Introduction to Special Customs Areas in China

March 11, 2009

Rachel TaoRachel is a Trade & Customs manager from KPMG’s Shanghai office. She has been with KPMG’s Trade and Customs practice for more than five years. Rachel has worked with a wide range of Chinese and multinational clients ranging from auto part and electronic component manufacturers to luxury branded products distributors and retailers. She has assisted clients on customs compliance reviews, customs valuation defense, tax efficiency supply chain planning and forensic audits.

Today’s speaker

Special Customs Areas and Locations

Area15 Free Trade Zone (“FTZ”)About 60 Export Processing Zone (“EPZ”)About 8 Bonded Logistic Park (“BLP”)11 Bonded Port ( “BP” )1 Integrated Free Trade Zone (“Integrated FTZ”)1 Cross-border Zhuhai-Macau Industrial Park

LocationBonded Logistic Centre (“BLC”, A and B type)Bonded warehouse (“BW”, for import only) Export Supervision Warehouse (“ESW”, for export only)

FTZs in China

DalianTianjin

Qingdao

Zhangjiagang

Waigaoqiao

Ningbo

Fuzhou

Guangzhou XiangyuShantou

Futian YantiangangShatoujiao

Haikou

Zhuhai

No. Name

1 Waigaoqiao

2 Qingdao

3 Dalian

4 Futian

5 Guangzhou

6 Shatoujiao

7 Shantou

8 Tianjin

9 Zhangjiagang

10 Fuzhou

11 Xiangyu

12 Haikou

13 Ningbo

14 Zhuhai

15 Yantiangang

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Function of FTZs

Entrepot trade

Export processing

Bonded warehousing

Trading

Between FTZ and territories outside mainland China

Within FTZ and with other FTZs

With non FTZ area companies ( if entitled with distribution rights)

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Taxation of Chinese Enterprises Outside FTZ

Purchase goods from FTZ

Deemed import

Import taxes

Sell goods to FTZ enterprise

Deemed export

VAT refund only after the goods have been physically exported

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

More than 60 EPZs through out China

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Overseas

PRC

ForeignEnterprise

Domestic Entity

EPZ

EPZ

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Before 2005: Only substantial manufacturing and its related warehousing and transportation is allowed

Function expansion in 2005: Repair or testing services are allowed upon approval

Now: 7 Pilot EPZs

Logistic, R&D, testing and after-sale repair of exported products are

allowed

Non-substantial manufacturing activities are allowed

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Export Processing Zone – Function expansion

EPZ Enterprises – tax policy

No import duty or VAT on imported materials

No export duty on export goods

No VAT or CT on goods for direct export or sale inside EPZ

at the processing stage within EPZ

No tax refund on goods exported by EPZ enterprises

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

BLPs in China

DalianTianjin

Qingdao

Zhangjiagang

Waigaoqiao

Ningbo

Xiangyu

Yantiangang

No. Name

1 Waigaoqiao

2 Qingdao

3 Dalian

4 Tianjin

5 Zhangjiagang

6 Xiangyu, Xiamen

7 Ningbo

8 Yantian, Shenzhen

9 Fuzhou

10 Guangzhou

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Fuzhou

Guangzhou

BLP / BLC - Function

International Transfer and Consolidation Centre

International Distribution Centre

International Procurement Centre

International Entrepot Trade Centre

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Business Activities in BLP / BLC

Bonded warehousing and logistics industryInternational procurement and distributionTesting or maintenance servicesDisplay of bonded goodsSimple processing and value-added servicesOther international logistic services upon approval from Customs authorityNo processing, manufacturing, retail, dismantling or renovation allowed

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Bonded Port

洋山港

Bonded port – functions and tax policy

3+1: A combination functions of FTZ, EPZ and BLPBonded manufacturingBonded warehousing and logisticsInternational procurement and distributionTesting or maintenanceSimple processing and value-added servicesOther international logistic services

Export VAT refund for domestic goods upon entranceExport tax refund for domestically manufactured equipment Import VAT for goods entering domestic market

Other customs special area or locations

Integrated Free Trade Zone (enjoy similar policy as BP)

Cross-border Zhuhai-Macau Industrial Park (enjoy similar policy as BP)

Export Supervision Warehouse (for export goods only)

General type

Export tax refund type

Bonded warehouse (for import goods only)

Suzhou Integrated Free Trade Zone

First Integrated FTZ in China

A combination of functions of all special customs

areas in China

80km from Shanghai, a convenient location

Enjoy all preferential policies in China regarding

Customs, Tax and Foreign exchange

© 2006 KPMG Huazhen, the China member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong

Export Via Special Customs Areas

China MFG China Customer

Bonded Logistics ParksBonded Logistics ParksFree Trade Zones?Free Trade Zones?

Export Processing Zones?Export Processing Zones?

TradeCoTradeCo

CIT @25%

Income tax @?%

Q & A

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Presenter’s contact detailsRachel TaoKPMG Shanghai, Tax+86 21 2212 3473rachel.tao@kpmg.com.cnwww.kpmg.com.hk

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated withKPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong.