and high end products like passenger cars and motorbikes.
Imported goods are subject to a different consumption tax rate depending on what product is being imported. source
You can calculate consumption tax using the quantity-based, ad valorem, or compound tax methods. These formulae can be used to calculate the consumption tax:
Ad valorem method
Consumption Tax Payable = Taxable Sales Amount x Tax Rate
Consumption tax payable = Taxable sales quantity x Tax Amount Per Unit
Method of compound tax
Consumption tax payable = Taxable sales amount x Tax rate + Taxable sales quantity x Tax amount per unit
Import and export duties are included in customs duties
Import duty rates include the most-favored-nation duty rates (MFN), conventional duty rate rates, special preferential rates rates, tariff rate quote (TRQ) duty levels, general duty rates and provisional rates for imports that can be implemented for a specific period.
Export duty rates are determined based on one type. However, provisional duty rates may be available for exports for a specific period.
According to the 2022 Tariff Adjustment Plan ( Tariff Commissioner Announcement  Nr.18), China will tax 8,930 import items and 106 export items starting January 1, 2022.
The following are the customs duties rates for import goods:
- Most-favored-nation duty (MFN) rates;
- Conventional duty rates
- Rates of preferential duty;
- Tariff rate quota (TRQ) duty rates;
- General duty rates
- Provisional rates of duty
- MFN duty rates
- The following products are subject to MFN duties:
- Imports from WTO member nations that apply the MFN Treatment clause
- Imports from countries and territories that have signed bilateral trade agreements that include MFN treatment provisions with China;
- Imports from China
- MFN duty rates, which are the most common import duty rates, are widely adopted. They are significantly lower than the general rates that apply to non-MFN countries.
China will begin to adopt provisional duties rates for 954 import commodities which were previously subject to default MFN duties. The provisional duty rates are lower that the MFN tariffs.
Some anti-cancer drugs and other medical products, as well as aquatic products, sport equipment, oil paintings, antique artwork, high efficiency auto parts, materials to restore the environment, and minerals, will be exempt from tariffs.
China also scrapped provisional duties rates and resumed MFN duty rates for some amino acids and lead-acid battery components, gelatin and pork.
Additionally, the MFN duty rates for 62 IT products will be further reduced starting July 1, 2022. This includes signal generators and parts of speakers, printers and other medical diagnostic machines.
Imported goods from countries or territories which have signed regional trade agreements that include preferential tariffs with China are subject to the standard duty rate.
China has so far signed 19 bilateral or multilateral trade agreements with more countries and regions. These countries and regions will impose conventional duty rates on imports of goods that originate in these countries or regions. This is usually lower than the MFN rate.
China will begin applying conventional duties rates to products imported from 29 countries starting January 1, 2022.
China and New Zealand, Peru and Costa Rica, South Korea and Australia, South Korea and Pakistan, Georgia and Mauritius will reduce the conventional duty rates for certain products originating in these countries through bilateral FTAs.
The RCEP, China-Cambodia FTA and the RCEP will be in force January 1, 2022. This will also trigger tariff reductions.
Except for products that mainland China has made specific commitments to in international agreements, there will be no tariffs on all products coming from Hong Kong or Macao.
Imported goods from countries and territories that have trade agreements with China that contain special preferential duties provisions are subject to special preferential rates. They are usually lower than conventional and MFN rates.
China’s tariff rate quote (TRQ) rates are applicable to eight types of goods: wheat and corn, rice, sugar; wool; cotton; fertilizer.
Tarif rate quota (TRQ), in which goods are imported within the quota, are subject to lower tariff rates and goods that are imported beyond the limit are subject to higher duties.
The TRQ rate to import wheat products within the quota can be as low as 1, 6, 9 or 10 percent. This is significantly lower than the MFN duty rates of 65 percent and general duty rates of 130 percent or 180.
Imported goods from territories or countries that are not covered by any agreements or treaties, or are unknown to be of unknown origin are subject to general duty rates
Provisional duty rates
China updates the provisional duty rates on certain imported goods every year to increase imports and meet domestic demands.
The provisional rate should be applied to imported goods for which there is a provisional rate. If provisional rates apply to imports for which special preferential or conventional duty rates apply, then the lower rate should be applied. Imports that are subject to the general tarif do not have provisional rates.
Export duties are not imposed on some semi-manufactured and resource products.
China will continue to impose export duties or export tariffs on 106 export commodities, with fixed and unaffected tax rates, starting January 1, 2022.
Other duty rates
China’s regulations concerning dumping, antisubsidies and safeguard measures may result in significantly higher rates. Retaliatory tariffs may also be applied to goods that originate from countries or regions violating trade agreements.
The US-China Trade War has seen China impose retaliatory tariffs of US$185 billion on US goods including beef, lamb and pork, as well as juices, cooking oils, tea, coffee, refrigerators and furniture.
Relief from duty on key technical equipment
China released the Catalogue of State Supported Key Technical Equipment and Products (2021 edition), the Catalogue of Imported Key components and Raw Materials of Key Technical Equipment and Products (211.1 version) and the Catalogue of Imported Major Technical Equipment and Products not Exempted From Duties (2021 Version), which will be effective on January 1, 2022.
Export VAT and customs duties are not applicable to certain imports and exports of key components or raw materials.
Import duty paying value in China
Based on the import goods’ price or value, the amount of customs duties and import taxes due is calculated. This value is known as the duty paying value (DPV).
The DPV is based on the transacted value of the goods, that is, the actual price paid or payable directly by the domestic buyer to foreign seller. There are some adjustments required.
DPV includes transportation-related expenses and insurance premiums on the goods prior to unloading at the place of arrival in China. DPV does not include import duties or taxes collected by customs.
Calculating import/export taxes and duties
After determining the DPV of the goods and their tax and tariff rates, the import taxes and duties that are payable can be calculated. These formulae are:
After determining the DPV of the goods and the tax and tariff rate, import taxes and duties can be calculated. Customs duties can be calculated in the same way as consumption tax. They are computed on an ad valorem, quantity, or compound basis. These formulae are:
Ad valorem basis:
Duty to be paid = DPV x Tariff rate
Duty to be paid = Quantity of imported products x Amount per unit
Duty payable = Tariff rate + Quantity imported goods + Amount of duty per unit
The benchmark exchange rate published in China by the People’s Bank of China should be used to calculate import taxes and duties payable.
Export duties in China
Export duties have the same tax base as import duties, i.e. the DPV.
The DPV of export duties is based upon the transacted price, which is the lump sum price received by the seller who exports the goods to the buyer.
Excluded are export duties, freight-related expenses and insurance fees after loading at an export spot. Also, commissions borne entirely by the seller.