A Quick Guide On China's Customs Import Tax & Duty Rates

China and Malaysia are two countries with strong bilateral ties. For more than thirteen consecutive years, China has been the Southeast Asian country’s largest trading partner. Even after the global pandemic, Malaysia continues to be one of China's main trading partners in ASEAN exceeding RM880 billion in 2022.

Agricultural products such as tropical fruits like durians remain a hot favourite for China consumers. During the 2020 China-Malaysia (Guangxi) online durian festival in Qinzhou, a whopping 300,000 Musang King durians were sold in less than an hour, reports the South China Morning Post.

This bodes well for such businesses in Malaysia seeking opportunities in the Far East. However, apart from simply understanding the commercial landscape, it is also important to learn more about the types of import tax payable when shipping into the country.

Types of Import Fees

There are three main types of import duty when shipping goods from an originating country to China:

• Customs duty;

• Value-Added Tax (VAT); and

• Consumption Tax (CT).

The tax rates and who has to pay them generally depend on the types of commodities, origin country and the shipping mode. Find out more about the costs below.

China Customs Duty Rates

Like Malaysia, China tabulates its customs duty payable based on ad valorem rates or according to the quantity of the goods shipped. The categories are further divided into the following:

1. General duty

Currently, China has 17 Free Trade Agreements (FTAs) with trade and investment partners around the world. Through ASEAN, Malaysia is one of the countries that have established regional free trade with China. As such, general duty rates would typically not be levied on goods entering from Malaysia.

The general import duty is applied to imported goods that originate from countries or territories that are not covered by any agreements or treaties with China, or if the place of origin is unknown.

2. Most Favoured Nation (MFN) duty

Like its name suggests, the MFN duty refers to the rates nations promise to use with other members of the World Trade Organisation, unless there is a unique trade arrangement between them. According to an article by China Briefing, since January 2022, China has lowered import tariffs on 954 products including anti-cancer drugs and medical products, environmentally-friendly manufacturing components and mineral resources – among others. MFN duty is usually applied to the following:

• Goods imported to China from WTO member countries;

• Goods originating from countries or territories with concluded bilateral trade agreements with the provision of MFN treatment with China; and

• Goods originating from China.

The Regional Comprehensive Economic Partnership (RCEP) is the world’s largest free-trade bloc and members will enjoy preferential trade and tax benefits with China such as the lowered MFN import tax rates. Malaysia is a signatory state of the RCEP and will also get to enjoy low import fees from relevant exports to China.

Conventional duty

Conventional duty rates are applied to goods which are shipped to China from countries or territories which have regional trade agreements containing preferential provisions on import tax rates. 

Special preferential duty

The import fees payable under the special preferential duty is generally lower than the MFN or conventional duty rates. They are usually levied on imported goods which originate from countries or territories with trade agreements containing special preferential duty provisions with China.

Tariff Rate Quota (TRQ) duty

China’s TRQ rates apply to eight categories of goods, namely:

• Wheat;

• Corn;

• Rice;

• Sugar; 

• Wool; 

• Cotton; and

• Fertiliser.

Under the TRQ schemes, goods imported within the quota are subject to a lower customs tariff rate while those above the quota are charged with higher rates.

Temporary duty

Periodically and according to market movements and predictions, China also implements temporary duty rates to boost imports and meet rising demands. For example, since the start of the year, China has raised the tariff rates on pork imports when domestic prices surged greatly. 

Value-Added Tax (VAT) rates

Like the Malaysian Sales and Services Tax (SST), VAT is levied on imports from any location into China. The standard VAT rate in China is 13%, and it applies to all taxable goods except agricultural and utility items. For these a 9% VAT rate is applicable instead.

The import VAT can be calculated based on the following formula:

Import VAT = Composite Assessable Price × VAT Rate

                     = (Duty-Paid Price + Import Duty + Consumption Tax) × VAT Rate

                    = (Duty-Paid Price + Import Duty) / (1-Consumption Tax Rate) × VAT Rate

Consumption Tax

CT is imposed on companies and organisations that manufacture and import taxable products for processing under consignment or selling. They include products that can be harmful to one’s health such as tobacco or alcohol, high-end or luxury items such as jewellery or cosmetics, and automobiles such as motor cars or motorcycles. 

For such goods, the CT rate varies according to the type of product. Calculating consumption tax can be done by using either the ad valorem method, quantity-based method, or the compound tax method. The formulas to compute the consumption tax are as follows:

• Ad valorem method

Consumption Tax Payable = Taxable Sales Amount × Tax Rate

• Quantity-based method

Consumption Tax Payable = Taxable Sales Quantity × Tax Amount per Unit

• Compound tax method

Consumption Tax Payable = Taxable Sales Amount × Tax Rate + Taxable Sales Quantity × Tax Amount per Unit

Other types of import tax

Apart from those mentioned above, there are a few other types of duties to consider when shipping to China. For instance, the Cross Border e-Commerce import tax is applicable to:

• Goods purchased from merchants registered within China’s cross border e-commerce network; and

• Goods purchased from overseas merchants and shipped by a courier company that can produce a commercial invoice, airway bill and proof of payment, and that can be legally responsible for the import.

Personal imports like these, with a Customs Value (CIF – Cost, Insurance & Freight) of up to ¥5,000 (approximately RM3,299) and an accumulated transacted value of not more than the personal annual limit of ¥26,000 (approximately RM17,157), are exempted from import duty. They are, however, subject to 70% of VAT and CT rates.

Imports that cross these limits will be subject to the duties and taxes, where applicable. 

A Bright Future with China

In March 2021, China’s 14th five-year plan (FYP), covering the years 2021 to 2025, was officially enacted with the promises of strengthening economic, social and environmental pillars to achieve strong development. China's ambassador to Malaysia, Ouyang Yujing, also said, “China will continue to encourage interested Chinese enterprises to invest in Malaysia, and vice versa. China is also willing to work with Malaysia to safeguard the multilateral trading systems with the World Trade Organisation at its core as well as the regional free trade agreements including RCEP, and to foster an open world economy.”

For businesses in Malaysia, opportunities seem aplenty in the ever-expanding e-commerce landscape in China. To stay ahead of the curve, merchants should find ways to adapt to the challenges of doing business in a world where changes are constantly happening. One way to do so is to partner with the right global logistics partner which will be able to plug any gaps in the go-to-market strategy while removing the fixed cost burden which traditionally lies on retailers.