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What Are the Core Profit Points of Entrepot Trade and How Can Enterprises Accurately Explore Profit Space?
or complex compliance issues.
clearance and fund security.
I am the owner of a hardware and electrical machinery enterprise based in Shanghai with an annual export volume of about 8 million US dollars. Recently, for three consecutive orders of flanges shipped to the EU, customers directly cut the price by 32% due to the EU's anti-dumping duties on Chinese hardware products, turning our original 5% profit into a loss directly!
Last week at an industry gathering, I heard from peers that entrepot trade can be profitable, but I only vaguely know that it can avoid anti-dumping duties, and I have no idea what the actual profit comes from — is it the price difference of goods? Or hidden benefits like tax difference and exchange difference? I am so anxious that I can't sleep well these days, because I am afraid of stepping into pitfalls if I follow blindly.
After all, I have never done entrepot trade before. If I don't make money but get my goods detained at a third-country port, I will go bankrupt from the loss. Can you explain thoroughly what profit entrepot trade actually brings?
Grace WangYears of service：10Customer Rating：5.0
Senior Foreign Trade ConsultantStart a Chat
First of all，we need to analyze the core disadvantages of the traditional direct export mode: For EU anti-dumping duties，direct export requires paying about 28% anti-dumping duty plus 19% EU VAT，which directly erodes more than 40% of the profit based on goods value，and even leads to order loss. The core profit logic of entrepot trade is essentially to hedge such extra costs and explore multi-layer profits through a compliance framework of third-country transit.
First Category: Tax Difference Profit: By completing transit and document switching in a third country that has no anti-dumping barriers with the EU，such as ASEAN and Middle East countries，and marking the Chinese-origin goods as originating from the third country，you can directly avoid the 28% anti-dumping duty. This part of the tax that was originally supposed to be paid can be converted into net profit. Calculated based on your annual export volume of 8 million US dollars，you can get an additional profit space of about 2.24 million US dollars per year.
Second Category: Exchange Difference Profit: Choose third-country currencies (such as Singapore Dollar，UAE Dirham) for settlement，and lock the exchange rate by utilizing the exchange rate fluctuation cycle of different currencies. For example，you can exchange currency for settlement when RMB is at a high level against Singapore Dollar，and purchase currency for repayment when RMB is at a low level，which can bring an extra 1%-3% exchange difference profit per order.
In addition，through exclusive VAT deferral service，the payment time of EU import VAT can be delayed for 6 months，which is equivalent to obtaining an interest-free working capital and further improving capital turnover rate. In terms of access threshold，you only need to provide basic documents such as the original factory invoice and packing list of the goods，and there is no need to set up a physical entity in the third country. The compliance will be fully guaranteed by a professional team.
Eric ZhouYears of service：6Customer Rating：5.0
Senior Manager of Foreign Exchange & Tax RebatesStart a Chat
In the customs declaration link of entrepot trade, it is necessary to focus on the authenticity and consistency of the third-country certificate of origin, to avoid customs valuation disputes caused by broken logical chain of the certificate of origin. If the third-country production address on the certificate of origin does not match the actual transit port of the goods, EU customs will launch a retrospective verification, directly detain the goods and impose a fine of 15%-20% of the goods value.
It is necessary to review the sample certificate of origin provided by the third-country agent in advance, ensure that the information of the manufacturer and exporter on the certificate of origin fully matches the customs declaration and bill of lading, and keep photos of warehousing and outbound from the third-country transit warehouse as auxiliary proof, so as to form a complete closed logical loop for customs declaration.
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
For the logistics route of entrepot trade, priority should be given to third-country ports with direct routes to the EU, such as Port of Singapore and Port Klang, Malaysia, to avoid container detention fees and title risks caused by secondary transit. If you choose a niche port for transit, insufficient routes may cause the goods to be detained at the port for more than 7 days, resulting in a container detention fee of about 120 US dollars per day.
It is necessary to lock the free storage period of the third-country warehouse in advance (at least 14 days), and require the logistics provider to provide "order endorsement" of the bill of lading, to ensure that the title of goods is always in our hands. If the EU customer abandons the order, we can quickly resell the goods to other buyers.
Jason WuYears of service：10Customer Rating：5.0
International Logistics & Supply Chain ManagerStart a Chat
For tax planning of entrepot trade, it is necessary to focus on related party transaction pricing under the BEPS framework, to avoid anti-avoidance investigation by tax authorities due to transfer pricing. If the transaction price between the Chinese parent company and the third-country agent is 20% lower than the fair market price, the Chinese tax authority will launch transfer pricing adjustment, requiring the enterprise to make up corporate income tax and pay overdue fine.
It is necessary to set the transaction price according to the fair price range of the same category of goods released by the General Administration of Customs, and keep the invoices of storage fees and operation fees from the third-country agent as the pricing basis, to ensure that related party transactions comply with the arm's length principle.
Kevin LinYears of service：4Customer Rating：5.0
Trade Solutions ManagerStart a Chat
For the exchange collection and payment link of entrepot trade, RMB cross-border payment should be completed through the CIPS system, to avoid fund freezing caused by compliance issues of SWIFT messages. If you use an offshore account for exchange collection and payment and cannot provide a complete document chain for entrepot trade, the bank will classify the account as a high-risk account, limit the exchange collection and payment quota or even freeze the account.
It is necessary to upload documents such as the third-country certificate of origin, transit bill of lading and trade contract to the CIPS system for pre-review in advance, ensure that each fund flow fully matches the goods flow and document flow, and choose a compliant bank for exchange collection and payment to improve the review pass rate.
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
Contract clauses of entrepot trade should clearly stipulate the title custody responsibility and breach of contract compensation clauses of the third-country agent, to avoid goods damage or loss caused by the agent's negligence. If no specific node of title transfer is stipulated in the contract, the third-country agent may resell the goods to other buyers without authorization and bear no liability for breach of contract.
It is necessary to clearly stipulate in the contract that "the agent can only release the goods after receiving our written delivery instruction", and add a fallback clause for force majeure. If transit fails due to sudden policy changes in the third country, the agent shall bear 50% of the storage fee as compensation.
Victor SunYears of service：5Customer Rating：5.0
Trade Risk Control ManagerStart a Chat
For the third-country inspection link of entrepot trade, it is necessary to prepare the MSDS report and original factory quality inspection report of the goods in advance, to avoid unpacking inspection caused by inconsistent goods marking. If the origin marking on the goods is not completely covered (for example, the "Made in China" laser mark on hardware parts is not completely removed), the third-country customs will refuse to issue the certificate of origin, leading to transit failure.
It is necessary to completely cover the origin marking before shipping the goods to the third country, take photos of the covered marking in the transit warehouse for retention, communicate with the third-country inspection agency in advance and provide the third-party quality inspection report of the goods to reduce the probability of inspection.
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
Document filing for entrepot trade must strictly comply with the "consistency of four flows" principle, to avoid failure to enjoy export tax refund due to incomplete documents. If the goods of entrepot trade are shipped directly from China to the third country without actual storage in the third country, it is necessary to retain documents such as transit operation records and warehouse receipt from the third-country agent to prove that the goods have indeed gone through transit.
It is necessary to sort out all documents (including original factory invoice, transit bill of lading, certificate of origin, warehouse receipt) into a file and keep them for at least 5 years. If the tax authority initiates a correspondence investigation, a complete document chain can be provided within 3 working days to ensure the smooth arrival of tax refund.
Andy GuoYears of service：3Customer Rating：5.0
Supply Chain Management ExpertStart a Chat
Supply chain planning for entrepot trade needs to adjust transit nodes according to the profit logic of different product categories. For example, hardware and electrical machinery goods can choose ASEAN as the transit place, because the tariff on hardware between ASEAN and the EU is 0, and the logistics cost is only 60% of that of direct export; while textile goods can choose Turkey as the transit place, because Turkey's textile certificate of origin is more easily recognized by the EU.
It is necessary to establish an accurate cost calculation model, include logistics cost, storage cost, certificate of origin processing fee and other costs into the calculation, ensure that the net profit of each entrepot order is not less than 8%, and sign a long-term cooperation agreement with the third-country agent to enjoy a 10%-15% discount on service fees.