China is the world’s second largest consumer market, offering lucrative opportunities for businesses to increase sales and boost revenue. It’s no surprise then that the country is also Indonesia’s top trading partner. In 2021 alone, businesses have exported US$53.7 billion worth of goods to China, making up close to a quarter (23.5%) of Indonesia's total exports for the year.
By exporting to China, Indonesia businesses can grow their e-commerce presence and gain a competitive edge in global trade. When exporting to China, however, there are certain rules and regulations you must follow. We discuss them below.
1. Customs duties and taxes in China
China and Indonesia enjoy strong bilateral trade relations, reinforced by the establishment of a free trade agreement (FTA) between China and ASEAN – the ASEAN-China Free Trade Area (ACTFA) in 2010. Under this FTA, 7,881 product categories – which make up 90% of imported goods – enjoy zero tariffs.
That said, you are advised to be familiar with China's customs law by understanding the several taxes and import duties required when trading with China. You may check in with your international courier service provider if you have further enquiries on whether your goods will be subjected to these.
Value-added tax
The People's Republic of China imposes a value-added tax (VAT) on imported goods. Goods categorised as agricultural, real estate, transportation and postal items are subject to 9% VAT. For manufactured goods, which most imported goods fall under, the VAT is 13%. The VAT is calculated based on the total price of the imported goods, plus import duties, consumption tax, and any other taxes:
Import VAT = (Price of imported goods + Import duty + Consumption tax + any additional duties) x VAT rate
Consumption tax
Consumption tax is imposed on taxable products, typically luxury consumables like jewellery, cosmetics, products considered harmful to public health, such as tobacco, cigarettes and alcohol, as well as high-end products including passenger cars and motorcycles. The consumption tax rate varies based on the type of product entering China. It can be computed based on the sales amount.
Import duties
China also levies import duties on products that enter the country. These include:
Most-favoured-nation (MFN): MFN tariffs are applicable to goods imported from World Trade Organisation (WTO) member states that follow MFN treatment clauses. The same tariffs will also apply on imports from countries that have bilateral trade agreements containing MFN provisions with China. Any imports that originate from China will also be subject to MFN tariffs. However, according to Global Times, China has recently introduced a provisional import tax rate for 1,020 commodities starting from January 1 2023. Indonesian consumer products imported to China, such as infant food, coffee machines, home appliances and hair dryers, for example, will enjoy reduced import tariffs.
- Conventional duty rates: These are applicable to goods imported from countries with which China has FTAs and preferential trade agreements. Conventional duty rates are lower than MFN duties. With the Regional Comprehensive Economic Partnership (RCEP), which both China and Indonesia are part of, local exporters can enjoy further tariff reductions.
- Special preferential rates: These are levied on goods from countries that have trade agreements with China containing special preferential duty provisions. Special preferential duty rates are typically lower than conventional duty and MFN rates.
- Tariff rate quota (TRQ) duty rates: Under these, goods enjoy lower tariffs if they are within a specific quota. However, if the product is imported in quantities that exceed this quota, they incur higher rates. TRQ rates apply to the following categories of goods:
- Wheat
- Corn
- Rice
- Sugar
- Wool
- Cotton
- Fertiliser
- General duty rates: These rates apply to goods shipped from countries with which China has no trade agreement, or for which the country of origin is unknown.
Other duties
According to China’s export regulations, other duties may also be applicable, such as when the government feels that the imported goods are priced below their fair market value. To protect its local industries, therefore, the government may impose anti-dumping or safeguard duties. China also imposes some retaliatory tariffs on countries that violate trade agreements.
2. Taxable and non-taxable goods
China does not levy import duties on goods valued below the minimum threshold of CN¥50. For all other products, duties are applicable depending on the type, value, or quantity of goods being imported.
3. Prohibited and restricted goods
China customs also impose prohibition and restrictions on certain goods entering the country. We map them below:
Prohibited goods
Goods prohibited from entering the country include:
- Arms
- Ammunition
- All types of explosives
- Counterfeit currency
- Materials detrimental to political, economic, cultural and moral interests of the people
- Lethal poisons
- Communications equipment
- Illicit drugs
Restricted goods
Restricted goods typically require a licence or certification as a form of approval by a competent authority. These include:
- Alcohol
- Tobacco
- Gold and silver products
- Toxic chemicals that are severely restricted by the country
4. Customs clearance in China
To clear customs checks at borders, importers must follow China’s customs clearance procedures and prepare the necessary documents. The Chinese import customs clearance process involves the following steps:
- Documentation: You must ensure the required documents are ready before exporting out of Indonesia. These include the commercial invoice, bill of lading, air waybill, customs declaration, insurance, sales contract, and licences certifying safety and quality. As per procedure, these documents should be submitted to the Chinese customs officers.
- Calculation of duties & taxes: The importer must pay the customs clearance fee to clear the goods.
- Customs declarations: Importers may make customs declarations in advance, by providing the description, specifications, and the number of imported goods, prior to their arrival. In such cases, Chinese customs authorities will examine the goods on arrival and release them immediately as they were provided with the necessary information in advance. This speeds up the clearance process.
Planning your customs clearance on your own is possible, but relying on a trusted international logistics service provider can help to streamline and smoothen the process for you. With DHL Express, you get to enjoy various logistics solutions and services when exporting to China, including digitalised tools when preparing customs documentation and access to the latest regulatory changes in the customs world. Why not create a DHL Express account today and find out how we can help you?
