DETAILED RULES FOR THE IMPLEMENTATION OF CUSTOMS SUPERVISION AND CONTROL AND TAXATION ON IMPORT AND EXPORT GOODS BY ENTERPRISES DOING PROCESSING, ASSEMBLING AND SMALL AND MEDIUM-SCALED COMPENSATION TRADE
(Promulgated by the Ministry of Foreign Economic Relations and Trade on August 6, 1982)
SUBJECT: COMPENSATION TRADE
ISSUING-DEPT: MINISTRY OF FOREIGN ECONOMIC RELATIONS & TRADE
[Article 1] In order to strengthen supervision and control over goods imported or exported by enterprises doing processing, assembling and small and medium-scaled compensation trade, the detailed rules herein below are formulated in accordance with the “Procedures for Carrying out Processing and Assembling Business with Imported Materials and Parts and Engaging in Small and Medium-Scaled Compensation Trade” issued by the State Council and the Interim Customs Law as well as other relevant rules and regulations.
[Article 2] The units undertaking processing imported materials and assembling foreign parts and small and medium-scaled compensation trade must go through the registration procedures at the local customs or customs in charge upon presentation of the licenses issued by the administrative departments for industry and commerce at the county level or above before they are allowed to attend to formalities for importing or exporting equipment, materials, spare parts and finished (or manufactured) products.
[Article 3] Foreign trade corporations, industry-trade corporation and production units should present in advance to local customs or customs specifically in charge a copy of their contracts signed with overseas interests and the certificates issued by competent authorities for the filing of the contracts and the documents of approval, by which the customs issue them “Register for Goods imported and Exported for the Purpose of Processing and Assembling and Small and Medium-scaled Compensation Trade” (hereinafter referred to as the Register). No customs clearance shall be given to goods imported or exported by units without the Register.
[Article 4] Upon entry of imported raw material, spare parts, components and equipment for processing, assembling and compensation trade, and exit of exports of finished products and products for compensation (hereinafter referred to as products), the relevant foreign trade corporations, industry-trade corporations or production units (or their agents) should declare to the customs at the place of entry or exit, bringing with them the Register and filling in a triplicated customs form for entry or exit goods and presenting the invoices and packing lists and other documents for examination. For commodities of which import or export licenses are required or export quotas are imposed by foreign countries, import or export licenses shall be presented while making customs declarations, by which the customs shall levy or exempt customs duties or industrial and commercial tax according to relevant rules and regulations.
[Article 5] The materials, spare parts, components and equipment imported for processing, assembling and compensation trade and the products processed or assembled are bonded goods, which are placed under customs supervision and control from the date of entry of the afforementioned material, equipment, spare parts and components, to the date of exit for the finished products, or full payment of compensation for equipment. No unit or individual shall sell, transfer or use them for other purposes without permission by foreign trade management departments and going through relevant formalities at local customs or the customs in charge.
Production units concerned must, in compliance with contracts, set up itemized accounts of the materials, spare parts, components and equipment imported as well as finished products exported. The customs has the right to read or check at any time the above-mentioned accounts as well as their business correspondence and other relevant data, and production units involved are obliged to provide all the conveniences.
[Article 6] All the products processed or assembled with imported materials or parts must be exported. They are not allowed to be sold on the domestic market or laded by overseas partners in China. If these products have to be sold in China owing to some reasons, they shall be treated as ordinary import goods and applications shall be filed for import licenses, by which the customs will levy import duties and industrial and commercial consolidated tax as required for re-import of processed products.
For cases where an overseas partner unilaterally terminate the contract and the production unit requests to sell the remaining raw material, spare parts and finished products in China in order to compensate for the processing fees, the customs shall against import licenses, levy import duties and industrial and commercial consolidated tax as required for imported raw materials or spare parts.
[Article 7] The scope of equipment imported duty-free for the purpose of processing, assembling and compensation trade is limited to necessary machinery, quality inspection instruments, safety and anti-pollution devices related to the projects as well as loading and unloading facilities and forklifts which are used within the factory or mining areas and which China is unable to produce. Equipment beyond this limit is not allowed to be imported. If the imports have been approved by competent authorities and import licenses have been obtained for equipment beyond the set limits, they shall be treated as ordinary imported goods and the customs declaration and taxation procedures shall be required.
[Article 8] The procedures for the examination, cancellation and the collection of duty short-paid for materials, spare parts, components and equipment imported and finished products exported shall be handled by local customs if there is any and by the designated customs in places where there is no customs. Upon completion of the formalities for each batch of imported materials, spare parts and equipment and finished products exported, the customs office at the place of entry or exit should deliver in good time a copy of the customs import or export declaration to the customs designated to be in charge of the work.
[Article 9] After the processing, assembling and compensation trade contracts have been fulfilled, the foreign trade corporations, industry-trade corporations and production units concerned should, within one month beginning from the date of the expiration of the contracts or the date in which the last batch of finished products were exported go through the examination and cancellation procedures with the “Registers” at the local customs or at the customs designated to be in charge of the work. In cases where a contract is suspended, extended or transferred, the units involved should submit a written report to the responsible customs within one month after the events take place. Should they fail to do so within the prescribed time limit, the cases shall be dealt with according to the relevant provisions in Article 11, and, if necessary, the customs shall refuse to issue the Register to them when other processing, assembling and compensation trade contracts are signed.
[Article 10] For surplus materials and spare parts or increased finished products as a result of improved production processes and management after the contracts are fulfilled, if they have been approved by competent authorities which have examined the contracts and issued the certificates for the filing of the contracts, to be sold in China, the customs shall examine the cases and if they proved to be factual, import licenses shall not be required and import duties shall be exempt for the materials and spare parts within a value not exceeding 3,000 yuan, or less than two percent of the total value of the imported materials and spare parts. But, import duties and industrial and commercial consolidated tax shall be levied retroactively on the part exceeding the prescribed limit in terms of value.
[Article 11] Any acts in violation against the following provisions and of smuggling shall be dealt with according to the Interim Customs Law and in the light of the seriousness of the case. Penalties include fine for delaying payment, fines less than three times the value of evaded taxes or less than the value of related materials, spare parts, goods or equipment on relevant units or individuals, recovery of illicit profits or expropriation of related goods. For serious cases, the customs may revoke the Registers, or propose to competent authorities to disqualify the offenders for their business operations for a certain period of time, or submit the cases to judicial departments.
(1) Cases where the importation of the materials, spare parts or equipment has not been approved or the amount of such imports exceeds the limits specified on the contracts on file;
(2) Cases involving forgery of contract and receipt, falsifying of consumption quotas and rates of losses for materials and spare parts consumed for processing and assembling or presentation of other false documents upon examination;
(3) Cases of deception including declaring less than the actual amount imported and more than the actual amount exported or concealing, cover up or giving false report about names of goods, their specifications and quantity;
(4) Cases of false declaration of barter trade as processing, assembling or compensation trade;
(5) Cases of importing and exporting other goods, or fraudulently purchasing goods banned or restricted by the state for export in the name of carrying out processing, assembling or compensation trade;
(6) Unauthorized sales, dividing up and using for other purposes than prescribed materials, spare parts or equipment imported or finished products for export or cases allowing overseas business people to lade such goods in China;
(7) Failure to set up special accounts according to contracts, forging or altering accounts and the Register;
(8) Failure to attend to formalities for cancelling and winding up the records within the prescribed time limit, or failure to submit written reports to the customs on the suspension, extension or transference of contracts; and
(9) Other acts of violations against the regulations or acts of smuggling.
[Article 12] No unit or individual is allowed to delay payment of or refuse to pay the payable taxes, fines for deferring payments or other fines. For violations against such provisions the customs may notify the bank to withhold the payments from their accounts, or give no clearance of goods they import next time.
[Article 13] The detailed rules shall come into force on October 1, 1982.