Ecommerce in China – new tax policy could affect your business

12 May 2017 News

New rules regarding cross-border ecommerce came into effect in China on 8th April 2016, however China’s Ministry of Commerce announced in late 2016 that it has extended the transition period until the end of this year. Despite this, ecommerce brands need to be thinking about the impact of these changes on their business.

Under the old system, most parcels shipped to China cross-border (where the item has been bought from an overseas website or a cross-border platform) were generally classed as personal items and as a result the personal parcel tax would be most likely levied if the item value was less than 1000RMB (circa £100). The items were not subject to VAT or consumption tax and if personal parcel tax was levied it would be at a reduced rate compared to trade duty tax, varying by product category. Chinese consumers were therefore buying lower cost items directly from cross-border sites for a much cheaper price than they would have to pay from a Chinese retailer who would have been subject to full import duties, VAT and any consumption taxes.

The new tax system means that any item purchased through an official ecommerce channel will be classed as general trade and charged VAT and consumption tax. For items under 2000RMB this will be reduced and consumers only required to pay 70%. It is important to note that this rule only applies for purchases made through officially sanctioned ecommerce platforms like Tmall Global or where the consumer is using a service that can provide full electronic data relating to the transaction, payment and logistics. Items purchased that meet these criteria will be exempt from import duty. Any items shipped without electronic data will be subject to the old personal parcel tax system, but with increased rates of tax e.g. textile and garments has increased from 20% to 30%.

Chinese consumers will now be subject to an annual spending limit of 20,000RMB (circa £2000) after which full VAT, tax and duties will apply.

Under the new system, the losers will be mostly low value items that would have previously shipped free of duties. The winners will be items that had a higher personal parcel tax rate such as cosmetics which are effectively reduced from 50% to 33%. Other winners will be fashion items that cost circa £100-£200 incurring a flat 11.9% VAT rate, rather than the 20% previously charged.

All of this should in the long term lead to more opportunity for UK retailers selling to the Chinese market as it will see improved regulation, product safety and more consumer choice for higher priced items.

You can obtain more information about all these changes from the China-Britain Business Council here and in KPMG’s report issued in March – available here.