As from 01.August 2013, China has introduced a pilot program to VAT reformation nationwide. Under this circumstances, former Business Tax was replaced with VAT in the logistics sector.
We have only limited information about this reform. However, it seems that there is a big impact on freight costs for customers overseas.
Herewith, we would like to share the overview of how VAT in China can affect our customers. Please note that it is subject to change anytime.
As from 01.August 2013, 6% of VAT in China is applicable to road-, sea- and air transportation as well as local logistics service, such as Terminal Handling Charges, Port Charges, B/L issue, Customs Clearance.
The Incoterms between seller and buyer is the decision maker, i.e.:
International transportation from China to overseas
freight prepaid - with VAT - Freight payable in China
freight collect - without VAT - Freight payable in overseas
International transportation from overseas to China
freight prepaid - without VAT - Freight payable in overseas
freight collect - with VAT - Freight payable in China
This is so far understandable, as VAT will be charged to companies located in China, who can deduct the tax.
6 percent will be added to all local charges in China which are payable in Europe, such as Origin Terminal Handling Charge, Pre-carriage, B/L fee etc, and charged to European Importer. 6 percent is not applicable to sea freight cost which is payable in Europe. (e.g. EXW, FCA)
6 percent will be added to all local charges in China which are payable in Europe, such as Destination Terminal Handling Charge, On-carriage, D/O fee etc, and charged to European exporter. 6 percent is not applicable to sea freight cost which is payable in Europe. (e.g. DDP or DAP)
If the freight cost is paid in China by Chinese importer / exporter, then they can deduct the tax.
We would like to call your attention to that it is recommended to adjust your Incoterms accordingly, otherwise, we will have to charge 6 percent of China VAT if necessary, as we will also have to pay it.
Should you have any inquiries, please do not hesitate to contact us.