Australia: China's new cross border e-commerce taxation regulations: how will they affect you?

The Australian export industry has been abuzz with talk of China's recently released regulations aimed at reconstructing how it taxes goods sold on its highly popular e-commerce platforms.

The changes that took effect from 8 April 2016 target goods sold by e-retailers, placing higher import duties on certain categories of goods (Regulations).

In this Alert, Senior Associate Lea Fua and Solicitor Briar Francis provide a brief overview of the changes.

Key Points

A number of Chinese government departments, including the Chinese Ministry of Finance released two circulars on 16 March 2016 and 24 March 2016 detailing its regulations to change import duties payable on goods imported through e-commerce retailers such as Alibaba, Tmall and Taobao. The result will be that import duty on certain products will increase the sale price for those products.

  • The Regulations are yet to be fully developed and will likely take form after a significant amount of further clarification in the coming months.
  • The intention of the tax changes is to close loopholes and provide for better regulation of this industry.
  • A "positive list" has been released by the Chinese government listing 1,293 categories of products that users of these e-commerce platforms can bring into China.
  • Any changes to the obligations placed on Australian exporters trading in China via e-commerce platforms will need to be developed such that the provisions of CHAFTA are not breached.
  • Australian exporters who are unsure of the impact of the "positive list" on their export products should seek advice, and HopgoodGanim Lawyers can assist with any such enquiries.

China releases new policies on e-commerce import duties: how will Australian exporters fare?

The Regulations

Under the Regulations, new taxes will be placed on goods imported through e-commerce platforms, which generally applies to imports transacted through the bonded zone model (where goods are shipped to a bonded zone within China), and the direct shipping model via websites connected with PRC Customs.

In general, individual Chinese consumers will be able to purchase up to RMB 2,000 worth of goods in a single transaction from one of these platforms taxed at a lower flat rate, with an annual limit of RMB 20,000 applying across all cross border e-commerce transactions. Purchases that exceed these limits will be levied at the full tax rate as though trading commercially. Purchases totalling under RMB 50 will no longer attract a tax exemption.

The tax on the import of beauty products has been reduced, as well as some clothing items, however, food products are set to rise in price by about 12% on average due to the increase in duty.

Particularly relevant, the Regulations seek to even the playing field between foreign online retailers and their domestic counterparts by placing a new tax of 11.9% on food and beverages, as well as health foods, purchased on foreign websites.

Goods sent to China via post by individuals shopping personally overseas appear to be unaffected by the Regulations.

The "positive list"

Inclusion on the positive list means that retailers can import products into China via its 14 free-trade zones without an import licence, and then on-sell the products on e-commerce platforms.

Being on the list also means that the relevant product will be less likely to require Chinese registration and strict food labelling compliance, although we consider it likely that existing customs requirements relating to the import of these products will largely remain unchanged, save any necessary tweaks in policy to accommodate the list.

Goods on the list that require additional compliance clearance include:

  • cosmetics imported for the first time, which require cosmetic permits;
  • certain meats, dairy and seafood products which generally require the registration of the foreign manufacturer;
  • infant formula powder, which requires registration with the China Food and Drug Administration (CFDA);
  • infant formula food, which requires filing with the CFDA (being less involved than a registration);
  • food for special medical purposes, such as food specially formulated to have a specific nutritional value or be taken under medical supervision, which requires registration;
  • health foods imported for the first time, which require registration with the CFDA;
  • vitamin supplements and mineral materials, which require filing with the CFDA; and
  • medical devices with cryptographic or password encrypted technology.

Products not on the list appear to be prohibited from import via cross-border e-commerce, although how the relevant government authorities intend to apply the list cohesively is currently unclear. Realistically, however, the list is expansive and covers most products currently sold by Australian companies on e-commerce platforms.

While the introduction of the Regulations has brought on some panic from within the Australian export community, there has been some back-pedalling from the Chinese government, and it is understood that it is considering suspending implementation of the Regulations for a year.

The Regulations as publicly released appear to be an attempt by the Chinese authorities to better regulate the taxation of goods sold on China's cross border e-commerce platforms. They are primarily aimed at eliminating tax loopholes and normalising duties, and Chinese lawmakers are optimistic that the Regulations will facilitate further dealings via this channel.

Whilst the general consensus amongst Australian exporters appears to be that the Regulations will cause minimal impact to long term operations in China, it is likely that exporters trading key products affected by the Regulations and positive list will experience short term hurdles such as additional registration requirements and the need to reassess product pricing. It is clear that the price of some goods (especially those not on the positive list) will increase as a result of these changes, but Australian exporters are being assured by experts in both countries that Chinese consumers are prepared to pay increased prices for quality Australian goods over their Chinese counterparts. Market analysis over the past month appears to support this opinion.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Briar Francis
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