In the news: E-commerce sites get new tax rates, the NDRC eases outbound investments, a Chinese electric car maker beefs up and social insurance payments are lowered

Cross-border e-commerce tax rules hit luxury goods

A new tax policy on foreign goods, which came into effect on April 8, no longer treats imported retail goods purchased online as personal postal articles, which generally enjoy a more favorable tax rate. Instead, they are now processed through the general trade channel, meaning customs duty, import VAT and consumption tax apply. The tariffs for all goods are set at zero, but the new policy sets a Rmb2,000 per single cross-border transaction and a maximum Rmb20,000 per person per year. The change in total cost of purchased items is only significant for expensive or luxury items. The move closes a tax loophole that allowed lower prices on goods sold through websites operating outside of China and may prompt a rethink in firms' business models. Authorities were also looking to crack down on a gray market where overseas Chinese individuals order baby formula and other products online on behalf of those in the mainland looking to avoid taxes. The regulation may pose a challenge for some foreign companies like Danone, which sell through these foreign sites and may need to move toward direct sales. As for the actual e-commerce platforms, they will need to either negotiate lower prices with foreign retailers or absorb the additional tax burdens themselves.

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