The Chinese Ministry of Finance announced a new set of regulation affecting cross-border purchases. The new rules will take effect on the 1st of January 2019.

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The main change of the new regulation is the increase of the cut-off amount for tax-free cross-border purchases:

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• Single-transaction amount increased from 2,000 RMB (256 EUR) to 5,000 RMB (641 EUR)

• Yearly amounts of cross-border purchases increased from 20,000 RMB (2560 EUR) to 26,000 RMB (3333 EUR)

 

According to the existing CBEC policy, on the condition that a single transaction value is under RMB 5,000, and the annual transaction value is within RMB 26,000, the import tariff rate is fixed at 0%, and at the same time, the import VAT and consumption tax enjoys 70% of the tax payable.

 

Therefore, the CBEC tax rate is calculated as below:
CBEC Comprehensive Tax Rate = [(VAT rate + Consumption tax rate) ÷ (1 – Consumption tax rate)] × 70%

 

Starting from April 1st 2019, China’s VAT rate was updated as follows:

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• Manufacturing sector (including imported goods): dropped from 16% to 13%

• Construction and transport: dropped from 10% to 9%

• Services: remained at 6%

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This reduction of VAT tax will significantly impact the tax rate of CBEC:

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• For most products (with 0% consumption tax), the CBEC integrated tax is lowered from 11.2% to 9.1%

• For high-end cosmetics, CBEC integrated tax rate is lowered from 25.53% to 23.05%

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*High-end cosmetics refers to products with an after-tax wholesale import price above 10 RMB/ml(g) or 15 RMB/piece.  

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Here is a list of CBEC integrated tax rate for each product category (in Chinese).

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In practice, this reform opens the cross-border market for a lot of luxury retailers with products in the 2,000 to 5,000 RMB range. For industries such as high-end fashion and cosmetics which strongly appeal to Chinese cross-border buyers, this is a game-changing move.

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But on the condition that a single transaction exceeds RMB 5,000 or/and the annual transaction value beyond RMB 26,000, the products imported via CBEC should be subject to the same rates of the taxes under general trade mode, i.e. cannot enjoy the 0% import tariff, and no more 70% VAT and consumption tax rate.