Let's talk about the emerging sector in processing trade — "outbound processing"

 

 

As China continues to promote a high-level of opening-up and domestic industries maintain high-quality development, an increasing number of high-tech enterprises with new quality productive forces are turning their attention to the global market. Many high-tech enterprises in Ningbo have embraced this trend to overhaul and enhance their traditional operations, transitioning the processing trade model to "outbound processing" model. In 2024, the number of enterprises adopting the outbound processing mode in Ningbo Customs expanded to include six enterprises, with a total import and export value reaching RMB 1.046 billion, a 25-fold year-over-year increase, marking the onset of a rapid growth phase.

But what exactly is "outbound processing"? Today, let's delve into the concept of "outbound processing"!

What is "outbound processing" exactly?

"Outbound processing" refers to the business activities in which qualified enterprises in China entrust their own raw and auxiliary materials, spare parts, components or semi-finished products to overseas enterprises for manufacturing or processing, and then have the manufactured or processed materials, spare parts, components or products transported back to China within a specified time limit and pay the processing fees, overseas materials and parts fees and other related expenses.

 

 

 

 

 

 

I. What Are the Benefits of "Outbound Processing"?

When enterprises engage in outbound processing activities, their goods are exempt from the catalogue restrictions of prohibited and restricted commodities in processing trade, and regulations such as bank deposit requirements and unit consumption management are not applicable. Once enterprises adopt electronic account books, they are no longer required to apply for paper manuals for outbound processing. Concurrently, the restriction that mandates export and re-import of goods must occur at the same port will be relaxed.

 

 

 

 

 

 

 

Prior to the implementation of the outbound processing policy, enterprises' materials and semi-finished products could only be exported to foreign countries through general trade. After processing, these would be reimported under general trade terms, with full taxes to be paid based on the product's value upon import. Following the implementation of outbound processing policy, when overseas enterprises are entrusted with processing and then the goods are re-imported for domestic sale, customs will levy taxes solely on the value-added segment of the products processed abroad. Specifically, beyond basic processing fees and material costs, other expenses are exempt from customs duties and VAT.

II. "Preliminary Preparations" for Outbound Processing

1. Preconditions for "outbound processing"

According to the regulations, with the exception of dishonest enterprises, all enterprises are eligible to apply to Customs to engage in outbound processing business. However, the goods that an enterprise requests for outbound processing must not be items that are prohibited or restricted from import and export by the state, nor can they be goods that are subject to export tariffs.

 

 

 

 

2.How to apply for "outbound processing"?

Enterprises can go through the China International Trade Single Window to handle procedures such as the establishment, modification, and verification of outbound processing account books. Enterprises engaging in outbound processing should complete the account book establishment procedures with their local customs authorities and submit the following electronic documents via the "Single Window" → "Processing Trade" → "Outbound Processing" module:

1) Outbound Processing Contract;

2) Manufacturing Process Description;

3) Pictures or samples of the relevant goods;

4) Other documents and materials required by customs.

When establishing outbound processing account books, enterprises must accurately declare the import and export ports, product names, product numbers, quantities, specifications, prices, and places of origin. If using overseas materials, they must also accurately declare the quantity and value of the overseas materials used.

III. Customs Clearance Procedures for "Outbound Processing"

1.How to declare at customs for "outbound processing"?

Enterprises should report outbound processing in the following manner:

1) Goods intended for outbound processing are to be exported from China. Enterprises must complete the export goods customs declaration form and enter the account book code in the filing number field. The supervision method is "outward processing" (supervision code 1427), and the tax reduction or exemption method is specified as "full exemption". Other items shall be filled in accurately based on actual conditions.

2) Upon re-importing goods that underwent processing abroad, the enterprise must complete the import customs declaration form, entering the account book code in the filing number field. The "outward processing" supervision method (supervision code: 1427) should be selected. The product number field should reflect the actual declared status. Each item of re-imported goods should be separated into two entries: one entry should report the value of the originally exported goods, with the quantity showing the actual number of re-imported goods, following the "full exemption" tax reduction and exemption method; the other entry should report overseas processing charges, material charges, transport and associated re-import costs, insurance, etc., with a quantity of 0.1, using the "tax collection as per regulations" method for tax reduction and exemption method. Other items shall be filled in accurately based on actual conditions.

2. Write-off of "outbound processing" account books

The account books for outbound processing shall be written off in the following ways:

1) An enterprise shall positively verify, report, and write off its account book of outward processing. The enterprise shall verify and report the account book to the competent customs office within 30 days from the end of the verification period of the account book;

2) If the goods for outward processing cannot be re-transported into China on schedule for some reason, the enterprise shall promptly explain the situation to the local competent customs office in writing, and the competent customs office shall deduct the quantity of re-transported goods accordingly;

3) If an enterprise fails to verify and report the account book of outward processing to the customs office within the time limit, the customs office may urge the enterprise for verification through electronic bulletin boards and other means. If the enterprise still refuses to verify and report the account book after being urged, the customs office may directly write off the account book;

4) In cases of anomalies such as an imbalance in account books, enterprises must provide an explanation and complete the necessary customs procedures specific to the situation before account verification. If customs declaration forms need to be amended or cancelled, enterprises should do so in accordance with the "Administrative Measures of the People's Republic of China on the Modification and Revocation of Customs Declaration Forms for Import and Export Goods" (issued via Decree No. 220 and amended by Decree No. 243 of the General Administration of Customs).

 

 

 

 

IV. Customs Reminder

1. The write-off period for account books related to outbound processing is 1 year. If changes are made to the contents of the account books, the enterprise must complete the change procedures within the validity period (1 year) of the account books.

2. If outbound processed goods need to be returned due to issues like quality or specification discrepancies, the enterprise must handle the return procedures within the account book write-off period according to the relevant regulations for returned goods (supervision code 4561). If the goods are re-shipped into China after exceeding the return time limit or the account book write-off period, the enterprise shall go through the import procedures in accordance with the general trade management regulations;

3. Outbound processing goods are not subject to the catalogue of prohibited and restricted commodities in processing trade, and relevant regulations on processing trade such as bank deposit account and unit consumption management will not be implemented. The customs, guided by supervisory needs, may conduct audits and inspections on enterprises engaged in outbound processing activities, and the enterprises are required to cooperate accordingly.

Note: This document partially references the Announcement on Issues Related to Outbound Processing Business (GACC Announcement No. 69 [2016]) and the Announcement on Implementing Electronic Account Books for Outbound Processing (GACC No. 57 [2019]).

 

 

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Disclaimer：The above content is translated from Chinese version of Alayongguan. The Alayongguan version shall prevail.