Effective from January 1, 2022, Cambodia-China Free Trade Agreement (CCFTA) stands as a testament to their robust economic relationship. This milestone agreement sees over 90% of trade goods enjoying zero tariffs. In 2022, Cambodia experienced a surge in trade with China, its largest export destination. Tallying up to a staggering US$1.24 billion, China absorbed 5.5% of Cambodia's export pie, General Department of Customs and Excise revealed. In the same breath, Cambodia imported goods worth US$10.4 billion from China, which made up a whopping 34.1% of its total imports.
Delving deeper, Cambodia's primary exports to China were essentials like milled rice, bananas, and apparel, while imports ranged from raw garment materials to machinery and electronics. For Cambodian businesses eyeing this flourishing trade opportunity, getting one key aspect right is crucial: China's customs guidelines.
Navigating the China import customs clearance process smoothly can be the key to tapping into this golden era of Cambodia-China commerce. We elaborate further in our export guide.
1. Cost of shipping to China: Import fees
When it comes to the cost of international shipping to China, understanding the various import fees is crucial for businesses. These fees encompass four primary categories:
- Customs duty
- Value-Added Tax (VAT)
- Consumption Tax (CT)
- Cross-border e-commerce tax
China customs duty rates
For Cambodian businesses aiming to export to China, it's essential to be aware of the multiple customs duty rates that China imposes. These rates are mainly determined by the value or quantity of goods being shipped. Here's a breakdown:
General duty rates
Products between two countries not governed by any specific agreement fall under this category. However, given the robust bilateral relationship between Cambodia and China, Cambodian products usually aren't subjected to general duty rates when entering China.
Most Favoured Nation (MFN) duty rates
MFN duty rates are what countries commit to when dealing with fellow World Trade Organisation (WTO) members unless there's a distinct FTA in place. Notably, China slashed import tariffs on 954 products in January 2022, which include medical and environmental products. MFN duty rates predominantly apply to:
- Goods imported from WTO member countries
- Products from countries with bilateral trade pacts that include MFN treatment with China
- Goods that originate from China itself
As a part of the Regional Comprehensive Economic Partnership (RCEP), the world's most extensive free-trade agreement, Cambodia enjoys preferential trade and tax benefits with China, including reduced MFN import tariffs.
Conventional duty rates
Specific to goods coming into China from nations having regional trade accords granting favoured import tax rates. This includes the China-Cambodia Free Trade Agreement.
Special preferential duty rates
These rates are typically lower than the MFN or conventional duty rates. They're designed for goods from nations that have special preferential duty agreements with China.
Tariff Rate Quota (TRQ) duty rates
With TRQ, goods that are imported up to a specified quota are taxed at a reduced rate. Any imports exceeding the quota are subjected to higher tariffs when entering China. This pertains to eight goods categories: wheat, corn, rice, sugar, wool, cotton, and fertiliser.
Temporary/provisional duty rates
China occasionally introduces these rates to encourage imports and cater to growing market demands. Starting January 1, 2023, China will launch provisional import tariffs on 1,020 items. These tariffs will be more favourable than the MFN rates. They will include:
- Medical: Zero tariffs for certain raw materials for medical drugs, including those for cancer and COVID-19. These also apply to medical supplies such as dentures, raw materials for vascular stents, and contrast agents.
- Consumer goods: Reduced tariffs in alignment with contemporary consumption trends, including various foods such as cashew nuts and infant food, and small household gadgets like juicers and coffee machines.
- Manufacturing: No tariffs for specific resources like potash fertiliser and raw cobalt, alongside reduced tariffs for certain woods, paper products, and more.
- Electronics/industrial: Lower tariffs to foster advanced manufacturing's innovative development, such as lithium niobate, electronic ink screens, iridium oxide for fuel cells, roller bearings for wind turbines, and other products.
Value-Added Tax (VAT)
For Cambodian businesses keen on exporting to China, understanding the country's VAT system is crucial for cost calculations and price competitiveness.
China's VAT system bifurcates taxpayers into two primary categories: general and small-scale taxpayers. The general taxpayers, with an annual taxable turnover exceeding ¥5 million, are liable to pay a VAT ranging between 9% to 13%. Small-scale taxpayers, however, with an annual taxable income below ¥5 million, are typically charged a 3% VAT. But noteworthy changes have been recently introduced:
VAT exemption
From January 1, 2023, to December 31, 2027, small-scale taxpayers with monthly sales below ¥100,000 do not need to pay VAT. Put differently, such taxpayers will not incur any VAT if their quarterly sales don't surpass ¥300,000. In situations where small-scale taxpayers have total monthly sales exceeding ¥100,000, yet, after discounting real estate sales for that period, the figure is less than ¥100,000, they're exempt from VAT for the sale of goods, labour services, services, and intangible assets. However, they do have the option to relinquish this VAT exemption, and issue specialised VAT invoices for certain sales.
VAT reduction
For the existing small-scale taxpayers, previously liable to a 3% VAT, there's a reduction. They will now be levied at a rate of 1%, and those items under a 3% VAT prepayment rate will enjoy a trimmed prepayment rate of 1%.
For Cambodian businesses with a business presence in China, here's a basic framework to calculate potential VAT:
General taxpayer VAT
General taxpayer VAT | Small-scale taxpayer VAT |
VAT Payable = (Sales* x VAT Rate) - Input VAT** * “Sales” refers to income received by the taxpayer excluding the VAT incurred [Sales Including Output VAT / (1 + VAT Rate)] | VAT Payable = Sales* x VAT Rate * “Sales” refer to income received by taxpayer excluding VAT incurred [Sales Including VAT / (1 + VAT Rate)]> |
Consumption tax
For Cambodian businesses entering the Chinese market, grasping the consumption tax nuances can be a game-changer. Consumption tax in China is specifically targeted at entities that either manufacture or import taxable products for processing, consignment, or direct selling.
The rationale behind this tax is manifold. Firstly, it's imposed on imported products that are potentially detrimental to human health. This encompasses items like tobacco and alcohol. Secondly, luxury or premium goods like jewellery, cosmetics, and even certain automobiles like cars and motorcycles come under this tax. The idea is to control the excessive consumption of luxury and environmentally harmful items.
Now, the consumption tax rates are not uniform; they diverge based on the specific product category. To navigate these rates, businesses have a few methods at their disposal:
Ad valorem method
Ad valorem method | Quantity-based method | Compound tax method |
Consumption Tax Payable = Taxable Sales Amount × Tax Rate This approach essentially links the tax directly to the value of the product in question. | Consumption Tax Payable = Taxable Sales Quantity × Tax Amount per Unit Instead of the product's value, this method pegs the tax to the quantity of products sold or processed. | Consumption Tax Payable = (Taxable Sales Amount × Tax Rate) + (Taxable Sales Quantity × Tax Amount per Unit) A combination of the two aforementioned methods, it is used for products where both value and quantity play a role in determining the consumption tax. |
Cross-border e-commerce import tax
Engaging in e-commerce with China brings with it certain tax implications. For Cambodian businesses, it's crucial to understand that products bought from entities either registered within China's e-commerce framework or located overseas aren't exempt from taxes. These goods are liable for customs duties, VAT, and consumption tax.
Yet, there's some relief: if a shipment's value is under ¥2,000 and the yearly accumulated value doesn’t exceed ¥20,000, customs duties are waived. However, it's not an all-clear.
Even such shipments are levied VAT and consumption tax, but at a reduced rate, amounting to 70% of the usual tax imposed through general trade channels.
