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[Overview of processing trade]
Relationship between A and B: the signing of processing trade contracts. A provides raw materials, B produces and processes and delivers the finished products to A.Relationship between B and D: B is under the supervision of D including all matters like contracts for the record.
Relationship between B and C: B opens deposit account for C and pays for deposit security.
Relationship between B and E: B gives the commission to E for specific processing and recovers its products.
Relationship between B and F: B gives the cross-customs commission to F for processing. After processing, F can export.
B：B is the main body of processing trade. B signed foreign trade contract with A, and also owned close relationship with C, D, E, F, etc. to carry out processing trade contracts step by step.
D：D is the main substantive supervision body to regulate all links, all main bodies which related to processing trade contract.
G：If B, E, F sell raw materials or finished products which under the processing trade contract to the domestic market, D has the right to collect deposit and other taxes which have remained on hold.
ㅇProcessing trade refers to a basic structure of the foreign trade system that processing trade enterprises import raw materials from the commissioning party, process and then export the finished products to the commissioning party.
ㅇAs for import of raw materials, generally two types of systems are applicable depending on whether to pay tariff and other domestic taxes or not at the time of import:
One is collecting all taxes during importing of raw materials and refunding all taxes paid during exporting of finished products. (This so-called tax rebate system is applicable in Korea, Japan and other countries)
The other is that under scheduled export, payment of tariff is retained at the time of the import of specific goods, spare parts and raw materials (bonded). And after exporting, the tax exemption will be determined. (Also known as bonded and post-monitoring system) Because the import tariffs on raw materials are retained, the Government takes stringent regulatory system such as post-monitoring.
ㅇChina is taking the latter system more. (bonded and post-monitoring system)
In summary, the country which takes the bonded and post-monitoring system for importing of raw materials exempts taxes to lower the threshold to achieve the promotion of foreign trade. Therefore, the customs implement a strict post- monitoring system. China is no exception.
Enterprises engaged in processing trade must pay attention to these aspects, because all of the processing trade regulatory system is generated from above systems.
[Processing Trade and Bonded system]
< Relationship between Processing Trade and Bonded system >
■ China's processing trade
ㅇChina has a high proportion of processing trade among the foreign trade. Therefore, before the trading with China, understanding the overall structure of the processing trade is very important.
ㅇWith the development of economy, in order to improve the development of national industry, China gradually increases prohibited items for decreasing the proportion of processing trade. But until now, the proportion of processing trade among the foreign trade is still up to 40%.
< Relationship between Processing Trade and Bonded system >
ㅇProcessing trade is mostly using bonded system. Like two sides of the same coin, they have a close relationship with each other.
ㅇBonded taxes refer to retaining the payable tariff.
ㅇBonded goods are approved by the customs, without taxes paying in the first stage, import goods into the country, store, process and re-export after assembly. In order to ensure the taxes, the bonded goods are under strict supervision of the State.
ㅇBonded region refers to the regions that imported goods from abroad under the status of declaration pending can be entered.
ㅇProcessing trade refers to the enterprises import allor part of raw materials, parts, components, packaging materials, etc. under the bonded system from abroad (hereinafter referred to as "imported materials") after processing or assembly, the finished products will be re-exported. China is including processing with importedmaterials and processing with purchasing imported materials.
ㅇIn short, the main feature of the processing trade is under the bonded system for foreign trade. Therefore, we must understand the system of bonded goods and their characteristics, and also learn the generalcontent of supervision processes.
< Concept and characteristics of bonded goods >
■ Concept of bonded goods
Bonded goods refer to imported goods without the procedures for entry taxes which approved by the customs for storage, processing, assembly in the territory and re-export of goods. (Customs Law of China)
■ Characteristics of bonded goods
The Customs supervision for bonded goods and general imported and exported goods has a big difference both in time and place. "Expanding the scope of supervision" is the main features of bonded system.
☉ approval of Customs
Customs approval of bonded tax covers a wide range, including bonded warehouses, bonded factories, bonded groups approved the Customs.
Customs approval also covers the processing trade contract record and processing trade manual. Although the bonded region and Export Processing Zone are approved by the State Council, but the specific approval of bonded imported goods is under the supervision of customs.
☉ Supervision of goods
In "Customs Law", bonded goods refer to imported goods without the procedures for entry taxes which approved by the customs for storage, processing, assembly in the territory and re-export of goods. Therefore, since the date of entry, the whole process is under the supervision and management of customs.
Because the bonded goods are under the supervision of, so without Customs’ permission it is not allowed for opening, extraction, delivery, shipping, exchange, modification, mortgage, pledge, retention, transferring, or replacing of the logo for other purposes. (General Administration of Customs No. 182 Chapter 2 Regulation 9)
According to the "Customs Law" on the definition of bonded goods, after storage, processing and assembly, the bonded goods should be re-exported. Without exporting, the characteristics of bonded goods are lost, and it is no longer bonded goods.
< Bonded system>
In accordance with national laws, administrative regulations, policies and regulatory documents, bonded system are a series of bonded verification and clearance process for approval of imported bonded goods, suspend taxes, regulatory and expanding supervision. The features as below:
■ Bonded approval
For import and export goods in general, the customs do not have the right of permission but have the right of approval.
But for bonded goods, the customs not only have the power of review, but also have the power of approval. Bonded goods are determined by customs in accordance with national laws, administrative regulations and policies. With the approval of the Customs, goods can be imported as bonded goods, which is an obvious feature of the system.
Approval for bonded need to possess below 3 conditions:
(1) Legal business operationLegal business operation refers to applied goods, application form and applicants are not part of the scope of national prohibition, and have obtained permission from relevant authorities, and with legal import and export certificate.(2) Re-exportApplication for re-export of bonded goods should contain a clear flow, from entry storage, processing, assembling to re-export, and the same flow shall be found through proof documents for the application bonded.
(3) Supervision availableSupervision available refers to the bonded goods in import and export, or in the post-entry storage, processing and assembly links are under the supervision of customs. It will not cause losing supervision control for some irrational factors.
■ Tax collection suspension
Tax collection procedures contain collection procedures and tax reduction and exemption procedures.
General imported goods and specific tax relief goods are required to process tax collection procedures for customs entry. After the procedures of tax collection or tax reduction and exemption, the goods can be imported.
On the contrary, without tax collection procedures of customs, bonded goods can also be shipped for exit. Procedures for tax collection procedures of bonded goods are after final determination of the re-export of finished goods or bonded goods determined not to be re-exported because of the change of bonded goods’ nature.
In short, by delaying tax collection, the bonded goods willachieve the economic effects of tax collection suspension.
■ Extension supervision
For general imported and exported goods, customs supervision time starts from the entry of goods to release date of customs clearance; export of goods from the customs declaration to the exit date, the place of supervision is port of entry and exit.
In contrast, according to the time and place, customs supervision for bonded goods can be divided as below: On time, since the bonded goods entering the country, storage, processing, assembly and re-export or normal import procedures caused by changing the nature of bonded goods are all under the customs supervision.On place, the supervision regions of bonded goods are not only import and export port, but also including all the places for storage, processing, assembly, etc.
■ Write-off and Customs clearance
General import and export goods will be released from supervision after customs clearance.
On the contrary, bonded goods after write-off or customs clearance can be released from supervision. That is, only the finishing of write-off stands for customs clearance.
Before bonded goods entering the country, the customs accept applications for bonded goods and approve the conditions of bonded goods in accordance with national regulations. After approval of entry, storage, processing, assembly and re-export, write-off system, the goods can be released from supervision, which is called as the write-off management.
< Supervision of Bonded system >
■ Bonded supervision objects
Customs bonded objects of supervision are bonded import goods approved by the customs.
■ Bonded supervision period
Bonded supervision period contains two parts: one part is the bonded period approved by the customs on imported goods; the other part is write-off and customs clearance period by the owners of bonded goods.
☉ The bonded permission period
Bonded permission period refers to after the approval by the customs, the limit period for the storage, processing and assembly in the territory. The starting date is on the date of import customs clearance, the deadline for the bonded permission at the end day.
Bonded permission period of processing trade is more complex. In principle, the bonded period is one year and may be extended up to one year more with approval. Please note that the specific contents of contract and imported materials and parts will determine the bonded permission time.
①For non-counterpart imported materials of processing trade with the import contracts of raw materials, but not signed export contracts, in general the bonded period starts from the date of import of raw materials up to one year and can be applied for extension twice which may be extended up to six months.
②Import of raw materials and finished products export contracts contain imported counterpart materials and supplied materials, in general the bonded period starts from the date of import of raw materials to the export shipment date up to one year and can be applied for extension twice which may not exceed six months.
Customs approved bonded period is actually the period approved by the customs for enterprises processing business procedures for import tax collection limit, so the deadline is both re-export and the date of write-off and the date for the normal import procedures.
After exceeding this period, and without processing customs procedures in 3 months, according to regulations of "Customs Law", customs have the right to sell the goods for offsetting related to fees of transportation, unloading, storage and other fees and taxes and interests. After deducting related expenses, if with the remaining funds, they will be returned to the consignee or owner within one year of the sale.
☉ Period for write-off application
The period for write-off application refers to the deadline that enterprises of bonded goods submit application for write-off to Customs. The specific write-off period can be divided into bonded area write-off period, bonded warehouses write-off period and processing trade bonded write-off period.
Processing trade bonded write-off application is based on "Processing trade manual" for the application the application deadline is ① the last 30 days within bonded period approved by customs or ② the last 30 days after the export of goods.
The period for write-off application is a statutory period, if the enterprise fails to apply for write-off within this period, according to the regulations; customs is entitled to take appropriate measures to ask for taxes and related penalties, and to stop the bonded permission.
■ Bonded supervision process
Bonded goods supervision and general supervision of import and export goods have a great difference on the process.The general supervision of import and export goods mainly lies on customs procedures for import and export goods processes as reviewing materials first, followed by inspection, taxation and customs clearance.
While, three major aspects for Bonded goods supervision process: Record and approval for bonded first, followed by the import and export customs clearance, and finally to write-off closing.