China Market Entry Importing into China Chinese Accounting & Tax

How are Chinese import taxes calculated?

May 19,2017 | Tony Yu

When importing into China, the rates imposed can vary depending on some key factors, which are assessed when calculating duty and VAT rates. 

 

Understand the fundamentals of Chinese import tax calculation

 

There are many different variables to account for, the most common influencers being:

 

  • Product category & Use/function (HS codes)

 

  • Relevant Import quotas

 

  • Country of export

 

  • Materials/Ingredients used - This will identify if there are any potentially hazardous or restricted materials present

 

China import policies can be incredibly strict, with reports of importers being prosecuted for tax evasion even years after import due to incorrect HS codes - so it's important to be clear and transparent when identifying your products.

 

There are many calculations to consider, if we were importing wine into China, the most relevant would be: 

 

Import duty/tax

CIF (Cost, Insurance and Freight) x Duty rate

 

Consumption tax*

 ((CIF + Import duty)/(1 Consumption rate))* Consumption rate

*Only applicable to certain product categories including alcohol,cigarettes, cosmetics, jewellery, vehicles etc.

 

VAT rates 

(Customs dutiable value + Tariff + Consumption) x VAT rate

 

 

A worked example

 

Let's demonstrate how this is applied to a real life situation - importing wine into China.

 

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If you're you're importing 1,000 cases of wine  with a total CIF value of 500,000RMB, the following rates apply

 

  • Duty rate - 14%
  • VAT rate - 17%
  • Consumption rate - 10%

 

With that key information, we can now work out, using the above formulas:

 

Import duty/tax

 

CIF (500,000) x Tariff rate (14%)

 

70,000RMB

 

 

Consumption tax

 

 ((CIF [500,000] + Import Duty [70,000] )/(1 – Consumption rate [10%])) x Consumption rate [10%]

 

63,333.33RMB 

 

 

VAT rates 

 

(CIF [500,000] + Import Duty [70,000] + Consumption [63,333.33]) x VAT rate [17%]

 

107,666.67RMB

 

Depending on the product category, rates and other taxes can vary, so be sure to calculate for each product be confident all the costs are correct.

 

 

Why is this so important?

 

It quite literally, pays to understand all your costs up front.

 

It's impossible to set correct pricing and build a sustainable business model for China without clearly understanding the full cost of importing into the country. It's wise to go one step further and figure out your full landed cost before selling in China, to avoid any nasty surprises.

 

We work with a wide range of businesses, helping them understand all this in full with an Import Feasibility study, to ensure all products can be safely imported alongside a full understanding of costs to guide pricing and selection of the most appropriate fulfillment methods

 

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