VAT for exporting into China

Question

We are a UK Vat registered company, however most of the orders we have forecasted to receive will be supplied directly from our factories in China

What will be the implications of VAT, if i sell these good directly from our china factory to a china customer?

Answer

In determining the correct VAT treatment for sales of goods you need to consider the Place of Supply (POS) rule. This rule will fix where the place of supply is for VAT purposes and if the POS is in the UK then the UK VAT rules will apply.

for goods the POS rule looks at where those goods are which you own when they are sold to a third party/customer.

If the goods are located outside of the UK when you own them and it is there that the transfer in title occurs then the supply will not be seen to have happened in the UK. Therefore goods you own which are in China when they are sold to a Chinese customer are not subject to UK VAT. As the place of supply is China you will need to check whether any Chinese Indirect Tax will need to be accounted for though.

Liz Maher Centurion VAT Specialist Ltd

Answer

Adding to the advice from Liz.

It is not just a matter of VAT.

You can’t simply place an order with the factory, pay them, leave the stock in China, and then fulfil your orders from the factories warehouse inside China without taking into consideration local VAT and product legislation.

I am assuming the factories in China are Chinese registered businesses. The factory will own the goods and make the sale and need to issue an invoice (fapiao). Does the factory business licence allow it to retail? Will you assign rights to your trademark usage inside China to the factory? Do you have your trademark registered in China?

If the goods remain in China and are sold domestically from the factory to the individual (albeit an order is taken on your UK website), the goods (including all packaging, certification etc.) will need to be fully compliant with Chinese regulations. Assuming your company wants to invoice the Chinese consumer, the factory will sell them to you with a Fapiao and you cannot reclaim the Chinese VAT on the Fapiao (extra costs to you).

Note: When your factory normally supplies you product which are exported outside of China, they will have some Tax rebates, which helps keep the price down.

A solution to the above.

Place your orders with the factory, allow them to export the goods (perhaps to Hong Kong). You can then deliver to your Chinese customer through cross-border ecommerce direct from Hong Kong. You will need a warehouse/logistics partner in Hong Kong. Depending on your products and their value each will need a  different logistics solution. The packaging can be your normal UK packaging and the factory will have exported the goods.

Steven Hope – Chinese ecommerce Specialist

 

 

Menu
Export Action Plan