China Implements VAT on Transport Charges

Any transportation charges that are paid in China are subject to 6% VAT from the 1st of August 2013.

There has been some uncertainty within the world of shipping surrounding The Ministry of Finance and the State Administration of Taxation(SAT) of the People’s Republic of China’s notice that the country will be implementing a 6% VAT charge on all transportation charges payable in China.  Shippo have done a lot of digging in order to clarify exactly what that means when it comes to the amount our customer pay to ship goods from China to the UK.

The policy itself (Cai Shui [2013] No. 37 (Circular 37), if you’re interested) concerns the Nationwide Implementation of a VAT Pilot Program for Transport and Modern Services Sectors jointly issued by the Ministry of Finance and the State Administration of Taxation in China.  This tax policy which is in effect from the 1st of August denotes that an additional 6% China’s Value Added Tax (VAT) will be added, in a compulsory fashion to any transport cost that is payable in China.

Can I claim it back on my VAT return?

No, sorry, it’s a Chinese tax paid to The Ministry of Finance and the State Administration of Taxation of the People’s Republic of China and therefore you can’t reclaim it.

How will it affect you?

If importing from China to the UK via sea freight using FOB shipping terms then you won’t be directly affected as the freight costs are routinely collected in the UK directly from the shipping lines. However, be aware that your supplier will be affected by the policy on their side so they may raise their FOB costs to you in turn. Sea Freight is routinely bought and paid for in the UK when using FOB shipping terms however Air Freight can be slightly different which could lead to air freight rates showing some change as a result.

Air Freight, by its very nature provides a quick solution to someone looking to import goods from China to the UK and this means that space on flights can be bought and sold at the drop of a hat as the lead time that exists with getting sea freight onto the ship isn’t nearly as much of a factor. This leads to the very best ‘spot’ rates often being bought locally at the Chinese airports as space becomes available. As these rates would be “payable in China” and then passed to the UK they would be liable to the 6% VAT. Even though this may well be the case Shippo don’t omit any foreseeable charges from our quotes so you wouldn’t have a nasty surprise when the goods landed as we’d include this cost in the quote if that was how we bought the air freight.

This is essentially a way of making extra cash and we know that first time importers don’t want the hassle or expense of dealing with Customs or EU trading registrations if they can get us to do that for them. It’s arguably good news both for entrepreneurs and the shipping industry in that both are seeing the advantages of using the other to boost business.

What about if I use Exworks or CIF/CFR shipping terms?

If you’re buying your goods from China on Exworks shipping terms (door-to-door) and you have to pay all of the Chinese Charges then you will be liable to the 6% VAT on the local Chinese charges but not on the costs from the freight onwards.

If you’re buying your goods from China on CIF shipping terms (your supplier sends the goods to a UK port) then you’ll be liable to 6% VAT on the whole cost.

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