Materials For Establishing Foreign-Funded Enterprise

Within F.T.Z.

Outside F.T.Z

Approval

By Customs only

By both the responsible MOFTEC and Customs Authorities.

Authentication of qualification

F.T.Z. Administration checks business scope when approving the registration of enterprise before business license is granted. F.T.Z. enterprises are not required to apply for Certificate of Approval on Processing Trading Business.

MOFTEC authorities check and issue Certificate of Approval on Processing Trading business after business license obtained and enterprise put into operation. 10proof documents shall be submitted

Authentication of processing capability

Unnecessary.

MOFTEC authorities issue Certificate of Processing Capability with one-year's term of validity.

Approval upon processing trading contract

F.T.Z. enterprises go to the F.T.Z. Customs for file and cancellation is allowed based upon the general contract.

(1) MOFTEC authorities fill in List of Imported Materials &Components Application Record and List of finished Products for Export and Relative Imported Materials & Components Consumption Record according to the submitted documents and chop seal of approval on each contract.                                         (2) Enterprises go to the responsible Customs to file the imported materials &components and apply for cancellation with each contract.

Approval on consumption of materials &components

Comparatively speaking. Loosely administrated in the enclosed area.

(1) MOFTEC authorities check and approve strictly according to the consumption standard and search for the opinions from the responsible industrial administration authority and Customs.                                                    (2) The responsible Customs cancel strictly according to the consumption standard.

Limitation on contract value

No limitation

For value above US$5 million, the contract must be submitted to MOFTEC authorities and Customs for higher level approval.

Within F.T.Z.

Outside F.T.Z.

Classification of commodities

It is not limited by different categories of imported materials & components except in the case of a few special commodities.

The commodities are classified into Prohibited, Restricted & Permitted Categories. Duty deposit account is actually carried out on imported materials & components belonging to Restricted Category except for Class A enterprises.

Classification of companies

F.T.Z. processing enterprises are regarded as Class A enterprises and it is especially beneficial for enterprises with: 

□ long processing term 

□fast cash circulation

□ high import value

Enterprises are divided into A, B, C and d Classes and administrated dynamically. Management on Class A enterprises is so strict that those with 2 years history of processing trading and complying with 7 conditions are qualified to apply for Class A enterprise status.

Change on processing validity term

Upon expiration, the remaining materials & components can be transferred to a new Manual or stored in bonded warehouses or cancelled with the Customs after approved by F.T.Z. Customs only.

Processing business should be done strictly within the term of validity. Duration can be prolonged by no more than 6 months and no more than twice with the MOFTEC Authorities' approval within the defined period.

Administration on outsourcing for deep processing and re-export

The transaction is completed with the Customs Enclosure issued by the Customs of the receiving place.

There are strict limitations. 

(1) The approval of MOFTEC Authorities in accordance with regulations on commodity category administration shall be obtained. 

(2) Customs go through formalities with the approval and charge earnest money for enterprises that do not meet the conditions to use Customs Enclosure or Computer Network.

Within F.T.Z.

Outside F.T.Z.

Processing and re-export

In principle, all products shall be re-exported after processing.

All products shall be re-exported after processing.

domestic sales of processing trading products

Except products that require import licenses, enterprises can sell their finished products made with bonded raw materials after paying import duty and import VAT in comply with market demand at home and abroad. No interest will be paid on the delayed duty and tax payment.

Domestic sales are tightly controlled. (1) It shall meet the conditions defined in Provisional Measures for Approval on domestic Sales of Bonded Materials &components for Processing Trading and be approved by MOFTEC authorities at province-level. The application together with 6 proof documents shall be submitted before the deadline of the MOFTEC authorities will issue certificate of domestic Sales of Bonded Imported Materials and Components for Processing Trading for each individual contract.

Import quota & license

Enterprises shall apply for import licenses or registration for domestic sales. There is no time limitation for issuing of licenses.

Regarding domestic sales of imported materials & components, which are not administrated by quota, license or registration, these can only be cancelled after import duty, and import VAT and interest on duty and tax have been paid.

Penalty

No penalty.

For domestic sales of commodities classified into import quota administration, if the import license or registration proof can't be submitted within the given period, a penalty between 30% and full the import value will be imposed.  In the meantime, duty and tax and relative interest shall be paid.

Within F.T.Z.

Outside F.T.Z.

Application procedure

No bank account deposit is necessary. Materials & components are fully bonded.

Enterprises open duty deposit account according to regulations, which are administrated "actually" or "nominally" based on enterprise or commodity categories. The whole deposit account open procedure is completed after going between MOFTEC authorities, bank and customs at least 12times.

Amount

No capital is taken up.

Assuming an average Customs duty rate of 20%, the actual duty deposit for a processing enterprise is some 40% of the total import value on the contract. In this way, if the contract term of a processing trading is half a year, duty deposit will take up the capital for half a year.

Bank interest

No interest is deducted.

If loan is made from the bank to pay such duty deposit, the interest accrues on time loan actually take up profit of processing trading.

Within F.T.Z.

Outside F.T.Z.

Foreign exchange retain

No foreign exchange settlement regulation necessary. Forex obtained on export can be fully retained, thus the commission for forex selling and purchasing is spared and the forex rate risk is avoided.

Forex settlement regulation is carried out. Forex is retained in an amount limited by the enterprises' registered capital and the remaining forex obtained on export shall be sold to bank.

Forex verification & cancellation

No forex verification & cancellation formality is carried out.

Forex verification & cancellation is carried out .If the previous forex received from export can't be cancelled in time; the following contract will be influenced.

VAT for export-

oriented processing

No VAT is levied on the value-added part of the products processed for export.

For export-oriented processing, 17% VAT on domestic materials shall be levied first and refunded partially or fully at different rate after the products leave China.

VAT on outsourcing for deep processing

As the first processing (multi-link processing with imported material) enterprise, F.T.Z. enterprise sell products to the next processing enterprise at a price free of VAT

As the first processing enterprise, it shall pay VAT and issue VAT invoice according to regulations on domestic sales.

Within F.T.Z.

Outside F.T.Z.

Business permission

F.T.Z. enterprises can focus on processing sector and engage in international trade, warehousing & distribution, etc. concurrently.

Enterprises can only process products defined in the Processing Trading Registration Manuel.

Function development

Processing and distribution functions are combined together with bonded warehousing. Products can be sold to domestic and overseas markets through the distribution center.

No bonded warehousing or distributing business can be carried out.