< Management practices for processing trade products, scraps, by-products >

■ Definition of processing trade products

Processing trade products refers to the imported materials after processing, assembly, the finished products to be re-exported to overseas, including all or part of raw materials, parts, components, packaging materials, and finished products or semi-finished products etc. which under the bonded system approved by customs.

In addition, scraps, defective products, by-products, etc. generated by processing trade products are usually included in the scope of processing trade products.

■ Basic characteristics of processing trade products supervision

ㅇRecord bonded

ㅇTax collection suspension

ㅇExtended supervision

ㅇWrite off and customs clearance

■ Enterprises management of processing trade products

☉ Enterprises management practices of processing trade import and export goods

1.Warehouse and storage

Processing trade enterprises should set up a sound warehouse management system. The storage of import and export goods should be set up at specific warehouse.

2. Financial Management

Processing trade enterprises should set up a strict materials management system and must contain special account books.

The distribution and collection of raw materials and finished products, payment and collection of processing fees, and the remaining materials and parts, by-products, scraps in bonded warehouse should also be accurately recorded.

3.Handling of processing trade import and export goods

Customs approval as a precondition, before enterprises handling the processing trade import and export goods, permission or approval of the competent customs should be retained.

Processing trade goods are under the supervision of customs. Without permission of customs, any enterprise, unit or individual are not allowed for sale, use, mortgage and lien. This is not only the starting point of bonded goods, but also an impassable boundary for any enterprise, unit or individual.

☉ Conversion of processing trade enterprises domestic sales management and control

Without the permission of business competent authorities or not paying for import taxes, the domestic sales of bonded goods behavior is smuggling, an infringement of national tax system. The enterprises will be severely punished and the enterprise-level will be reduced.With the permission, after the enterprises transfer processing trade goods into domestic sales, retained taxes and other taxes should be paid. The interest generated during the interest-bearing period should also be paid.

※ Calculation formula of interest:

Amount of tax payable × interest-bearing period × overdue interest rate/360

☉ Management of processing trade remaining materials and parts

For the remaining materials and parts, enterprises can choose according to their needs for sending back, domestic sales after taxation, giving up and other treatment methods. If materials and parts are sustainable and finished products are expected, they can be transited into next registration manuals.

Transit, taxation, sending back and giving up should be processed before manuals write off.

☉ Management of processing trade scraps

Scraps are by-products, trims, and pieces which generated in the production of finished products and not for export. They are approved within the material quantity applied per unit of customs.

There are four approaches to handle scraps after taxation as domestic sales, sending back, destruction and incineration.

☉ Management of defective products

According to "Management methods on processing trade scraps, remaining materials and parts, defective products, by-products and affected bonded goods of China",defective products are products with serious deficiencies or fail to meet export standards in the processing of processing trade enterprises re-export business.(including the finished products and unfinished products). Defective products are not within the range of loss.

There are four approaches to handle defective products after taxation as domestic sales, sending back, destruction and incineration. In transferring defective products into domestic sales, if corresponding raw materials of defective products belong to quota commodities, the quota licence is required to submit to the customs for taxation based on the quota tax rate without quota licence, customs will process according to relevant regulations.

☉ Management of processing trade by-products

By-products refer to other products generated in the process of finished products processing (the main products).

There are four approaches to handle by-products after taxation as domestic sales, sending back, destruction and incineration. In transferring by-products into domestic sales, if corresponding raw materials of by-products belong to quota commodities, the quota permit licence is required to submit to the customs for taxation based on the quota tax rate without quota permit licence, customs will process according to relevant regulations.

Whether for domestic sales or export customs declaration, by-products should be declared and filled in the column of declaration as "by-products".

☉ Management of processing trade products sending back

Products sending back refer to products in need of being sent back due to poor quality or other reasons after the import from abroad.(raw materials, scraps, equipments provided free of charge, etc.), or exported finished products in need of being sent back due to poor quality or other reasons (finished products).

Products’sending back is a business that processing trade enterprises always meet, and the following approaches can be used for management:

ㅇImported materials and parts which have been processed cannot be returned.

ㅇIn sending back the given-up materials and parts to abroad, it should be handled as re-export of raw materials.

ㅇIn sending back the waste to abroad, it should make up the relationship between finished product name in registration manuals and material quantity applied per unit and be handled as export of finished products.

ㅇIn sending back the defective products to abroad, it should be handled as export of finished products.

ㅇSemi-finished products should the relationship between finished product name in registration manuals and material quantity applied per unit and be handled as export of finished products. In the declaration of the remarks column, "Defective products" should be filled.