Cross-border E-commerce in China: Legal and Tax Liabilities

1. Introduction

Cross-border e-commerce (“CBEC”) is an umbrella term for cross-border e-commerce retail imports and exports. Cross-border e-commerce retail import refers to the process whereby consumers in China purchase goods from abroad through a cross-border e-commerce third-party platform operator and transport them into the country using either online bonded import (Customs Supervision Mode Code 1210), online bonded import A (Customs Supervision Mode Code 1239) or direct purchase import (Customs Supervision Mode Code 9610).

In recent years, China’s cross-border e-commerce retail import and export has grown rapidly, due to the expansion of the 2020 cross-border e-commerce retail import pilot program to 86 cities and the Hainan Island. The program has not expanded to all Pilot Free Trade Zones (FTZs), cross-border e-commerce pilot zones, comprehensive bonded zones, import trade promotion innovation demonstration zones, and bonded logistics centers in the city and region.

This article will focus on the legal and fiscal matters involved in cross-border e-commerce retail imports under the model of online bonded import (Customs Supervision Mode Code 1210).

2. Legal liability

The Notice on Improving the Supervision of Cross-border E-commerce Retail Import (Shang Caifa [2018] No. 486) issued by the Ministry of Commerce and other six ministries and commissions clarifies the responsibilities between various participants in cross-border e-commerce retail imports such as the following:

（1） Cross-border e-commerce enterprises

Cross-border e-commerce enterprises, namely cross-border e-commerce import operators, refers to overseas registered enterprises that sell cross-border e-commerce retail imported goods from overseas to domestic consumers. They mainly bear the responsibility of quality and safety of the commodity and are responsible for protecting consumers’ rights, and should fulfill the obligation of reminding. In addition, cross-border e-commerce enterprises should also establish a commodity quality and safety risk prevention and control mechanism, and establish as well as improve the quality traceability system of online shopping. Cross-border e-commerce enterprises should entrust or establish a domestic business registration enterprise, which is registered in the Customs, bear the responsibility of truthful declaration as an agent.

（2） Cross-border e-commerce platform

Cross-border e-commerce platform refers to an operator registered in China that provides a transaction medium and platform for both parties to the transaction (consumers and cross-border e-commerce enterprises). In terms of platform construction, cross-border e-commerce platforms shall establish a management systems such as intra-platform transaction rules, transaction security guarantees, consumer rights protection, and handling of adverse information, and establish self-discipline systems for handling consumer disputes and consumer rights protection. Electronic data of cross-border e-commerce retail import transactions with electronic signatures shall also be transmitted to the Customs in real time, and the authenticity of the transaction and the authenticity of the consumer’s identity shall be reviewed.

（3） Other domestically registered commercial subjects

Other domestically registered commercial subjects refer to entities that provide payment, logistics, warehousing and other services for cross-border e-commerce enterprises in China. Payment and logistics enterprises shall truthfully transmit to the regulatory authorities electronic information of cross-border e-commerce retail import payment and logistics with electronic signatures in real time. Customs declaration enterprises accept the entrustment of cross-border e-commerce enterprises to declare the list to the Customs and bear the responsibility of truthful declaration. Logistics enterprises should open the real-time logistics tracking information sharing interface to the Customs, and carry out the domestic delivery business of cross-border e-commerce retail imported goods in strict accordance with the logistics information prepared and issued in the transaction link.

（4） Customer

Consumer refers to the domestic purchaser of cross-border e-commerce retail imported goods, and is also the taxpayer of cross-border e-commerce retail imported goods. The cross-border e-commerce retail imported goods purchased by consumers shall be for their own use, that is, the purchased cross-border e-commerce retail imported goods shall not be re-sold.

3. Tax-related issues

（1）Cross-border e-commerce enterprises

Cross-border e-commerce enterprises import goods under bonded “bonded cross-border trade e-commerce” and store them in the expanded pilot customs special supervisory area in stock-preparation mode. They then retail them through the cross-border e-commerce platform. If the import is for domestic consumers, in accordance with preferential policies on behalf of withholding tax returns to foreign countries, the enterprise can apply for a tax rebate. If tax has not yet been returned to foreign countries, the corresponding tax will not be taxed, and the total amount of individual annual transactions will be adjusted accordingly.

（2）Cross-border e-commerce platforms and other domestically registered commercial subjects

Other domestically registered commercial subjects: those serving overseas e-commerce enterprises, including cross-border e-commerce platforms, logistics enterprises, payment enterprises, and enterprises operating supervised sites, do not have special preferential tax policies currently for imports, and they are all implemented in accordance with domestic preferential tax policies. Small-scale enterprises with combined monthly sales that are not exceeding 100,000 yuan and quarterly sales that are not exceeding 300,000 yuan are exempt from VAT if VAT taxable sales behaviors occur. Differential VAT policy is applied, and the sales after the difference will be used to determine whether to enjoy the tax exemption policy. Domestic service providers should realize the comparison of transaction, payment, and logistics electronic information through the customs networked e-commerce trading platform to ensure the compliance of inbound goods.

（3） Customers:

According to the Circular of the Ministry of Finance, General Administration of Customs, and State Administration of Taxation on Improving the Tax Policy on Cross-border E-commerce Retail Imports (Caixa Tariff [2018] No. 49), for cross-border e-commerce retail imports of goods imported within the limit value, the tariff rate is temporarily set at 0%. The value-added tax (VAT) for import links is abolished, and the import VAT and consumption tax is abolished and levied at 70% of the statutory taxable amount. Consumers exceeding the single limit value of RMB 5,000, for a single transaction and that cumulatively exceeds the individual annual limit value of RMB 26,000, for a single indivisible commodity with a duty-paid price exceeding the limit value of RMB 5,000, will be regulated as a cross-border e-commerce business and taxed in full by way of general trade.

4. Conclusion

Cross-border e-commerce has seen significant growth in recent years, with online bonded import business accounting for more than 80% of cross-border e-commerce retail imports. It is crucial to improve platform transaction rules, establish a self-regulatory system for consumer dispute handling and rights protection, and establish mechanisms for the prevention and control of commodity quality and protection of intellectual property rights, among others, to ensure the healthy development of cross-border e-commerce. Participants must comply with the relevant provisions of the State Customs and other departments and make declarations in accordance with the law to avoid legal and tax risks.

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