China expands the territory for pilot domestic sales optional tariff expropriation

Domestic sales optional tariff expropriation policy refers to the goods which are manufactured or processed in the customs special supervision areas and sold in domestic market are subject to tariff according to the correspondent imported material or actual finished product upon the application of the enterprise. The import VAT and consumer tax shall still be paid as usual. If the enterprise opts to pay tariff according to the imported material, then the interest on deferred tariff shall be paid accordingly.

Following the first batch of pilot territory for domestic sales optional tariff expropriation policy including Shanghai Pilot Free Trade Zone, Fujian Pingtan Comprehensive Experimental Zone and Guangdong Hengqin New Area, from September 1, 2016, the territory for the policy will expand to other customs special supervision areas in the pilot free trade zone in Tianjing, Shanghai, Fujian and Guangdong (the bonded zones and bonded logistic parks are excluded), as well as Henan Xinzheng Comprehensive Bonded Zone, Hubei Wuhan Export Processing Zone, Sichuan Chengdu Hi-tech Comprehensive Bonded Zone and Shanxi Xi’an Export Processing Zone.

Customs special supervision area is located within the national boundary but outside of customs frontier. When the goods enter into the customs special supervision area, the goods do not really go into the domestic market. Thus the goods are under bonded status and no tariff, import VAT and consumer tax shall be paid. After the goods are manufactured or processed within the customs special supervision area, if the goods are not exported but sold to the domestic market, then it shall be deemed goods are imported and tariff, import VAT and consumer tax shall be paid accordingly.

If domestic sales happen to the goods which are manufactured or processed within the customs special supervision area, the tariff can be paid upon application by the enterprise in the favorable principle:

1. The enterprise can opt to pay tariff according to the tariff-paid value and rate of the imported material. Meanwhile, the interest on deferred tariff shall be paid. Or

2. The enterprise can opt to pay tariff according to the tariff-paid value and rate of the finished product and no interest on deferred tariff shall be paid.

In above two situations, import VAT and consumer tax shall still be paid.

Due to the difference of the rates for the imported material and finished product, when the goods are sold in domestic market, the enterprise can opt to pay tariff with the lower rate. If the enterprise opts to pay tariff according to the imported material, as the interest on deferred tariff needs to be paid, if the production needs a long time, then the enterprise shall pay attention to the amount of interest to be paid as this interest may be very high one.