Cross-border e-commerce (CBEC) industry is undergoing major policy changes. On the one hand, China is promoting the cross-border e-commerce channel and lowering tax rate; on the other hand, China is imposing a lot more regulations on the technical integration and data transparency. 

There are the latest updates:  

  • For Cross-border e-commerce, the comprehensive tax rate was lowered from 11.2% to 9.1% for ordinary cosmetics, and from 25.53% to 23.05% for high-end cosmetics 
  • Starting from April 3rd, 2019, Postal tax rate dropped from 15% to 13% for food and medicine; and from 25% to 20% for textiles, leather garments, and electrical appliances
  • Starting from April 1st, 2019, cross-border e-commerce platforms need to integrate with local customs to push 3 pieces of order information (payment, order, and shipping information)
  • Daigous and companies are strictly prohibited from reselling products that were imported via the cross-border channel. Products should be sold directly to the end consumer via CBEC/CC channel 
  • Ensuring the legitimacy of each cross-border orders is a top priority. E-commerce platform shall no longer Sha Dan (刷单, making fake orders in order to create fake purchasing history)

Cross-border e-commerce tax rate update

Starting from April 1st, China’s VAT rate was updated as follows:

  • Manufacturing sector (including imported goods): dropped from 16% to 13%
  • Construction and transport: dropped from 10% to 9%
  • Services: remained at 6%

This reduction of VAT tax will significantly impact the tax rate of CBEC:

  • For most products (with 0% consumption tax), the CBEC integrated tax is lowered from 11.2% to 9.1% 
  • For high-end cosmetics, CBEC integrated tax rate is lowered from 25.53% to 23.05% 

*High-end cosmetics refers to products with an after-tax wholesale import price above 10 RMB/ml(g) or 15 RMB/piece.  

Here is a list of CBEC integrated tax rate for each product category (in Chinese).

The implication

The CBEC integrated tax rate applies to transactions that fall within the CBEC limitation. 

Earlier on January 1st 2019, the transaction limit of CBEC was updated to 5,000 RMB per transaction and 26,000 RMB per person per year. This allows brands to sell higher priced items via CBEC. 

Thus if the package is under 5,000 RMB, and it’s within 26,000 RMB limitation for the individual consumer, the company only needs to pay for the CBEC integrated tax rate (usually 9.1%). 

If the single transaction is over 5,000 RMB, but within the personal annual limit of 26,000 RMB, the product is allowed to be imported via CBEC but is subject to full tax. 

If beyond the annual limit, the transaction will be regulated as general trade. 

Tightened regulation on CBEC

According to <Notice of the General Administration of Customs Year 2018 Letter No. 165>, starting from April 1st, an e-commerce platform need to synchronize with the customs’ system for the following information: order number, product name, transaction amount, currency type, customer information, product link, payment number, verifying department, time, and other information. 

Here is the API for custom integration

Impact of the tightened CBEC regulation

The key impact of the April 1st CBEC regulation update is that China has further legitimized this channel. Thus the government will focus on collecting taxes via this channel and cracking down on shady activities such as Daigou re-sellers, fake orders, and custom under-declaring activities

This new regulation will also impact cross-border payment providers. The custom will demand the cross-border payment gateways to provide custom integrations to ensure transparency.  

Direct purchase imports update

The CBEC channel is not the only way for brands to sell from overseas to China. Brands can also encourage “Direct purchase” whereby the product is shipped via postal channels without custom integration:

Pros: the product doesn’t have to be registered with the customs

Cons: 

  • Customer’s experience is uncertain since if the parcel is checked by the custom (usually between 5%-10% chance depending on the custom), the customer will need to pay for the tax
  • Products will need to be stored outside of China, this means longer shipping time

Direct Purchase Import is often the easiest channel to start selling to China. Especially for new brands with an uncertain daily parcel amount and hero product (爆款) still undefined. 

Effective from April 9, China will lower the Postal tax rate on imported goods, and promote the import trade and domestic consumption:

  • Food and medicine: lowered from 15% to 13% 
  • Textiles, electrical appliances: 25% to 20% 

This is encouraging news for brands that want to experiment with the Chinese market.

Direct purchase import is still a great opportunity for foreign companies to test the market via the WeChat/Weibo stores and Key Opinion Leader marketing. After achieving initial success, brands can then consider the lengthier process of setting up a Chinese company or engaging in the custom registration process. 

Conclusion

As cross border e-commerce becomes a more recognized and prominent channel, it is also being regulated by the government. The tax rate deduction is an encouraging sign for brands who want to invest in the Chinese market.

However, the regulation is now more strict for cross-border e-commerce: brands will need to make sure to follow the rules, avoid shady methods such as Daigou, fake transactions (shua dan), and under-declaring products. (Source: WalkTheChat)

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