The Change of Cross-border E-commerce in China

Since Chinese people’s income has risen, China’s middle class is expected to reach 630 million by 2022, with its consumers in pursuit of more imported goods. Meanwhile, consumers’ concerns about domestic product safety bring more demand for imported goods with better product quality control, meaning Chinese consumers are looking for products “Made in America.” Cross-border e-commerce amounted to an estimated 259 billion Yuan ($40 billion) in 2015, 6 percent more than China’s total consumer e-commerce, and it’s growing at over 50 percent annually. The country’s major e-commerce site, Alibaba’s Tmall, has expanded its business with a cross-border site (Tmall Global), while US e-commerce leader Amazon is increasingly active in China.

A number of factors are fueling the cross-border e-commerce trend. Chinese middle- and upper-middle-class consumers are looking to buy foreign clothing and gadgets not yet available in China, and they like the niche offerings that traditional merchants barely sell. Overseas goods are often expensive, for example, baby formula from overseas. Such products are popular with Chinese parents and often cost up to twice the price of the same product in the United States or Europe. Shoppers, particularly those in second-tier cities and rural areas, tend to trust cross-border e-commerce sites as they feel some degree of protection from fake or counterfeit goods tagged with offshore brands.

Government takes some actions, too. To foster a “fair market “environment and to facilitate the development of cross-border e-commerce for retail imports, two circulars were issued by the authorities in March 2016 to address the tax policy for cross-border e-commerce (that is business-to-customer or “B2C” imports of retail goods). The new measures became effective on April 8^th, 2016.

What are the main changes about China’s tax regulations? Retail goods purchased online will be treated as imported goods, and will be imposed with import tariff, import VAT and consumption tax. An interim import tariff rate will be applied to cross-border e-commerce retail goods with a limit of RMB2, 000 per transaction per person and a cumulative yearly limit of RMB20, 000 per transaction per person. Transactions above the limit will be levied as general trade items (refunds of tax paid and adjustments to the annual personal limit could be applied in returned goods).

Although the changes have forced some business to make short-term adjustments, in the long run it will create more opportunities in the industry. It will become more difficult to utilize tax rate differences between general trade, cross-border e-commerce retail imports and imported articles, but a fairer and more stable business environment is likely to emerge. The introduction of a clearer and more stable tax rate structure will be helpful in removing one of the major obstacles impairing long-term development of the industry. Large enterprises, previously being held back due to the immature and unsustainable tax system, can now make medium-term or even long-term decisions to boost the development of e-commerce.