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[Classification of Processing trade enterprises and bank deposit account system]

In order to achieve the policy of processing trade system, China uses various measures to process classified management. The classification managements of processing trade are: ① classification of commodities ② classification of enterprises ③ bank deposit account system, etc.

<Classification of processing trade commodities>

China divided import and export commodities into permitted processing trade, restricted processing trade, and prohibited processing trade for classified management.

■ Permitted processing trade (non-restricted)

Commodities on the list of import and export catalog, including all commodities except for commodities within the scope of restricted processing trade and prohibited processing trade. The commodity itself has no special restrictions but restricted by classification of enterprise level.

■ Restricted processing trade

ㅇDifferent from prohibited processing trade，restricted processing trade is allowed for processing trade but restricted by policy.

ㅇRestricted commodities are mainly made up by import commodities with big price fluctuations and commodities with a great difficulty of customs supervision.

ㅇRestricted processing trade commodities catalog is also divided into import restriction and export restriction, which is also a primary criterion to decide whether to open deposit account or pay for deposit.

ㅇEffectiveness range of restricted commodities catalog varies according to the classification of enterprise level.

■ Prohibited processing trade

Based on Foreign Trade Law, commodities on the list of prohibited import commodity catalog and prohibited processing trade commodity catalog are prohibited processing trade commodities.

Prohibited processing trade commodities can be classified by import prohibition, export prohibition, import and export prohibition. Any levels of enterprises are forbidden to perform processing trade.

< Classification of processing trade enterprises>

According to business enterprises’credibility, irregularity, operation and management status and supervision records of the customs, the State implements classified management of five levels for different enterprises ; five levels as class AA and class A, class B, class C and class D which are also applicable to processing trade field.

The State implements convenient customs clearance measures for enterprises of class AA and class A, general customs clearance measures for class B, but stringent regulatory measures for class C and class D.

■ Enterprises of class AA

☉ summary

Super excellent enterprises which have been under the class A management for more than one year and with over $ 30 million of import and export volume in the previous year, and passing through the customs administration, business management and trade security conditions.

☉ Characteristics

ㅇThe implementation of various preferential policies such as the special case of bank deposit account system.

ㅇRaw materials for processing trade although under the bonded supervision of customs, permitted processing trade commodities are exempted from bank deposit account system. For commodities bank guarantee of restricted commodities, the East area will pay for 50% and Midwest areas will exempt from deposit.

※ Division of areas(unified as below)

■ East area: Beijing, Tianjin, Shanghai and Provinces of Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong.

■ West area: central and western regions except above east area.

ㅇProcessing trade enterprises within the bonded area are not applicable for bank deposit account system according to "Customs supervision methods for bonded area".

ㅇEnterprises required to provide guarantees can apply for customs clearance by providing letter of guarantee.

ㅇThe priority of issuing registration manuals for import of raw materials.

ㅇA special window is located in the Customs site for the processing of prior import and export customs declaration, approval and customs clearance procedures, the implementation of dispatch inspection.

ㅇFor processing trade unit, the customs will send personnel to factory for supervision or permit import and export electronic declaration by customs computer networking.

■ Enterprises of class A

☉ summary

Enterprises with customs resident personnel permitted by the General Administration of Customs, or enterprises networking with the customs electronic supervision system, bonded factory without irregularity record or enterprises processing with aircraft, ships and other special industries are recognized as Class A.

☉ Characteristics

The implementation of various preferential policies such as the special case of bank deposit account system for imported materials and parts.

ㅇRaw materials for processing trade although under the bonded supervision of customs, permitted processing trade commodities are exempted from bank deposit account system. For commodities bank guarantee of restricted commodities, the East area will pay for 50% and Midwest areas will exempt from deposit.

ㅇProcessing trade enterprises within the bonded area are not applicable for bank deposit account system according to "Customs supervision methods for bonded area".

ㅇEnterprises required to provide guarantees can apply for customs clearance by providing letter of guarantee.

ㅇThe priority of issuing registration manuals for import of raw materials.

ㅇA special window is located in the Customs site for the processing of prior import and export customs declaration, approval and customs clearance procedures, the implementation of dispatch inspection.

ㅇFor processing trade unit, the customs will send personnel to factory for supervision or permit import and export electronic declaration by customs computer networking.

■ Enterprises of class B

☉ Summary

A sound processing trade unit without irregularity record and enterprises excluded from class AA, class A, class C and class D.

☉ Characteristics

ㅇFor import of permitted processing trade raw materials, it has obligation of opening bank deposit account but no obligations to pay for deposit, applicable for tax suspension system (idling).

ㅇFor commodities bank guarantee of restricted commodities, the East area will pay for 50% and Midwest areas will exempt from deposit.

ㅇClass B enterprises excluded from class AA, class A, class C and class D and different with enterprises of class A, class C and class D. The customs will not notice enterprise level category.

ㅇNewly founded processing trade enterprises are applicable to Class B.

ㅇGeneral customs supervision system is implemented.

■ Enterprises of class C

☉ Summary

Class C enterprises refer to enterprises with irregularity record in foreign economic trade and in General administration of customs.

Such enterprises will be strictly supervised on bank deposit account system.

☉ Characteristics

ㅇRegardless of permitted processing trade or restricted, both east and west areas are required to open bank deposit account and deposit all guarantees(100% real transfer)

ㅇImport and export commodity is specially inspected and strictly post-supervised.

ㅇNot allowed to process import and export declaration out of the region under customs’ jurisdiction.

■ Enterprises of class D

☉ Summary

Class D enterprises refer to enterprises with smuggling activities or in violation of customs regulations more than three times. Customs has the right to dispose by law and also revoke the processing trade operation right.

☉ Characteristics

■ Foreign-invested enterprises will be prohibited for import and export business for one year.

■ Enterprises are forbidden for a new processing trade, and import and export commodities will be inspected by being opened box.

■ Revoke or cancel the qualifications of import and export declaration, bonded goods transportation and storage.

■ Irregularity activities will be reported to relevant foreign trade departments and implemented revoke or cancellation of its foreign trade license in accordance with relevant regulations.

< Bank deposit account system >

■ What’s bank deposit account system for processing trade?

Bank deposit account system is a part of processing trade supervision for ensuring the national tax collection.

Specifically, after approved by the customs, processing trade enterprises shall go to the designated banks for the creation of the processing trade bank deposit account according to the materials and parts, and amount in the contract. After the export of all scheduled finished products and write off procedures (release processing trade supervision), the bank deposit account can be wrote off.

Among them, the so-called deposit system means that it deposit all payable tariff of imported materials and parts, VAT and other taxes into the bank in advance and get returned deposit after export of finished products. In case of domestic sales or export out of the time limit, the customs can collect suspended tariffs and other taxes from deposit.

Bank deposit account system aims to improve the effectiveness of the processing trade supervision, to prevent the situations where imported materials and parts are not re-exported or imported materials and parts flow into the domestic market leading to difficult tax collection, and to achieve policy objectives by adjusting the difficulty of processing trade.

■ The specific contents of processing trade bank deposit account system

According to different classifications of commodity categories and level of processing trade enterprises, bank deposit account system will be implemented separately.

☉ Classified management of commodities

In order to improve product structure and the development of technology and creation of value-added, the State implements classified management for prohibited processing trade, restricted processing trade and permitted processing trade.

☉ Classified management of processing trade enterprises

Based on the Enterprise classified management Measures implemented by customs and the creditability status, processing trade enterprises can be divided into Class AA, Class A, Class B, Class C, Class D 5 management categories.

Customs with the business departments jointly determine the class of processing trade enterprise and publish enterprises of Class AA, Class A, Class C, Class D. The specific list of Class B will not be published.

Dynamic management is applied for enterprise management and adjusted at appropriate period.

For the classified management of above enterprise, bank deposit account and deposit levied rates vary.

■ Applicable types for bank deposit account

☉ Exemption (no transfer)

No need to open a bank deposit account and therefore no need to deposit guarantees.

For Class A enterprises.

☉ Idling

Need to open a bank deposit account but no need to deposit guarantees called as idling.Necessary conditions for idling: 1) not belong to the restricted processing trade commodities 2) enterprise level is Class B above.

But in the specific business, whether to pay bank guarantees should be considered according to the classification level of processing trade enterprises and other specific situations.

☉ Actual transfer

Need to open a bank deposit account and also need to deposit guarantees.

Its applicable standard varies according to commodity classification (permitted or restricted), enterprise classification and business location (east or west).

*** Reference chart: classification of processing trade commodities and deposit ***

※ Division of areas

ㅇEast area: Beijing, Tianjin, Shanghai and Provinces of Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong.

ㅇWest area: central and western regions except above east area.