Written by Edwin Yin, China Consultancy team, CW CPA

 

China’s first E-Commerce Law was published on 31 August 2018 and has just come into effect since 1 January 2019, which heralds a new era of the cross-border e-commerce industry approaching. Besides, a huge quantity of favorable policies regarding cross-border e-commerce were issued by the State Council, the Standing Committee of the National People’s Congress, the Ministry of Finance, the State Administration of Taxation, the Ministry of Commerce, the General Administration of Customs (GAC) and some other state departments.

Let’s take a close look at the latest policies issued in the past remarkable 2018.

 

Part 1: Overall Policies

Policy 1 – Approval of the Establishment of Comprehensive Cross-border E-commerce Pilot Zones

in Beijing Municipality and the Other 21 Cities (Guo Han [2018] No. 93)

Guo Han [2018] No. 93 is aiming at setting up a new batch of comprehensive pilot areas of cross-border e-commerce and continuously promoting the opening-up and boosting foreign trade upgrading and transformation. To foster new growth poles and city clusters that facilitate the development of surrounding areas, the State Council selected cities with better basic conditions for e-commerce development to set up comprehensive pilot areas, including 22 cities with good industrial foundation such as Beijing, Shenyang, Nanjing, Wuhan, Nanning, Xi ‘an, etc.

 

Policy 2 – E-commerce Law of the People’s Republic of China (Presidential Decree No. 7)

On 31 August 2018, the Standing Committee of National People’s Congress passed the E-commerce Law, which is the first comprehensive law in the field of e-commerce in China. The E-Commerce Law provides a general framework regarding cross-border e-commerce issues, specifically in the following Articles:

  • Article 26: E-commerce business operators engaging in cross-border e-commerce shall comply with laws and administrative regulations on supervision and administration of importation and exportation, and the relevant provisions of the State.
  • Article 71: The State promotes cross-border e-commerce development, establishes and improves upon administrative systems pertaining to Customs, tax, inbound and outbound inspection and quarantine, payment settlement which correspond to characteristics of cross-border e-commerce, improves the level of facilitation of various phases in cross-border e-commerce, and supports cross-border e-commerce platform operators etc. to provide warehouse logistics, Customs declaration, inspection declaration services etc. for cross-border e-commerce transactions.
  • Article 72: The importation and exportation administrative authority of the State shall promote the establishment of an integrated service and regulatory system for Customs declaration, tax payment, inspection and quarantine and other phases in cross-border e-commerce transactions, optimize regulatory process, promote and materialize information sharing, regulatory mutual recognition, law enforcement mutual assistance, and improve service and regulatory efficiency for cross-border e-commerce transactions. Cross-border e-commerce business operators may complete the relevant formalities with the importation and exportation administrative authority of the State using electronic documentation.
  • Article 73: The State promotes and establishes exchange and cooperation with different countries and regions for cross-border e-commerce, particulates in formulation of international rules for e-commerce, and promotes international mutual recognition for electronic signatures, electronic IDs etc. The State promotes establishment of dispute resolution mechanism for cross-border e-commerce between different countries and regions.

As it can be seen, the Chinese government is supportive to the development of cross-border e-commerce industry. Before the E-Commerce Law, disputes related to cross-border e-commerce business often arise due to the uncertainty of different sorts of legal consensuses and responsibilities that varies between entrusting relationship and contractual relationship. The promulgation of E-commerce Law is indeed a landmark event, although problems such as smuggling, fake producing and IP infringement in practice remain unsolved by this law.

 

Policy 3 – Announcement of the State Council Tariff Commission on Lowering Import Tariffs for

Certain Goods (Tariff Commission Announcement [2018] No. 9)

Starting from 1 November 2018, the Most Favorable Nation (MFN) tariff rates for certain goods in 1,585 tax categories is lowered. Due to adjustment of MFN tariff rates, with effect from 1 November 2018, MFN provisional tariff rates for 39 types of imports shall be removed.

Goods with reduced tariff include industrial products needed for people’s living and production, such as:

  • textiles;
  • stone, ceramic and glass products;
  • some steel and base metal products;
  • electromechanical equipment and parts, such as metal processing machinery, textile machinery, construction machinery, power transmission and transformation equipment, electrical equipment, instruments and meters;
  • resource commodities and primary processed products, such as non-metallic minerals, inorganic chemicals, wood and paper products, precious jade, etc.

This is another batch of larger tax reduction by the State Council following the reduction of taxes on 1449 taxable items on 1 July 2018. The average tax rate was lowered from 10.5% to 7.8%, a decrease of 26% on average.

On the eve of China’s first International Import Fair, China’s new round of import tariff reduction undoubtedly shows that China is getting ready to play a more important role in the global economy. Relied on its vast consumer market, China encourages international brands and products to compete with Chinese domestic enterprises.

 

Part 2: Import and Export Policies

Policy 4 – Notice on Work Relating to Improved Regulation of Cross-border E-commerce Retail Importation

(Shang Cai Fa [2018] No. 486)


Shang Cai Fa [2018] No. 486 has provided a clearer administration framework for cross-border e-commerce retail importation. It also demonstrates that the cross-border e-commerce retail importation refers to the consumption activity of consumers in China purchasing goods from overseas through a cross-border e-commerce third party platform operator which are delivered to China via the “online purchase of bonded imports” (Customs regulatory method code 1210) or “direct purchase of imports” (Customs regulatory method code 9610). Goods being sold through a cross-border e-commerce third party platform should satisfy the following criteria:

  • within the “List of Goods under Cross-border E-commerce Retail Importation”, limited to personal use and satisfy the criteria stipulated in the tax policies for cross-border e-commerce retail importation (Cai Guan Shui [2018] No. 49);
  • transacted through an e-commerce platform linked with the Customs network, and able to achieve information match of three documentation: transaction, payment and logistics electronic information;
  • in case of not transacting through an e-commerce platform linked with the Customs network, the inbound and outbound courier operator or postal enterprise undertakes to bear the corresponding legal liability, and transmit transaction, payment electronic information to the Customs.

In addition, Shang Cai Fa [2018] No. 486 has also clarified the definition and responsibilities of relevant participants throughout the process of cross-border e-commerce retail import business, including: cross-border e-commerce retail importers, third party platform operators, service providers in China and consumers.

Shang Cai Fa [2018] No. 486 is certainly an important guideline for overseas merchants who wish to sell their products to Chinese consumers through cross-border e-commerce. Overseas enterprises who sell cross-border e-commerce retail imported goods from overseas to consumers in China are deemed as the owner of goods as well as “cross-border e-commerce retail importers” or “cross-border e-commerce enterprise”. As a consequence, the overseas merchant will bear the main liability for quality and safety of the goods and performs the relevant obligations such as entrusting an enterprise registered in China (domestic agent) to complete Customs registration and make relevant declarations.

It is worthy of noting that the domestic agent entrusted by overseas merchants will bear civil liability jointly and severally when it comes to the safety of the goods sold. Given the burden of civil liability, many Chinese enterprises would be unwilling to undertake the entrustment by overseas merchants, especially if the goods or brands are not well known by Chinese consumers or the safety concern is potentially high (such as food related products). In this case, the overseas merchants may need to consider setting up a subsidiary in China to be the domestic agent.

 

Policy 5 – Notice on Improving Tax Policies for Cross-border E-commerce Retail Importation

(Cai Guan Shui [2018] No. 49)

Currently, the duty rate for retail goods imported through cross-border e-commerce within the certain transaction limits will be set at 0% temporarily. The import VAT and consumption tax on such retail goods are temporarily levied based on 70% of the statutory tax payable[1].

Cai Guan Shui [2018] No. 49 increases single transaction limit for cross-border e-commerce retail import from RMB2,000 to RMB 5,000, and the annual transaction limit from RMB 20,000 to RMB 26,000. The increased limit of single transaction means that cross-border e-commerce retailers can sell more single items above RMB 2,000 and within RMB 5,000. The import part of cross-border e-commerce relies heavily on cutting off intermediate procedures to improve transaction efficiency and reduce costs. Therefore, this new policy better meets the demand for foreign products with higher price under the background of domestic consumption level-up. Industry giants started to make use of their advantages in supply chain management, driving the entire industry to a more standardized path.

Moreover, Cai Guan Shui [2018] No. 49 emphasizes that goods purchased via cross-border e-commerce shall not be resold in domestic market. It has also prohibited “online purchase of bonded goods + offline self-collection” outside the Customs special supervision area. In the past, many merchants set up physical product exhibition stores (in the normal zones) where customers purchase the goods via online transaction and pick up the goods immediately in the store. Such mode of operation is no longer possible.

 

Policy 6 – Announcement of the General Administration of Customs on Relevant Matters Concerning Regulation of

Cross-border E-commerce Retail Imports and Exports (2018) (GAC [2018] No.194)

Since the cross-border character (i.e. import and export of goods) is the most important character of cross-border e-commerce activities, the regulatory policy and enforcement of Customs are crucial to the development of cross-border e-commerce.

The objectives of GAC [2018] No.194 is to ensure traceability of goods and clarify the parties with the burden of responsibility in quality and safety assurance. In particular, it clarifies matters concerning Customs regulation of cross-border e-commerce retail imports, such as: Enterprise management, Customs clearance, tax collection, customs supervision venues management, quarantine, Inspection and Logistics management, goods returning management and other miscellaneous matters.

 

Policy 7 – Announcement of the General Administration of Customs on Matters Relating to Customs Registration and Administration for

Cross-border E-commerce Enterprises (GAC [2018] No. 219)

GAC [2018] No. 219 further standardizes Customs registration and administration for cross-border e-commerce enterprises. Cross-border e-commerce payment enterprises, logistics enterprises shall obtain the relevant qualification certificate pursuant to the provisions of GAC [2018] No. 194 and submit the relevant qualification certificate pursuant to the relevant provisions of the authorities in charge when completing Customs registration formalities.

Prior to the date of implementation of this Announcement, a cross-border e-commerce logistics enterprise which has completed Customs registration formalities or information registration formalities, or a platform enterprise or a payment enterprise participating in cross-border e-commerce importation which has completed Customs information registration only shall, before 31 March 2019, complete the formalities for Customs registration or submission of qualification certificate pursuant to the provisions.

 

Part 3: Other Policies

Policy 8 – Announcement on Matters Related to Real-time Acquisition of Payment-related Original Data of

Cross-Border E-Commerce Platform Enterprises (GAC [2018] No. 165)

GAC [2018] No. 165 requires that cross-border e-commerce platforms participating in cross-border e-commerce retail import business should share original data with the Customs, including order number, commodity name, transaction amount, currency, payee related information, commodity display link address, payment transaction serial number, verification institution, transaction complete time and other data deemed necessary by Customs.

 

Policy 9 – Announcement on Relevant Matters of Opening Information Management System for Inbound and Outbound Mail Articles

(GAC [2018] No. 164)

 

In order to further strengthen the supervision of inbound and outbound mail and improve the efficiency of mail clearance, GAC has decided to promote the use of the inbound and outbound mail information management system in the national Customs from 30 November 2018. GAC and China Post Group Company will realize the nationwide network transmission of inbound and outbound mail. Postal enterprises shall, when handling the entry, exit and transit formalities of mail general contractor, transmit relevant electronic data such as general contractor’s waybill to the Customs.

Currently, there are two ways of import for cross-border e-commerce: bonded imports and direct mail import. The Customs promotion of postal goods information management system has great impact on cross-border e-commerce via direct mail import. On the one hand, it will further improve the efficiency of postal goods Customs clearance and realize the interconnection of data. On the other hand, this move will deal a blow to small and medium-sized cross-border e-commerce enterprises and individuals who take postal parcels as the main entry and exit channel, because it will greatly increase the tax on personal articles in postal parcel channels under certain circumstances. At present, it is not clear whether the Customs will change to complete the tax collection in full according to the declaration information directly in the entry link or remain the existing spot check tax collection mode and holds the information for post-event investigation only.

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To summarize, with the supervision of the authorities and relevant regulations, the cross-border e-commerce industry totally keeps a rapid developing pace. The promulgation and implementation stage of the new policies on cross-border e-commerce is not only a phase-out period for improving the quality of cross-border e-commerce imports and exports, but also an opportunity for industry transformation and upgrading. Although there are still no specific regulations that stipulate every aspect of cross-border e-commerce retail import in detail, regulations regarding some peripheral issues, like international tax or logistics, have already came into effect and made an influence on the cross-border e-commerce industry. The government’s intention of taking the whole cross-border e-commerce industry under control can be easily detected and we can surely anticipate more and more supporting policies and normative regulations coming into being in the near future.

Under this environment, CW has to put more attention on issues regarding cross-border e-commerce and follow up with the latest tax policies and regulatory measures. Besides, we can boldly speculate that more foreign investors might choose to start a business in China in a formal way like opening a WFOE because of the unfavorable policies for unregistered enterprises and individual cross-border importers, like operators of “Online shopping bonded and offline self-promotion”, which sometimes can be confused with smugglers. We CW will keep being active in providing different kinds of service for foreign investors that wish to operate a business in China as always.

To help with the construction of a new encouraging environment for cross-border e-commerce operators, CW will play an active role in performing the following functions:

  • carry out detailed and thorough analysis and research on laws and policies regarding tax, import & export etc.;
  • deal with practical problems that happened during company operations;
  • help the investors have a better understanding toward the Chinese current economic situation by making clear the purpose and trend of the updates of laws and policies;
  • cooperate with local-level authorities and explore the direction of policy reform and development through practice.

 

If you wish to discuss your e-commerce business, please do not hesitate to contact our Phenix Zheng (phenix.zheng@cwhkcpa.com) of China Consultancy Team.

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