(All information in this document is authentic in Chinese. English is provided for reference only. In case of any discrepancy, the Chinese version shall prevail.)

Circular of the General Administration of Customs on Issuing the Interim Measures of the Customs for the Collection and Administration of the Taxes on the Domestic Sales of Goods with Added Value from Processing in the Yangpu Bonded Port Area

Shu Shui Han [2021] No.131

The Hainan Provincial Development and Reform Commission, the Department of Industry and Information Technology of Hainan Province, the Department of Finance of Hainan Province, the Department of Agriculture and Rural Affairs of Hainan Province, the Department of Commerce of Hainan Province, the Haikou Customs, and the Hainan Provincial Tax Service of the State Taxation Administration,

The Interim Measures of the Customs for the Collection and Administration of the Taxes on the Domestic Sales of Goods with Added Value from Processing in the Yangpu Bonded Port Area, which were formulated upon study by the General Administration of Customs in accordance with the Customs Law of the People's Republic of China, the Measures of the Customs of the People's Republic of China for Supervision of the Yangpu Bonded Port Area and other relevant provisions and through negotiation with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Finance, the Ministry of Agriculture and Rural Affairs, the Ministry of Commerce and the State Taxation Administration in order to implement the Overall Plan for the Construction of Hainan Free Trade Port and give full play to the pilot role of the Yangpu Bonded Port Area, are hereby issued to you upon approval by the State Council for your effective implementation.

General Administration of Customs

July 8, 2021

Interim Measures of the Customs for the Collection and Administration of the Taxes on the Domestic Sales of Goods with Added Value from Processing in the Yangpu Bonded Port Area

Article 1 The Measures are formulated upon approval of the State Council in accordance with the Customs Law of the People's Republic of China, the Measures of the Customs of the People's Republic of China for Supervision of the Yangpu Bonded Port Area and other relevant provisions in order to implement the Overall Plan for the Construction of Hainan Free Trade Port and give full play to the pilot role of the Yangpu Bonded Port Area.

Article 2 For the purpose of the Measures, enterprises engaged in encouraged industries refer to the enterprises whose main business is the industrial items specified in the catalog of encouraged industries of Hainan Free Trade Port, with the main business income accounting for more than 60% of the total enterprise income. Enterprises engaged in encouraged industries shall register in the Yangpu Bonded Port Area, have independent legal personality, and file with the Yangpu Economic Development Zone Administrative Committee (the filed enterprises engaged in encouraged industries are hereinafter collectively referred to as "filed enterprises").

For the purpose of the Measures, imported materials and parts refer to the goods that have entered the area from abroad without going through the import taxation procedures.

For the purpose of the Measures, the added value from processing more than 30% refers to the added value of the goods containing imported materials and parts after manufacturing and processing by filed enterprises in the Yangpu Bonded Port Area that is more than 30% (inclusive, the same below) of the total value of imported materials and parts and materials and parts purchased from outside the area within the territory of China.

Article 3 The Yangpu public information service platform established by Hainan Province shall meet the requirements for enterprises engaged in encouraged industries to handle the business related to filing and added value from processing. The Yangpu public information service platform shall be subject to the management system of "one account for one enterprise". Filed enterprises shall be connected to the platform in accordance with the methods and data standards recognized by the customs, submit authentic, accurate, effective and traceable information and data, and comply with the requirements of the customs for tax collection and administration and follow-up regulation. Through the Yangpu public information service platform, the customs will share the information required for enterprise filing, customs tax collection and administration, and follow-up regulation with the Yangpu Economic Development Zone Administrative Committee and the relevant departments of Hainan Province.

Article 4 If the goods produced by enterprises engaged in encouraged industries in the Yangpu Bonded Port Area that contain imported materials and parts and have the added value from processing more than 30% are sold outside the area within the territory of China, import tariffs will be exempt, while import value-added taxes and consumption taxes will be levied in accordance with provisions.

If the goods produced by enterprises engaged in encouraged industries in the Yangpu Bonded Port Area that contain imported materials and parts and have the added value from processing less than 30% are sold outside the area within the territory of China, the current policies for selective imposition of tariffs on domestic sales in comprehensive bonded areas apply; the imposition of tariffs may be applied for based on the corresponding imported materials and parts or the actual inspection status (finished products), and import value-added taxes and consumption taxes will be levied in accordance with provisions.

Article 5 The calculation formula for added value from processing more than 30% is as follows: [(price of goods sold outside the area with the territory of China – Σ price of materials and parts imported from abroad – Σ price of materials and parts purchased from outside the area within the territory of China) / (Σ price of materials and parts imported from abroad + Σ price of materials and parts purchased from outside the area within the territory of China)] × 100% ≥ 30%. The relevant prices in the calculation formula shall be determined in accordance with the Measures for Assessing and Determining the Duty-paid Value of Bonded Goods Sold in the Domestic Market (Order of the General Administration of Customs No.211) and the Measures for Assessing and Determining the Duty-paid Value of Imported and Exported Goods (Order of the General Administration of Customs No.213). Specifically:

1. The price of goods sold outside the area within the territory of China shall be determined based on the transaction price when the filed enterprise sells the goods obtained from manufacturing and processing that contain imported materials and parts outside the area within the territory of China;

2. The price of materials and parts imported from abroad shall be determined based on the transaction price of such materials and parts imported by the filed enterprise from abroad, including expenses for transportation of such materials and parts to the domestic destination before unloading and related expenses and insurance premiums;

3. The price of materials and parts purchased from outside the area within the territory of China shall be determined based on the transaction price of such materials and parts purchased by the filed enterprise from outside the area within the territory of China, including expenses for transportation of such materials and parts to the Yangpu Bonded Port Area and related expenses and insurance premiums.

Article 6 If a filed enterprise applies for exemption of import tariffs on domestic sales of goods with added value from processing, it shall accurately calculate and truthfully declare the added value from processing of the relevant goods, be responsible for the data independently calculated and declared, and bear the corresponding legal liability. The filed enterprise shall, before domestic sales of the relevant goods outside the area, go through the declaration procedures for added value from processing with the customs in accordance with provisions. If the added value from processing is more than 30%, the system of the customs will automatically generate the confirmation number for exemption of import tariffs on domestic sales of such goods with added value from processing, and the filed enterprise will notify the domestic importing enterprise outside the area of such number.

The domestic importing enterprise outside the area shall, with the confirmation number for exemption of import tariffs on domestic sales of goods with added value from processing, go through the import declaration procedures with the customs in accordance with provisions, and pay the relevant taxes. In the customs declaration form, the column of nature of tax exemption shall be filled in with "goods with added value from processing", and the column of filling number with the confirmation number for exemption of import tariffs corresponding to such goods.

Article 7 The Measures shall apply to the domestic sales of goods with total added value from transfer for deep processing in the Yangpu Bonded Port Area that is more than 30%.

Article 8 The customs shall, based on risk analysis, randomly inspect and examine the ratio of added value from processing, price, classification, origin and other tax-related elements declared by enterprises.

Article 9 The customs shall inspect (examine) enterprises in accordance with the law.

Article 10 The domestic sales of goods with added value from processing more than 30% outside the area will not be exempt from import tariffs if:

1. materials and parts imported from abroad are commodities subject to tariff quota management;

2. goods only undergo one or more kinds of micro processing or treatment such as blending, change of packaging, splitting, combined packaging, sharpening, simple grinding or simple cutting; or

3. other circumstances under which import tariffs shall be levied in accordance with the relevant provisions occur.

Article 11 If the goods produced by filed enterprises in the Yangpu Bonded Port Area that do not contain imported materials and parts are sold outside the area within the territory of China, import tariffs will be exempt, while import value-added taxes and consumption taxes will levied in accordance with provisions, and the matters relating to customs tax collection and administration shall be subject to the Measures.

Article 12 If any violation of the Measures constitutes a smuggling act, breach of regulatory provisions of the customs, or act subject to administrative punishments imposed by the customs according to laws and regulations, the customs shall impose punishments in accordance with the relevant laws and regulations; if a crime is constituted, criminal liability shall be investigated in accordance with the law.

Article 13 The Measures shall be interpreted by the General Administration of Customs.

Article 14 The Measures will come into force simultaneously with the launch of the Yangpu public information service platform and the information system of the Haikou Customs, and be abolished on December 31, 2024.