Customs & Taxes When Importing from China (Guide )

Customs & Taxes When Importing from China (Guide )

Importing from China involves various taxes. Which taxes apply and how they are calculated depends on the country into which the product is imported. At first glance, taxation and international trade may seem very complicated. For this reason, we have decided to make your life as an importer easier.

In this article, we explain the basics of customs duties, VAT, anti-dumping and other taxes that apply when importing from China into Europe, the US and Australia.

European Union
The EU is not a country, but a single market. This means that all EU member states impose the same tariffs on products imported from non-EU countries. Importers only need to pay tariffs once for products imported from China. Products sold within the EU are exempt from customs duties. Therefore, your Spanish and German customers do not pay customs duties for products that have already entered the EU territory.

However, different products have different tariff rates. Products not made in the EU, such as consumer electronics, tend to have lower tariff rates – sometimes as low as 0%. On the other hand, for products that are considered part of an important industry in the EU, the opposite is often the case. For example, shoes are taxed at 12%. Below is a list of common EU products and their respective tariff rates:

Watches: 4.5% (Min: €0.30, Max: €0.80)
Tablets: 0%
Solar panels: 0%
T-shirts: 12%
Electric bicycles: 6%
LED bulbs: 4.7%
Peanuts: 12.8%

Value Added Tax (VAT)
Value Added Tax (VAT) is mandatory in all EU countries. Different member states have different VAT rates. Certain products, such as groceries and books, generally have a lower VAT rate.

However, standard VAT rates apply to most consumer and industrial products imported from China.
VAT is added to the customs value, plus customs duty (also depends on the customs value). However, VAT charged on imported products is considered VAT paid on purchases within the EU, including purchases from other EU countries.

This means that the VAT charged on imports can also be offset against the VAT charged on sales.
customs value

In practice, the EU customs value is based on the CIF (Cost Insurance Freight) price of the imported goods. Below is a more detailed explanation of what fees are included in the customs value:

  1. Product price
  2. Tooling costs (e.g. injection molds)
  3. Shipping and logistics costs (to port of destination)
  4. Product development costs (such as product samples)
  5. Insurance
    The customs value does not include the following charges:
  6. Buyer’s commissions and fees (e.g. purchasing agent)
  7. Transportation costs incurred in the importing country (such as transportation from the port to the final delivery point)
  8. Expenses incurred at the port of destination (such as port fees, customs clearance fees)
    Customs authorities do not make rough estimates. Instead, the declared value must be clearly stated on the bill of lading – a document issued by your supplier or carrier. For this, your provider must provide the correct value. Otherwise you end up paying the wrong amount.
    customs value
    Duties, GST and import handling charges are based on the value of the shipment FOB (Free On Board). This includes the following:
  9. Product cost
  10. Shipping cost (to China loading port)
  11. Export customs clearance (China)
    Anti-dumping duties
    The Chinese government has (and still is) providing subsidies to certain industries and/or domestic manufacturers. Essentially, this means that Chinese manufacturers can sell products at below market prices. Good old price dumping. These practices are less popular in the European Union and the United States – they usually respond with anti-dumping duties. Sometimes anti-dumping duties target entire industries, and sometimes target individual manufacturers.
    Anti-dumping duties should be taken seriously as it is usually in the range of 40-60% (for comparison: the average duty rate in most western countries is around 5%). If you end up importing a product that is subject to anti-dumping, you may not be notified until the shipment arrives at the port of destination. Finally, Chinese manufacturers do not pay taxes outside of China.
    Therefore, it is important that you research whether your product and/or your supplier is subject to anti-dumping duties before placing an order. Currently, anti-dumping duties apply to a wide range of products and industries. Read more about pending cases in the EU, US and Australia at the links below:
    · European Union
    · United States
    · Australia
    specified valueDuties and taxes are calculated as a percentage based on the customs value.
    The customs value is based on the declared value which in turn is stated on the commercial invoice (the document issued by the supplier). Be sure to state the correct value on your commercial invoice, or you may end up paying the wrong amount.
    It is always the importer’s responsibility to ensure that the correct declared value is stated on the commercial invoice. This responsibility cannot be passed on to Chinese suppliers.
    customs code
    Tariffs are not based solely on declared value – it also varies from product to product. However, customs officials are busy people. You don’t have time to open every box and sort the items yourself. In contrast, HS codes indicate the type of product.
    HS codes (Harmonized System for Description and Coding of Goods) are part of the international classification system and make this process very easy. However, you need to ensure that the correct HS code is stated on the commercial invoice. Otherwise, you end up paying duties for the wrong product.

“Are custom duties refunded?”
No, unlike VAT, customs duties cannot be offset. Therefore the customs duty shall be considered as part of the product cost – and not a temporary outlay. Sometimes the duty rate is so low it barely makes a difference. However, in other cases the duty rate makes up a substantial part of the procurement cost.
Payment of customs and taxes
There are various ways to pay the customs duties and related taxes, when importing from China. In fact, you can even pay them directly to your Chinese supplier. Below we list the most common cases:

Option #1: Pay customs duties & taxes to the shipping company
This option is probably the most simple. Your cargo arrives at the Port of Destination and the customs authorities adds customs and taxes (e.g. VAT) based on the declared value and the HS code. This amount is then invoiced to you by your shipping company (e.g. FedEx or DHL.)
In some cases, you are required to pay the customs and tax invoice before the goods are delivered. However, you might get better payment terms if you’re an account holder of the freight company in question. This service doesn’t come free of charge. The shipping company usually charges somewhere between US$40 – 80 for managing the customs declaration.

Option #2: Apply for customs credit from your local customs authorities
Customs authorities offer customs credit to importers. Basically, a customs credit allows you to first get your cargo to your warehouse and pay customs and taxes at a later date. The transaction is then made directly to a bank account operated by the Customs Authority, instead of paying the freight company (as detailed in Option #1).

Option #3: Purchase DDP (Delivery Duty Paid) directly from your supplier
DDP is an incoterm that, on top of shipping and port fees, includes custom duties. The customs duty is included in the price you pay your supplier. However, additional taxes such as VAT and GST, is in general not included due to cross-border taxation issues. Instead, these taxes are paid upon arrival in the Port of Destination.

“Do we need to pay custom duties or other taxes in China?”
No, foreign companies and individuals are not tax subjects in China. Besides, any costs generated in China shall be included in the FOB (Free on Board) price. However, if you purchase products on Ex Work terms (EXW) from your Chinese supplier, no shipping and exporting related costs are included.

This means that you’ll need to pay for transportation from the supplier’s facility to the Port of Loading in China – AND pay for exporting clearance documents. While this is not a tax, it’s still a cost you cannot avoid when buying from China. In general, we recommend small to medium sized importers to purchase products at FOB terms, rather than EXW terms.

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