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back to index backASIAtalk August,  2005


China: Rules Governing Entities in Bonded Areas and Bonded Logistics Parks Further Liberalized

The Ministry of Commerce (MOFCOM) and the General Administration of Customs jointly issued a Notice (ShangZiZi [2005] No. 76 (Notice 76)) on 13 July 2005 addressing the administration of trading operations of entities established in bonded areas (BAs) and Bonded Logistics Parks (BLPs). Notice 76 is an important step in further fulfilling China's WTO commitments and should improve the administration of trading operations of entities established in BAs and BLPs.

Notice 76 clarifies that foreign trade business operators established in BAs or BLPs may apply for, and obtain, trading and distribution rights under the Administrative Measures for Foreign Investment in Commercial Businesses (Order 8) promulgated by MOFCOM in April 2004.

Order 8 allows foreign investors to set up Foreign Invested Commercial Enterprises (FICEs) in China in the form of 100%-owned subsidiaries from 11 December 2004 that may engage in commission agents' services, wholesale (including importation and exportation) activities, and the retail of goods that are not subject to a later opening schedule under China's WTO commitment. Order 8 also allows existing Foreign Investment Enterprises (FIEs) to expand the scope of their businesses to include such activities. However, since trading companies in BAs and BLPs are governed by special regulations, it has been unclear whether a trading company would be considered a normal FIE eligible to expand the scope of its business activities under Order 8.

This uncertainty has caused some businesses with existing trading companies in BAs or BLPs cannot decide whether to set up a brand new FICE in a non-BAs/BLPs area or to continue to use their BAs trading companies until further guidance was issued. Notice 76 now confirms that such companies may benefit from Order 8, thus providing trading businesses more flexibility in trading imported and locally sourced products. Notice 76 represents a further liberalization step following the revision of the FIE holding company regulations in November 2004 which provide the application of Order 8 to holding companies.

Notice 76 also clarifies that when a foreign trade business operator in a BA or BLP sells goods to, or procures goods from, outside the BA or BLP, it should comply with the relevant regulations governing the import and export trade, foreign exchange and taxation in China. In particular, when a foreign trade business operator imports goods from, or exports goods to, outside a BA or BLP, it should comply with the import-export procedures under the relevant Customs regulations. When a foreign trade business operator distributes goods outside a BA or BLP, it should declare customs and follow the foreign exchange verification procedures as an enterprise within a BA or BLP. When an individual or an enterprise outside a BA or BLP purchases goods from an individual or an enterprise within a BA or BLP, it should comply with the current procedures.

Furthermore, Notice 76 reinforces that all types of enterprises established in BAs and BLPs should follow the relevant rules and regulations provided by the State Administration of Taxation, the General Customs Administration and the State Administration of Foreign Exchange concerning taxation, customs and foreign exchange matters, respectively.

It appears that with the development of various regulations, foreign investors should undertake a review of their China business structure and the various available options to optimize their trading model.

Source: Deloitte China - GAI


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ASIAtalk

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