China: Tariff exemption for imported materials processed in Hainan Yangpu Bonded Zone for domestic sales

New guidance concerning tariff exemption for imported materials processed in Hainan Yangpu Bonded Zone for domestic sales.

New guidance concerning tariff exemption for imported materials

The General Administration of Customs in July 2021 issued new guidance concerning a preferential measure (originally announced in 2020), under which imported goods that are processed further in the Hainan Yangpu Bonded Zone are exempt from import tariff when they are then further sold to other areas in China as domestic sales.

The guidance—known in English as “Interim Measures on Taxation on Domestic Sales of Processing Value-added Goods in Yangpu Bonded Zone” (Shu Shui Han [2021] No. 131—covers enterprises in “encouraged industries” when over 30% of the value-add (i.e., mark-up on materials from outside the zone) is generated in Hainan. Import value added tax (VAT) and consumption tax will still need to be paid. 

In parallel, the Haikou Customs Office has also issued implementation rules. This preferential policy is a key element in the June 2020 overall plan for the construction of the Hainan Free Trade Port and is intended to foster manufacturing and integrate Hainan into regional value chains. 

KPMG observation

The preferential policy will reduce the tax burdens of relevant enterprises and is intended to make their products more price competitive, though regard must be had to the following requirements.

Relevant enterprises (all criteria must be satisfied)

Fall within “encouraged 
industries” catalogue

Relevant goods

Goods processed in the zone without imported materials

Registered in the zone

A legal entity

Goods using imported materials and with 30% or more value-added processing in the zone

Make record filings with Yangpu Economic Development Zone management committee


Specific requirements are as follows:

  • Enterprise falls within Hainan Free Trade Port “encouraged industries” catalogue: Main enterprise businesses must be listed in the catalogue and revenue from “encouraged industry” businesses must be at least 60% of the total.
  • Imported materials: Refers to bonded goods imported from overseas.
  • 30% value-added processing threshold: The guidance gives consideration to (1) the value of all imported materials and (2) domestic materials purchased from outside the zone (elsewhere in China). The value-added manufacturing or processing must meet or exceed a 30% threshold (a 30% mark-up on materials from outside the zone). The policy caters to the circumstance when goods under processing pass between several enterprises in the zone in the course of this processing.


For more information on this topic or to learn more about KPMG’s Trade & Customs Services, contact:

Doug Zuvich |+1 312-665-1022 | dzuvich@kpmg.com

 

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.