The Customs Clearance Handbook (2021), compiled by the General Administration of Customs (China Customs) is a comprehensive guide to China’s customs regulations. This guide contains the tariff schedule and national customs rules and regulations and can be purchased at bookshops in China or ordered online.
Tariff Rates
China Customs assesses and collects tariffs. Import tariff rates are divided into six categories: general rates, most-favored-nation (MFN) rates, agreement rates, preferential rates, tariff rate quota rates, and provisional rates. Since China is a member of the WTO, imports from the United States are assessed at the MFN rate. The five Special Economic Zones, open cities, and foreign trade zones within cities offer preferential duty reductions or exemptions. Companies doing business in these areas should consult the relevant regulations.
China may apply tariff rates significantly lower than the published MFN rate for goods that the government has identified as necessary to the development of critical industries. For example, China’s Customs Administration has occasionally announced preferential tariff rates for items in the automotive, steel, and chemical sectors.
Since 2018, China has imposed additional tariffs on certain U.S. goods to retaliate against additional U.S. tariffs imposed as a result of the Section 301 investigation on China’s Acts, Policies, and Practices related to Technology Transfer, Intellectual Property, and Innovation. China excluded some U.S. products from those additional tariffs for a set period of time regardless of the importer. China also launched another tariff exclusion process focused on individual importers. Through this process importers could apply for exclusions on specific consignments of U.S. products. These exclusions exempted only the retaliatory Section 301 tariffs for the products and are valid for one year from the date of approval but must be requested on a month-by-month basis. Importers may also apply for tariff exclusions for products outside the eligible product list that was included in the announcement. For details, please see [FAS GAIN Report CH2020-0106 or the latest version of the GAIN report].
Customs Valuation
The dutiable value of an imported good is its cost, insurance, and freight (CIF) price, which includes the normal transaction price of the good, plus the cost of packing, freight, insurance, and seller’s commission. China Customs is tasked with assigning a fair value to all imports.
To assess a dutiable value, all China Customs officers have access to a valuation database that lists appropriate valuations for various imports based on international market prices, foreign market prices, and domestic prices. China Customs officers check the price reported by the importer against this database. Normally, China Customs officers will accept the importer’s price. However, if the declared value is too far out of line with the database, the China Customs officer will estimate the value of the goods based on methods listed in Article 6 of China’s Administrative Regulation on Examination and Determination of the Dutiable Value of Imported and Exported Goods.
For agricultural products, China Customs information frequently does not reflect seasonal changes in pricing or the effects of quality/grade on pricing. As a general rule, China Customs will charge against the highest price reflected in its database. The Foreign Agricultural Service of the U.S. Department of Agriculture is working with China Customs to improve its understanding of agricultural products pricing.
Taxes
On top of normal tariff duties, both foreign and domestic enterprises are required to pay value-added taxes (VAT). VAT is assessed on sales and importation of goods and processing, repairs, and replacement services. VAT is assessed after tariffs and incorporates the value of the tariff. The PRC is bound by WTO rules to offer identical tax treatment for domestic and imported products. VAT is collected regularly on imports at the border. Importers note that their domestic competitors often fail to pay taxes. VAT rebates up to 17% (a full rebate) are available for certain goods.
The PRC government frequently adjusts VAT rebate levels to fulfill industrial policy goals. Exporters complain that it takes months to obtain the rebates, and amounts are often miscalculated. Also, local budgets limit rebates, and coastal provincial authorities often run out of funds for rebates well before the end of the year. The applicable rebate method varies according to the date the enterprise was established.
The U.S. signed a tax treaty with the PRC that took effect on January 1, 1987 (United States-The People’s Republic of China Income Tax Convention). It provides certain benefits and allows for the avoidance of double taxation, but in order to enjoy the benefits provided by the tax treaty, non-residents (enterprises and individuals) must register with their local tax authorities in accordance with Circular 124. The corporate income tax rate in China is 25%.
This tax law includes two exceptions to the 25% flat rate: one for qualified small-scale and thin profit companies, which will pay 20%, and another to encourage investment by high tech companies, which will pay 15%. Additional incentives are available for investments in resource and water conservation, environmental protection, and work safety. Preferential tax treatment for investments in agriculture, animal husbandry, fisheries, and infrastructure development continues to be applied. Note that taxable goods and tax rates are periodically adjusted.