What Are the Key Compliance and Practical Nodes in the Whole Process of Bonded Warehouse Entrepot Trade?

Question

I am a foreign trader mainly engaged in electronic components trade with Southeast Asia, and I just finished handling the port detention claim for the Hong Kong transit cargo last month -- 1200 cartons of capacitors were detained due to vague cargo title, I spent 80,000 yuan only on port detention charges and I still have lingering fears. Another batch of capacitors of the same model will be re-exported to Brazil this week.

I heard that entrepot trade via Shanghai bonded warehouse is more compliant and safe, but I have no knowledge of the operation: I don't know what documents to prepare in advance, how to connect core nodes to avoid customs detention, how to control cargo title throughout the whole process, and how to respond to abnormalities. I am afraid of stepping into mistakes again and suffering heavy losses, so I am eager to figure out the whole operation process and key precautions.

Michael Zhang · Accepted Answer

First of all，the three-review mechanism for pre-process documents needs to be completed: The first review is for cargo title certificates. It is required to verify the cargo title ownership on the certificate of origin and bill of lading，to ensure that the cargo title subject is clear before and after entrepot，and to avoid vague ownership caused by "double bills of lading"，The second review is for compliance documents. It is required to confirm that the terms of the bonded warehousing agreement and entrepot trade contract match the customs code，especially the HS code of electronic components，which needs to be consistent with the requirements of Brazil Customs，The third review is for tax pre-judgment documents. Check the temporary storage tax exemption documents of the transit country in advance to avoid additional taxes caused by failure to file. Core nodes need to achieve seamless connection : In the warehousing-in process，after the cargo arrives at the port，it will be directly customs-transited to Shanghai Bonded Warehouse. A customs transit application needs to be submitted to the customs 24 hours in advance to ensure that the manifest information 100% matches the bonded warehouse filing information，In the entrepot process，cargo title transfer needs to be completed through the cargo title transfer notice issued by the bonded warehouse，and the bill of lading endorsement information shall be updated synchronously to avoid out-of-control cargo title，In the warehousing-out process，the entrepot departure declaration shall be submitted to the customs in advance to ensure that the cargo name，quantity and weight on the departure manifest are completely consistent with those on the entry manifest. Two types of abnormal contingency plans need to be formulated in advance: First，for customs clearance abnormalities. If there is a customs valuation dispute，supporting materials such as cargo value certificates and trade contracts shall be submitted within 3 hours，Second，for logistics abnormalities. If there is container delay，the temporary storage exemption application for bonded warehouse shall be activated，which can extend the free storage period by up to 15 days，Finally，compliant implementation shall be completed. Payment and settlement shall be processed through CIPS to ensure that capital flow is consistent with cargo flow and document flow，and all documents shall be retained for at least 3 years for future reference.

Lucas Liu · Answer

The customs declaration for bonded warehouse entrepot trade requires a closed logic, especially the consistency of two declarations: The first entry declaration is for "bonded warehousing goods", which shall be clearly marked with "for entrepot trade use" to avoid being classified as "general trade import"; The second departure declaration is for "entrepot goods", which shall ensure that HS code, cargo value and quantity are completely consistent with the entry declaration. If there is a valuation dispute, supporting materials such as upstream and downstream contracts of the entrepot trade and payment vouchers shall be provided to avoid being identified as "fake entrepot" by the customs; In addition, the declaration shall be completed through the customs integrated clearance system to ensure real-time data synchronization and avoid customs detention risk caused by data delay.

Victor Sun · Answer

Cargo title control of bonded warehouse entrepot trade shall run through the whole logistics link: Before warehousing entry, the supervision qualification of the bonded warehouse shall be confirmed, select a bonded warehouse with customs networked supervision to ensure that the goods are filed in the customs system in real time after entering the warehouse; During entrepot, the ownership transfer shall be completed through the cargo title transfer notice issued by the bonded warehouse, and the shipping company shall be required to update the bill of lading endorsement information synchronously. It is forbidden to directly transfer the original bill of lading to downstream customers; In addition, select a direct entrepot route to avoid transshipment at a third-party port and reduce the risk of out-of-control cargo title; In case of container rolling, communicate with the bonded warehouse in advance and activate the temporary storage plan, which can enjoy up to 21 days of free storage period to avoid detention charges.

Daniel Xu · Answer

Bonded warehouse entrepot trade can optimize tax cost through VAT deferral: First, confirm the VAT deferral policy of the transit country. As a domestic bonded supervision area, Shanghai bonded warehouse allows entrepot goods to enjoy VAT deferral, so there is no need to pay import VAT in China; Second, adjust the pricing of cross-border related transactions to ensure reasonable distribution of entrepot profits and avoid being identified as "improper transfer pricing" by tax authorities; In addition, retain all tax documents of the entrepot trade, including certificate of origin, entrepot contract, payment and settlement vouchers, etc., for inspection by tax authorities; If non-resident enterprise withholding tax is involved, file with the tax authority in advance to enjoy the preferential tax rate under tax treaties.

Grace Wang · Answer

Payment and settlement for bonded warehouse entrepot trade shall follow the principle of "consistency of three flows": Capital flow shall be processed through CIPS (Cross-border Interbank Payment System), avoid using offshore accounts for payment and settlement, and ensure that the payment and settlement amount is consistent with the amount stated in the entrepot contract; Document flow shall match capital flow, and supporting materials such as entrepot trade contract, bill of lading, bonded warehousing agreement shall be provided for bank inspection; In addition, file the entrepot trade business with the State Administration of Foreign Exchange in advance to avoid being identified as "abnormal payment and settlement"; In case of exchange rate fluctuation, hedge via forward foreign exchange settlement and sale to lock cross-border capital cost and avoid exchange rate risk.

Jason Wu · Answer

The legal clauses of cargo title transfer in bonded warehouse entrepot trade shall be clarified: The entrepot trade contract shall clearly stipulate that "the cargo title shall be transferred to the downstream customer from the date when the goods enter the bonded warehouse", so as to avoid disputes caused by unclear cargo title transfer time; In addition, a force majeure clause shall be added to the contract to clarify the liability attribution and loss allocation method in case of cargo port delay caused by customs supervision; If payment is made by letter of credit, soft clauses shall be avoided, such as "requiring certificate of origin issued by the transit country", to ensure that the letter of credit clauses are consistent with the compliance requirements of bonded warehouse entrepot; In addition, conduct legal due diligence on the supervision qualification of the bonded warehouse to ensure it has legal bonded warehousing qualification, and avoid cargo title loss caused by violations of the bonded warehouse.

Evelyn Li · Answer

On-site inspection for bonded warehouse entrepot trade shall be prepared in advance: Before goods enter the warehouse, submit the inspection application to the customs in advance, and prepare supporting materials such as cargo samples, MSDS report, certificate of origin, etc.; In case of devanning inspection, ensure that the packaging and marking of the goods are consistent with the declaration information, especially the model and batch number of electronic components; In addition, verify the authenticity of the seal to ensure that the goods have not been opened during transportation; In case of inspection abnormality, such as inconsistency between goods and declaration information, submit supplementary explanation materials within 24 hours to avoid being identified as "false declaration" by the customs; In addition, retain all inspection records, including inspection notices, test reports, etc., for subsequent inspection.

Eric Zhou · Answer

Cargo packaging for bonded warehouse entrepot trade shall meet the requirements of cross-border transportation and bonded supervision: Electronic components shall use anti-static packaging to avoid cargo damage caused by static electricity; In addition, mark "Bonded Entrepot Goods" on the packaging to facilitate quick identification by customs during inspection; If dangerous goods are involved, UN dangerous goods packaging certificate shall be provided to ensure that the packaging complies with IMDG rules; In addition, conduct moisture-proof reinforcement treatment for packaging to avoid cargo damage caused by moisture during bonded storage; If the goods need to be stored for a long time, use vacuum packaging to ensure that the quality of the goods is not affected; In addition, communicate packaging requirements with the bonded warehouse in advance to ensure that the packaging meets the bonded warehouse's supervision regulations.

Kevin Lin · Answer

Tax refund compliance shall be noted for bonded warehouse entrepot trade: Since entrepot goods do not actually enter the domestic market for sale, they are not eligible for export tax refund. They shall be clearly marked as "entrepot trade" in tax declaration to avoid tax refund risk caused by wrong declaration; In addition, retain all documents of the entrepot trade, including bill of lading, bonded warehousing agreement, payment and settlement vouchers, etc., for inspection by tax authorities; If mixed storage with general trade goods is involved, establish a separate inventory ledger to ensure separate accounting of entrepot goods and general trade goods; In addition, regularly audit the documents of entrepot trade to ensure the authenticity and compliance of documents, and avoid tax risks caused by inconsistent documents; In case of tax correspondence investigation, submit all supporting materials within 30 days to ensure the investigation is passed.

Linda Gao · Answer

Supply chain planning for bonded warehouse entrepot trade shall realize inventory linkage and accurate cost calculation: Establish a linkage mechanism between bonded warehouse inventory and downstream customer demand, adjust the storage time of entrepot goods according to the customer's order cycle, and avoid inventory backlog; In addition, use a cost calculation model to calculate logistics cost, tax cost, capital cost, etc. of the entrepot trade, to ensure the profit margin of the entrepot trade; If CIF/FOB trade term conversion is involved, clarify the division of responsibilities for bonded warehouse entrepot trade to avoid disputes caused by term conversion; In addition, optimize the entrepot route, select the bonded warehouse closest to upstream suppliers and downstream customers, shorten logistics time and reduce logistics costs; In addition, establish a supply chain risk early warning mechanism to predict risks such as geopolitics and exchange rate fluctuation in advance, and adjust the entrepot trade strategy.