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[Introduction of the processing trade]
< Definition of processing trade >
■ Definition of processing trade
Processing trade refers to the enterprises import all or part of raw materials, parts, components, packaging materials, etc. under the bonded system from abroad(below as imported materials). After processing or assembly, the finished products will be re-exported.
China’s processing trade includes processing trade with supplied materials and processing with imported materials.
■ Characteristics of processing trade goods
☉ The beginning and end flow of goods are overseas;
Import raw materials from abroad and re-export after processing. (Two outsides)
☉ Increasing value of goods by processing
The processing trade contract enterprises has signed aims to increase the value of imported materials and parts through processing and to obtain the difference or processing fees.
☉ Bonded raw materials
Imported materials and parts under the supervision of customs can enjoy the tax suspension. The system of bonded materials and parts can not only reduce operation costs, but also increase the competitiveness of export costs.
< Main regulations in field of bonded processing >
■ Basic laws on bonded processing supervision
The main regulations for bonded processing trade as below:
■ Administrative laws and regulations for bonded processing supervision
The basic law for the implementation of bonded processing supervision is "Customs Law"; Customs has developed the following four basic systems for effective management of processing trade.
ㅇCustoms record system
ㅇMaterial quantity applied per unit approved system
ㅇExport write-off system
ㅇDomestic sales tax system
■ Administrative laws and regulations for bonded processing supervision
ㅇ"Regulations for the Implementation of Customs Administrative Punishment of China"
ㅇ"Import and Export Tariff Regulations of China"
ㅇ"On illegal domestic sales of processing trade bonded goods or transfer Punishment Measures of China"
ㅇ"Processing trade Material quantity applied per unit Administrative Measures of China“
< Collection of processing trade terms >
■ Processing Trade Goods
Processing Trade Goods refer to imported materials under the condition of processing trade, finished products, scraps, defective products, and by-products during the processing procedure.
■ Processing Trade Enterprises
Business enterprises and processing enterprises with record registration in customs
■ Business enterprises
Business enterprises refer to all types of import and export enterprises and foreign-invested enterprises, authorized external processing and assembly Services Company with the permit of processing trade with supplied materials, which are responsible for the sign of import and export processing trade contracts.
■ Processing enterprises
Commissioned by the Business enterprises, processing enterprises are responsible for processing or assembly of imported materials and parts, with legal personality or a factory with business license.
■ Material quantity applied per unit
Processing trade enterprises under the normal production conditions, the amount of imported materials consumed for the unit of manufactured goods.
■ Deep processing transit
A kind of export activity that processing trade enterprises transferred bonded manufactured goods to other processing trade enterprises, and other processing trade enterprises will perform a second processing and export.
■ Contracted Enterprises
Contracted enterprises refer to enterprises signed with business enterprises for contracting to produce outward processing. Contracted enterprises should register the record in customs and also have the appropriate processing capacity.
■ Outward processing
Outward processing refers to business enterprises restricted by their characteristics and conditions, authorize the contracted enterprises by approval of customs to processing a certain project of goods and returning the finished products to business enterprises for final re-export.
Verification refers to customs checking the data, reviewing relevant documents and goods and related account books. It is a behavior to review if the declared processing trade enterprises with enough processing capacity and import, transport, storage, processing, assembly, assign, transfer, domestic sales or export of processing trade goods are true and if in accordance with the relevant laws and administrative regulations.
Write-off refers to after processing trade enterprises processing re-export or domestic sales taxes collection and other customs declaration formalities, processing trade enterprises are required to submit the relevant documents to the customs for releasing supervision. After customs’ review and confirmation, the supervision will be released in accordance with relevant regulations.
< Processing trade with supplied materials>
■ Definition of Processing with supplied materials
Processing trade with supplied materials refer to foreign customers free to supply allor part of the raw materials, parts, components, parts and packing materials (as materials and parts for short) to commissioned processing units in China for processing and assembly and re-exporting finished products to overseas customers back for sales, and processing units in China will receive processing fees according to the trade contract.
■ Characteristics of Processing with Customer’s Materials
①Overseas customers provide all or part of the materials and parts, and processing unit without paying foreign exchange to purchase raw materials and parts.
②Imported processing materials and parts and exported finished products are related with the same contract and customers.
③Re-exported finished products will be sold by foreign customers themselves and processing unit is not responsible for sales.
④For imported materials and parts and finished products, the processing unit only has the right of keeping and commissioned transport and customs declaration but without ownership.
⑤Processing unit can only receive processing fees according to the trade contract, but cannot participate in the distribution of profits gained of products and also will not pay for any economic risk occurred during customers’ operation.
■ The scope of processing with supplied materials
By the structure processing fees, processing trade with supplied materials can be divided into the following two kinds:
☉ All commission
Foreign customers free to supply all materials and parts to commissioned processing unit for processing, and processing unit can only receive processing fees.
☉ Part commission
Foreign customers provide part of materials and parts, the remaining part of the materials and parts is bought by processing unit in domestic market. Therefore, processing unit can receive both processing fees and the cost of materials purchased in domestic.
■ Management of processing with supplied materials
☉ Tax collection(bonded)regulations
ㅇUnder the condition of processing with supplied materials, all imported materials and parts provided by the foreign customers for processing, assembly and re-export can be fully bonded.
ㅇUnder the condition of processing with supplied materials, the fuel, abrasives, activators, lotion consumed in processing for export products can be fully bonded.
ㅇUnder the condition of processing with supplied materials, the export of all finished products is exempt from export tariff.
ㅇBonded materials and parts for processing trade with supplied materials are applicable for bank deposit account system.
☉ Supervision regulations
ㅇAccording to limits of authority, the contract of processing trade with supplied materials is approved by Foreign economic and trade department and obtained processing trade permit. Also, it is supervised by customs.
ㅇImport of goods expressly prohibited by the country cannot perform processing with supplied materials. For restricted (non-prohibited) goods, approval of competent authorities or import and export licenses should be obtained for customs clearance.
ㅇSince raw materials of processing trade with supplied materials are provided by foreign customers and processing trade enterprises do not pay foreign exchange, so there are no raw materials cost account books. In order to facilitate the management and verification of the account books, customs take the following supervision regulations:
* Storage of special warehouse
With a conditional premise, bonded materials and parts for processing trade with supplied materials can be kept in special warehouse; without the condition, bonded materials and parts also should be kept in distinguish. If necessary, a storage warehouse and account books of in-out storage should be marked with "Goods under customs supervision," for Customs verification.
* Special accounts registration
Bonded materials and parts for processing trade with supplied materials must be registered in the specific account books in accordance with processing contract number and procedures. Processing enterprises should process management of in-out storage account books based on the contract for customs supervision.
Also, processing should follow the principle of “First in First out, and Later in Later out”, and account books, spots, and IC card data must be consistent in the same contract.
* Special personnel management
Bonded materials and parts for processing trade with supplied materials must be registered in in-out storage account books and kept by a professional warehouse administrator. In-out storage and materials storage should be strictly in accordance with contract.
* special materials for specific use
Bonded materials and parts for processing trade with supplied materials must be used specifically without mixing with other contracts or misusing with domestic purchased materials and parts, and also must comply with the principle of “First in First out” for use and management.
< Processing with imported materials >
■ Definition of Processing with imported materials
Processing with imported materials means that domestic enterprises use foreign exchange to buy imported parts or all of the raw materials, materials, accessories, components, accessories, supporting materials and packaging materials, and sell finished products or semi-finished products back to export. (Also known as processing with import of raw materials)
Contract of processing with imported materials can be divided into contract consistent with processing with imported materials and contract inconsistent with processing with imported materials (hereinafter referred to as “counterpart contract and non-counterpart contract” for each)
☉ Counterpart contract of processing with imported materials
Counterpart contract of processing with imported materials refers to export finished products contract, corresponding with processing with imported materials which enterprises with the operation right to import and export signed with foreign customers (Including Counterpart associated contract of different customers) finished products of imported materials, sales quantity and sales flow are all determined in the import and export contract.
☉ Non-counterpart contract of processing with imported materials
Non-counterpart contract of processing with imported materials means that enterprises with the operation right to import and export sign import of materials and parts with foreign customers, but without signed export finished products contract for customs record. Finished products of imported materials, sales quantity and sales flow are not determined.
■ Characteristics of Processing with imported materials
Main characteristics as below:
☉ Foreign exchange purchase, sales abroad
Processing trade enterprises buy imported raw materials by foreign exchange and sales abroad after processing by processing unit.
☉ Self-production, self-marketing
After import of raw materials, processing trade enterprises will decide the quantity of products, size, and mode on its own, and in accordance with international market conditions to make their own sales targets and sales price.
☉ Self responsibility for profits and losses, assumption of risk
Processing trade enterprises purchase imported raw materials from abroad (except for materials and parts provided by the customer) and have its ownership. Therefore, the processing trade enterprises have the right to decide the import of raw materials, storage and marketing programs. And also bear the responsibility for the profits and losses, risks happened.
■ Management of Processing with imported materials
☉ Tax collection regulations
ㅇImported materials and parts under the condition of counterpart contract of processing with imported materials can be fully bonded.
ㅇImported materials and parts under the condition of non-counterpart contract of processing with imported materials can be quota bonded. Several products regulated by importing countries will be levied 5% tax first and bonded 95%; import of other materials and parts will be levied 15% tax first and bonded 85％. After exporting, much export amount exceeding standards is under the tax rebate, and less export is under the additional tax collection target.
ㅇUnder the condition of processing with imported materials, the fuel, catalysts, promoters and detergents consumed in processing for export products can be fully bonded.
☉ Supervision regulations
ㅇAccording to limits of authority, the contract of processing with imported materials is approved by Foreign economic and trade department and obtained processing trade permit. Also, it is supervised by customs.