1. Overview of special customs procedures in China
In addition to the ordinary import procedure known as “final importation for consumption”, which is subject to customs duties and taxes, Chinese customs allow 5 other temporary customs procedures known as “special procedures”. These include temporary admission, bonded warehousing, inward or outward processing and end-use, all of which are either duty-suspensive or duty-exempt. The following is a summary of these special statuses:
1.1. Customs procedure for temporary importation
This is designed to allow the temporary importation into China of goods which will be re-exported as is, without alteration or modification. Their use in the customs sense of the term is therefore predefined. The most frequent case concerns products presented at trade fairs and exhibitions.
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Organizers of international trade shows in China have special agreements with dedicated logistics providers, which are usually imposed on participating exhibitors.
Some shows allow exhibits to be sold, consumed or destroyed on site. In this case, of course, the applicable customs regulations and regime change.
Other fairs are organized in such a way that products must leave Chinese territory after the exhibition. This applies for example for regulated or sensitive products that are not qualified or not yet certified to enter the Chinese market.
Since the late 90s, China has accepted ATA carnets for temporary exports, for use at trade fairs and exhibitions only.
Since January 2019, Chinese customs have accepted ATA carnets for commercial samples and professional equipment.
Prior declaratory procedures must however be well prepared in advance, as simply presenting the carnet on arrival will not suffice. |
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1.2. Bonded warehousing
It allows unprocessed goods to be stored in China while awaiting customs clearance. They can either be imported into China under the definitive import regime, or re-exported to another country under the transit regime. These goods remain under the supervision of the customs authorities.
For certain flows, China's Free Trade Zones (FTZ) offer a suitable option for organizing a logistics base for the supply chain. Compare this with other options or types of zon
Goods warehoused in these zones may be held in facilities owned by the importer, a consignee or a logistics service provider. These storage facilities can also accommodate goods from China, while remaining under customs supervision, as temporary storage or for processing.
1.3. Export consignments and requirements for outward processing trade
This temporary import regime allows a product to be exported to China for processing, transformation, repair, testing or improvement, before being returned to the sender. Depending on the consignee's status in China, duties and taxes may apply. Check this aspect carefully. Customs will approve duty exemption requests on a case-by-case basis only. Chinese customs regulations differ from those in the USA and Europe. Chinese customs officers do not treat the status of an improvement with the usual Western procedures. Here, the logic is one of approval.
Outward processing in China concerns companies that import raw materials (or semi-finished products), process them locally, then re-export finished products, without selling them in China. This processing regime thus differs from the general trade customs status known as “definitive import”.
The main advantage of this temporary import status is economic. It allows the exemption or suspension of customs duties and import taxes on imported raw materials, parts and packaging.
To benefit from these preferential measures, a Chinese supplier must obtain prior authorization from the local customs authorities. It will be necessary to check the customs status of the company, the nature of the planned processing (degree of transformation) and to adapt the import and export documentation. The terms of the service contract between an exporter and his Chinese subcontractor, including the choice of incoterm, are important. Note also that the possibility of benefiting from the advantages of this processing regime in China is not limited to companies operating in a Free Trade Zone (FTZ) or Export Processince Zone (EPZ).
In order to save reduced or zero customs duties and VAT, as well as to streamline the process, the service provider must prepare a dedicated register (handbook). And get it approved beforehand. This records imported materials, finished products to be processed and the actual consumption rate. Meticulous, precise work is essential to comply with Chinese import regulations.
All supporting documents must then be forwarded to customs for control and possible inspection:
- Verification that imported materials, components or parts correspond to the quantities used.
- Check that losses declared during production or modification are acceptable.
- Confirm that the quantities of processed goods correspond to those imported.
If the declaration is correct, customs duties and import VAT are non-exempt, or reimbursed if already paid, or subject to a security deposit. The processing operation must be carried out within a timeframe which must also be approved in advance.
Before embarking on such a subcontracting scheme and process, it is advisable first to conduct a thorough professional check of the approval conditions in force in China. Chinese authorities only grant approval on a case-by-case basis. In particular, local processing companies and sites must comply with strict qualification, licensing, process and lead-time conditions.
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The export of electronic components and semiconductors to China has been a great success. However, some of these products can be classified as dual-use technologies. In other words, they can be used for both civilian and military purposes. It is therefore advisable to carry out a careful analysis of import and processing conditions at a Chinese subcontractor's premises, in order to verify entry requirements and re-export procedures. From experience, a Chinese subcontractor is not necessarily familiar with customs procedures on its territory. They might, for example, suggest declaring a temporary export of a commercial nature as a sample of no commercial value, in order to avoid tedious declaratory procedures on arrival in China. An illegal procedure, of course.
1.4. Import consignment and requirements for inward processing trade
The aim of the inward processing scheme is to import products from China, process them in your country (e.g. France), then re-export them to China.
Processing may include assembly, repair, improvement or updating of components and software. This operation is possible between China and the rest of the world, and saves on duties and taxes during processing, as well as on re-importation into China.
Good preparation upstream, followed by careful and meticulous follow-up with the customs authorities in both countries, is essential. Remember that customs procedures in force within the European Community are not duplicated identically in China, which is not a member of the EU. For example, the European Customs Code confuses inward processing with processing under customs control, resulting in a single inward processing procedure. This is not the case in China. An inward-processing operation between France and China should therefore be anticipated and worked out as a project in its own right.
Import/export documentation, declared values, transfer pricing and value-added allocation are key elements in guaranteeing compliant declarations, as well as regular tax optimization of the operation.
1.5. The end-use procedure
Certain goods may be released for consumption (free circulation) at preferential tariffs, provided they are destined for a specific use. For example, the import of capital goods (machinery) which are imported into China to promote health, innovation, research, technological development or the production of certain products.
Effective January 1, 2024, the Customs Tariff Committee of China's revised the tariff schedule for 2024 and extended the range of tariff items. China is now applying provisional import rates on 1,010 items, that are lower than the MFN duties. The products are categorized as follows:
Anti-cancer drugs: Customs duties have been eliminated for drugs used to treat malignant liver tumors and for medications and raw materials intended for rare diseases, such as pulmonary hypertension. Additionally, duties are reduced on some food preparations for specific uses in medical treatment.
High-tech manufacturing: Duties are reduced on strategic equipment and components, including gas diffusion layers for fuel cells and biogas-powered generators with internal combustion piston engines.
Agricultural products: Customs duties reduced on burdock seeds, coriander and sweet corn.
This system enables an importer to benefit from a reduction or total suspension of customs duties, provided that the goods are actually used in accordance with their regulated destination. The application of this regulation depends on the customs tariff (HS code). A particular destination can only be envisaged if Chinese tariff legislation authorizes it in one-off or permanent measures, as in the examples above.
2. Customer case studies of processing projects in China
2.1. Mission: flow optimization for local processing trade
- The customer: a Dutch conveyor manufacturer.
- Situation: The customer has an import-export trading subsidiary (WFOE) in China, and wishes to take control of all import flows + local purchasing of parts & components assembled in China by a subcontractor + re-export of finished conveyors.
- Request and our deliverable: streamline import flows for local processing.
- Complete analysis of the alignment of financial flows and import-export customs flows (duties, VAT, refunds), review of Chinese customs codes and import conditions (certification, permits) + proposal to modify the subsidiary's corporate purpose.
- Drafting of an operating procedure (SOP) to be followed for each conveyor project by a new internal logistics department.
- Comparison of warehousing solutions in and out of the free zone.
2.2. Mission: set up a new repair + storage activity
- The customer: a French manufacturer of optical instruments.
- Situation: the customer has a 100% foreign-owned subsidiary (WOFE) trading B2B in China. It wishes to add to its import and distribution activity a local repair and spare parts replacement service for products sold in China.
- Request and our deliverable: to enable a repair activity + temporary storage.
- Complete review of management conditions for importing spare parts into China (150 HS codes), re-exporting defective parts to be repaired either in China or in France for re-import and customer delivery in China. Description of possible customs import regimes.
- Comparison of storage conditions for a main warehouse + secondary warehouses to build up a buffer stock in several Chinese provinces.
2.3. Mission: full import management of a project manufactured in the USA + China
- The customer: an American manufacturer of aeronautical autoclaves.
- Situation: the customer has no subsidiary in China. It wishes to export to China (under DDP incoterm) an autoclave project to a Chinese aeronautics company. Project value: 17 million USD. The manufacture of the vessel (400 tons) is subcontracted to China, while the connectors and controllers are imported from the USA.
- Request and our deliverable: to manage the entire import and declaration file for the project.
- Complete review of duties and certification requirements for controllers and connectors imported from the USA + negotiation of customs duties, including punitive duties (China/US trade war).
- Negotiation of the import regime for the project as a whole, including the value of the tank, part of the project manufactured in China, which was part of the overall contract. Project duration: 8 months.
2.4. Mission: optimize customs regime and save on VAT in China
- The customer: a Russian company trading in water pumps.
- Situation: the customer has no subsidiary in China. He wants to export motors manufactured in Russia for processing in China in 2 subcontracting factories for integration of the motor into pumps + re-export the finished product from China to the rest of the world.
- His request and our deliverable: optimization of customs and VAT treatment in China.
- Analysis of the eligibility of 2 Chinese subcontractors in order to evaluate and compare possible import regimes for subcontracting, followed by re-export procedures.
- Calculation of costs according to possible customs regimes and conditions for recovering the VAT quota + clearance of customs duties.
3. Our services for customs, logistics and supply chain in China
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Cost and logistics optimization: implementation of customs clearance procedures, documentation management of inward and outward processing trade, and optimization of import-export flows, including LCL/LCL and LCL/FCL consolidation. Consulting services and SOP (Standard Operating Procedures) for clearance formalities.
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Handling of specialized projects and temporary importations: guidance on regulations and practices for ATA carnets in China, as well as imports for processing and re-export.
- Reclassification of customs codes to bring imports from China in line with the Carbon Border Adjustment Mechanism (CBAM) regulation.
- Cross-border eCommerce: comparing import solutions for B2C export sales to customers in China.
- Health compliance reports for food stuffs, pharmaceuticals, drugs, skincare products, and medical devices. Chinese market watch service.
- Standards, approvals, and certification : preparation for CCC conformity marking and comparison of testing options from authorized labs.
- Consulting for exporting machinery and industrial equipment to China: these projects demand special attention. Preparation of required documentation with Customs to streamline the import process for your China subsidiary or agent
- Project negotiation and support during disputes with the chinese authorities, including Customs, CFDA, CIQ, port authorities, FTZ (Free Trade Zones), and bonded logistics areas.
- Regulatory monitoring and advisory: guidance on Customs laws and regulations, Chinese HTS code classification, and support during inspections.
- Advisory and follow-up on import documentation. Qualification and manufacturing SOPs for hazardous or chemical products.
- Consulting on optimising shipping and logistics projects within larger sourcing projects, including the selection and relocation of China suppliers and sales agents or distributors.
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