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2.3.3 Domestic Sale of Materials, Parts and Finished Products

Materials and parts imported in bond must be re-exported after processing, and enterprises may not sell their bonded materials and parts or finished products in China. If such goods have to be sold on the domestic market for special reasons, approval must be obtained from the commerce authorities in charge of processing trade at provincial level as well as Customs. Business enterprises and processing enterprises must promptly pay the tariffs and VAT exempted on the imported materials and parts if these goods are sold domestically, whether the import settlement is in renminbi or in foreign currency. For commodities subject to import restriction or import licensing, enterprises should apply for approval in arrears from the authorities concerned and obtain the necessary import approval documents or import licence. The commerce authorities in charge of processing trade at provincial level will verify the enterprise's application and import licence issued by the relevant import administration organ and issue a Domestic Sale Approval Certificate for Bonded Materials and Parts for Processing Trade (i.e. Domestic Sale Approval Certificate), specifying the corresponding import licence name and number in the "remarks" column. With this Domestic Sale Approval Certificate and the valid licence whose number is specified therein, Customs will proceed with taxation for domestic sale and verification and cancellation procedures in connection with processing trade. If an enterprise is unable to submit the import licence issued by the relevant import administration organ, the commerce authorities in charge of processing trade at provincial level may still issue the Domestic Sale Approval Certificate once Customs proceed with the verification and cancellation of the processing trade handbook after levying on the enterprise duties and interest thereon and a penalty ranging from 30% to 100% of the declared value of the imported materials and parts.

2.3.4 Transfer of Bonded Goods for Deep Processing

If a business enterprise wishes to transfer its processed bonded goods to another processing trade enterprise for deep processing and re-export, it must seek approval from the commerce authorities and complete the necessary customs formalities before making the actual transfer. Unprocessed bonded materials and parts may not be transferred.

To transfer bonded goods to another enterprise for deep processing, the transfer-out enterprise, after obtaining its Registration Handbook, should submit its transfer plan to Customs by presenting the Transfer of Bonded Goods for Deep Processing Application Form. Upon approval granted by the local customs where the transfer-in enterprise is located, the goods may be transferred in batches. In completing customs transfer procedures, the transfer-in enterprise has to re-register the contract with its local customs and open a customs duty deposit account with a designated branch of BOC. The transfer-out enterprise should complete the customs transfer procedures for the intermediate goods with its local customs by presenting the Registration Handbook issued by the local customs where the transfer-in enterprise is located. Subsequently, the transfer-out enterprise should go through the contract and customs duty deposit account verification and cancellation procedures with its local customs by presenting the receipt issued by the customs office where the transfer-in enterprise is located.

2.3.5 Cross Customs Area Processing

In the case where a business enterprise wishes to commission the processing of imported materials and parts to a processing enterprise in a different customs area, both parties must submit their transfer plans to their respective customs offices by presenting the Transfer of Bonded Goods for Deep Processing Application Form and, upon filing, complete the actual transfer and customs declaration formalities.

Within 20 days from filing with the customs where the transfer-out enterprise is located, the transfer-in enterprise must complete the registration procedures with its local customs by filling out and presenting the Application Form. If the transfer-in enterprise fails to submit the Application Form within 20 days or fails to obtain Customs approval due to the fact that the contents of the Application Form do not meeting customs requirements, the Application Form will be invalidated and both the transfer-in and transfer-out enterprises must submit their applications and register anew.

After the actual transfer, both the transfer-in and transfer-out enterprises must complete the customs declaration procedures with their respective customs offices by presenting an Application Form covering the goods in batches or in one lot within 90 days of the transfer. For each and every batch of goods, the transfer-in enterprise should declare with its local customs the import of the transferred goods by presenting the Application Form and Registration Form and notify the transfer-out enterprise on the following working day. Within 10 days from the receipt of the notification, the transfer-out enterprise must declare with its local customs for export of the transferred goods by presenting the Application Form and Registration Form.

2.3.6 Tax Exemption Procedures

An export enterprise should, after importing raw and auxiliary materials, parts and components, apply to the tax department in charge of export rebates for "tax exemption proof" by presenting its import customs declaration form and Registration Handbook. With this proof, it can apply to the tax department in charge of tax collection for exemption of VAT and consumption tax on processing trade. If processing is commissioned to other enterprises, the "tax exemption proof" should be passed to the processing enterprise to apply for VAT and consumption tax exemption. After exporting the processed goods, the export enterprise should proceed to the tax department in charge of export rebates to complete the verification and cancellation procedures by submitting the export customs declaration form, the Registration Handbook already verified and cancelled by customs, and the foreign exchange receipt slip. If it fails to complete the verification and cancellation procedures before the time limit, the tax department in charge of export rebates, the tax collection department and Customs will jointly demand tax payment and impose penalties.

2.3.7 Quota and Licensing Control

(a) Quotas and Licences for Imported Materials and Parts

With the exception of classified chemicals and poisonous chemicals, the import of commodities subject to licensing control for processing trade is exempt from import licence. For the import of classified chemicals, it is necessary to obtain an import licence by presenting the Classified Chemicals Import Approval Form issued by the Office of the Working Group on Fulfilment of the Treaty on Banning Chemical Weapons of the state, as well as the import contract (original and copy). For the import of poisonous chemicals, it is necessary to obtain an import licence by presenting the Poisonous Chemicals Import Approval Form issued by the Ministry of Commerce, as well as the import contract (original and copy). Processing trade import quota certificates are issued by the Special Commissioner's Offices and Quota and Licence Affairs Bureau under the Ministry of Commerce.

Furthermore, quotas must be obtained for the import of commodities subject to tariff-rate quota management at the quota tariff rates.

(b) Domestic Sale of Imported Materials and Parts

If the imported materials and parts granted approval for domestic sale are subject to import restriction or licensing, the enterprise should apply for approval in arrears from the authorities concerned.

(c) Export of Finished Products

If the finished products of processing with imported materials are subject to export quota control, the business enterprise must seek approval from the commerce authorities before signing the contract. After obtaining the export quotas, it can apply for an export licence by presenting the export quota certificate and the Processing Trade Approval Certificate, which must be submitted at the time of customs declaration. The export of products processed with supplied materials or assembled with supplied parts is exempt from export licence but is subject to customs supervision.

2.3.8 Online Supervision of Processing Trade Enterprises

With a view to strengthening supervision of processing trade by means of modern management methods and facilitating the development of new and high technology industries, the former MOFTEC and General Administration of Customs (GAC) jointly promulgated the Interim Measures for the Administration of Online Supervision and Approval of Processing Trade Enterprises on 25 October 2001. The measures provide a simplified framework for the administration of enterprises participating in the online system.

According to the measures, these "online enterprises" engaged in processing trade are exempt from the customs duty deposit system. The commerce authorities would no longer examine and approve their processing trade contracts and would only appraise their qualification for carrying out processing trade, business scope and processing capabilities.

Online enterprises applying for permission to engage in processing trade should submit to the commerce authorities their financial proofs and application materials. These include: business licence (copy), approval certificate of online enterprise issued by Customs, Registration Form for import-export rights or FIE approval certificate (copy), record of passing the joint annual appraisal (except newly established enterprises without such record), original of processing trade enterprise production capability certificate issued by the local commerce authorities at county-level or above, proof of the online enterprise's export performance in the previous year (copies of customs declaration forms or processing trade contract verification/cancellation forms), brief profile of the enterprise and the raw materials and parts it imports and the products it exports, and checklist of business scope.

Upon receipt of an online enterprise's application, unless the processing trade activities involved are prohibited by the state, otherwise the commerce authorities would grant approval and issue an approval certificate to the online enterprise to engage in processing trade. Based on this certificate, Customs will set up a processing trade electronic account for the online enterprise concerned and implement online supervision. The online enterprise may then import raw materials and parts and export products within the approved scope.