On May 6, 2020, China’s State Council issued the Approval of the Establishment of Integrated Pilot Zones for Cross-border E-commerce in 46 Cities and Areas (Guo Han [2020] No.47). According to the document, Xiong’an New Area (Hebei province), Sanya (Hainan province), and 46 other cities will build up new cross-border e-commerce (CBEC) pilot zones, bringing the total to 105 such zones in China.
The new pilot zones will be constructed based on the experience and best practices adopted in existing pilot zones, and will promote high-quality development of the cross-border e-commerce (CBEC) industry and stabilize foreign trade and foreign investment amid the COVID-19 outbreak.
Enterprises can avail of preferential tax policies, such as exemption of value-added tax (VAT) and consumption tax on retail exports and reduction of corporate income tax (CIT) rates in CBEC pilot zones.
Besides, the document encourages relevant government departments to consider incorporating the cities of eligible zones into the pilot program on cross-border e-commerce retail imports and assist enterprises in jointly building and sharing overseas warehouses in these cities. CBEC retail import is the consumption activity of Chinese consumers purchasing goods from overseas through CBEC platforms. We explain more below.
Where are the 46 new cross-border e-commerce zones located?
The 46 cities and areas of the new CBEC zones are shown in the following table.
By far, China has approved five batches of 105 CBEC pilot zones since the first pilot zone was set up in Hangzhou in 2015. They cover 30 provinces, municipalities, and autonomous regions (only except for Tibet). Most CBEC pilot zones are located in the eastern regions of the country – including Beijing (1), Shanghai (1), Guangdong (13), Zhejiang (10), Jiangsu (10), Shandong (7), and Fujian province (6).
The new zones, however, expand into China’s midwestern region and beyond.
While the first two batches of 13 pilot zones were located mainly in large and medium-sized cities in the east, the third batch of zones began to expand to provincial capital cities in the central, western, and northeastern regions. The fourth and fifth batches included more second- and third-tier cities.
What preferential policies are applied in the CBEC pilot zones?
China has been rolling out a series of measures to support CBEC development. Among them are the major preferential policies we mention below.
Policies on VAT and consumption tax exemption
According to the Notice on Tax Collection Policies for Retail for Exports in CBEC Integrated Pilot Zones (Cai Shui [2018] No.103)(EN), where if the exports of an e-commerce export enterprise, which has not yet obtained a valid proof of purchase (a special input VAT fapiao), satisfies all the following criteria, the exports can still be exempted from VAT and consumption tax:
- The e-commerce export enterprise is registered in the CBEC zones, and has registered the date of exportation, description of goods, measurement unit, quantity, unit price, and amount on the CBEC online service platform at the place of registration;
- The e-commerce export declaration formalities are completed with the Customs at the locality of the pilot zone for the exports; and
- The exports do not fall under the scope of goods for which export tax refund (exemption) is expressly removed by the Ministry of Finance and the State Administration of Taxation.
Pilot scheme on assessment of CIT on retail export enterprises
According to the Announcement on Issues Concerning the Levy upon Assessment of Income Tax on Retail Export Enterprises in CBEC Pilot Zones (STA Announcement [2019] No.36)(EN), any CBEC enterprises in a pilot zone, which satisfies all the following criteria, shall be subject to the pilot scheme of assessment of CIT, where the taxable income rate can be lower at four percent:
- The enterprise is registered in the CBEC pilot zone and the date, name, unit of measurement, quantity, unit price, and amount of the exported goods are registered on the CBEC online service platform at the place of registration;
- The e-commerce export declaration formalities are completed with the Customs at the locality of the pilot zone for the exports; and
- There are no valid purchase vouchers for the exported goods, which are entitled to the policies of exemption from VAT and consumption tax.
In addition, if these CBEC enterprises meet the conditions for preferential policies for small low-profit enterprises, they may enjoy the preferential CIT policies for small low-profit enterprises.
If the income obtained by the CBEC enterprise is tax-free income specified in Article 26 of the Corporate Income Tax Law of China, it may enjoy the preferential policies for tax-free income.
Moreover, Guo Han [2020] No.47 encourages incorporating the cities of eligible zones into the pilot program on retail imports of CBEC. To clarify, CBEC retail imports are when consumers in China purchase goods from overseas through a CBEC third-party platform operator, which are then 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).
The CBEC retail imports can be regulated as goods imported for personal use, and not subject to the license approval, registration, or filing requirements for the first-time importation of the goods, according to the Notice on Work Relating to Improved Regulation of Cross-border E-commerce Retail Imports (Shang Cai Fa [2018] No.486)(EN). Currently, China has 87 cities and areas joining the pilot program of retail imports of CBEC, including the whole Hainan island.
Moreover, the Guo Han [2020] No.47 has urged local governments to assist enterprises there to jointly build and share overseas warehouses – warehouses established in a foreign country for bulk storage of export goods and direct delivery to foreign consumers after the goods are sold via an online platform. To date, China’s in-zone e-commerce enterprises are reported to have jointly built up more than 1,200 overseas warehouses. These warehouses, which aggregate scattered international packages for bulk transportation, can greatly reduce logistics costs. It can also improve the overseas consumer shopping experience by delivering goods more quickly, safely, and accurately, besides handling sales returns more efficiently.
Besides these, the in-zone enterprises can also enjoy customs clearance facilitation and relaxation of import supervision.
How will CBEC stabilize foreign trade and investment in China?
China’s traditional foreign trade has been hit hard by the global spread of COVID-19, but CBEC businesses have continued to grow. They have provided a quick and convenient way for consumers to buy urgently needed products, including epidemic prevention materials.
This article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write info@dezshira.com for more support.