Top Questions Asked About Product Exporting in China - Section 1

In this blog, Hongda will cover the most frequently asked questions about carrying out exporting business with a company in China. Companies already doing business in China might learn a lot, but the suggestions and insights are also efficient for anyone considering entering the Chinese market. 

Hongda is happy to present our new blog series: Top 10 Q&As! In this blog section, we would like to further illustrate to our foreign customers how to deal with matters of business, work, financials, and taxes in China. In each issue, we will summarize the top ten questions and provide detailed answers to the difficulties you may face! In this blog post, we will provide the top ten FAQs about operating a business in China. Also, if you are interested in our other blogs in this series, please click on the titles under here for access to them!

• Most Questions Asked About Chinese Working Visa
• Common Q&As About Doing Business in Hong Kong
• Top 10 Q&As About Doing Business in China

Conducting import and export trade business in China is a complex topic that involves various aspects such as company registration, financial settlement, and store management. In order to provide you with as much information as possible about China’s import and export trade, we have broken down and categorized the most frequently asked questions we receive. In this blog post, we will focus on the basic background knowledge and how you can leverage Free Trade Zones to enhance your business advantages. And in the section 2, we will inform you about payment and international settlement. Let's start!

Question 1: What Goods Cannot Be Imported into China?

According to Chinese laws and regulations, certain goods are strictly prohibited from being imported into the country. These include:

• Weapons, ammunition, counterfeit currency, and hazardous chemicals.
• Pirated books and audio-visual products.
• Specific types of solid waste and untreated waste materials.
• Endangered animal species (without proper permits) and certain genetically modified organisms.

For a detailed list, please refer to the ‘Catalogue of Prohibited Import Goods" and "Catalogue of Goods Subject to Import and Export Inspection’, which you can find from the official reference website here.

Question 2: Can Foreign-Invested Enterprises in China Remit Legal Foreign Exchange Income Abroad Through Banks?

Yes, you can. Foreign-invested enterprises, such as WFOEs, are permitted to conduct business in China, earn profits, and remit those profits to overseas accounts. However, due to China’s foreign exchange control policies, companies must comply with specific requirements to ensure the process is legal and seamless.

• Legitimate Income: You must provide evidence that your income is derived from lawful business activities. This typically includes commercial contracts, invoices, and tax receipts to prove the authenticity and legality of the transactions.
• Tax Compliance: Only profits remaining after the relevant taxes are paid can be remitted overseas. These taxes include value-added tax (VAT) and corporate income tax. Companies must file the necessary tax returns for each income stream before transferring funds.
• Successful Bank Review: The remittance process must go through a bank qualified to handle foreign exchange settlements. Banks will review your documentation and report the transaction to the State Administration of Foreign Exchange (SAFE). Companies need to cooperate with the bank to complete these formalities.

Common forms of remittance for FIEs include dividend payments, procurement payments, or service fees. For a more detailed guide on profit remittance, please check out our blog: How to Repatriate the Profits Earned in China to Overseas!

Question 3: What Goods Are Eligible for Duty Reduction or Tax Refund in China?

To promote trade development, support key industries, and enhance international cooperation, China has implemented a variety of duty reduction and tax refund policies. These benefits apply to specific categories of goods and businesses that meet the eligibility requirements.

1. Duty Reduction:

• Goods for Specific Purposes: Items such as scientific research equipment, educational tools, government-donated materials, or disaster relief supplies can qualify for duty exemptions upon approval by relevant authorities.
• Goods Imported into Special Economic Zones: Products entering bonded zones, free trade zones (FTZs), or other designated areas may benefit from reduced or even waived tariffs, offering significant cost advantages to businesses operating in these zones.
• Goods from Free Trade Agreement (FTA) Countries: Imports from countries or regions that have signed FTAs with China may enjoy preferential tariff rates as per the agreements' terms.

2. Tax Refund Policies

• Processing Trade Goods: Companies, especially those registered in free trade zones (e.g., Hainan FTZ), can apply for refunds on import duties if the imported materials are used to manufacture goods that are subsequently exported.
• Export Tax Refunds: Certain manufacturing products are eligible for refunds of value-added tax (VAT) after being exported, reducing the overall tax burden and enhancing international competitiveness.

Question 4: Can Offshore Trade Be Conducted in China? How Should It Be Operated?In China’s specific free trade zones (e.g., Shanghai Free Trade Zone, Shenzhen Qianhai, Hainan Free Trade Port, etc.), offshore trade operations are legally allowed. This form of trade allows enterprises to engage in international trade settlements through Chinese entities without goods entering mainland China. The key features of offshore trade include:

• Goods Do Not Enter China: The goods involved in the transaction are directly traded and circulated outside China, without passing through Chinese ports or warehouses.
• Settlements through Chinese Accounts: Companies can open foreign currency accounts within China’s free trade zones to handle international payments and receipts.
• Tax Benefits: Offshore trade typically does not involve China’s VAT (Value-Added Tax), and companies only pay corporate income tax on trade profits.

The steps involved in setting up offshore trade operations generally include:

• Register a Company: Set up an entity in one of the free trade zones that support offshore businesses, such as a WFOE (Wholly Foreign-Owned Enterprise) or JV (Joint Venture).
• Open a Foreign Currency Account: After registration, the company must open a foreign currency account at a designated bank for handling offshore transactions. This account must comply with the State Administration of Foreign Exchange (SAFE) regulations, supporting legal foreign currency flows.
• Trade Compliance: Ensure all transaction documents (contracts, invoices, logistics documents) are complete to meet banking and tax regulatory requirements.
• Tax Management: Offshore trade typically does not require VAT payment, but corporate income tax must be paid based on actual profits. Companies must maintain clear accounting records and complete regular tax filings.

Question 5: How to Leverage China’s Free Trade Zones for Import and Export Operations?As of November 2024, China has established 22 Free Trade Zones (FTZs) across the country, with some, like Shanghai, Shenzhen Qianhai, and Hainan, already well-known to global investors. If you're interested in learning more about these regions, you can click on the city names above to visit our past city introduction blogs.

Through these FTZs, your company can enjoy the following benefits when conducting import and export operations:

1. Tariff Benefits

• Deferred Tariffs: Goods entering the FTZ can benefit from deferred tariffs, and some exported products may enjoy faster VAT refund procedures.
• Bonded Storage and Processing: Bonded storage and processing models reduce costs for businesses.

2. Simplified Processes

• One-Stop “Single Window” Service: This service reduces the time and complexity of customs procedures and clearance.
• “Import First, Clear Customs Later”: The flexible “first-in-zone, then customs clearance” model allows for quicker customs clearance of imported goods.

3. Foreign Exchange Management Facilitation

• Relaxed Foreign Exchange Policies: FTZs offer more relaxed foreign exchange policies, allowing free exchange of RMB and foreign currencies.
• Cross-border RMB Settlements: Support for cross-border RMB settlement helps reduce the risks of exchange rate fluctuations.

4. Tax Benefits

• Corporate Income Tax and VAT Incentives: Special tax benefits are available, particularly for high-tech, financial, and service-oriented businesses operating within the FTZs.
  
  

Hongda believes that you have obtained the fundamental knowledge to expand your international trading business in China. If you found this interesting, please keep reading Section 2 of the most frequently asked questions about exporting and importing products in China through this link:

Top Questions Asked About Product Exporting in China - Section 2