Connect & Solve
Trade Q&A
Can domestic trade enterprises with self-operated export qualifications legally conduct complete transit trade operations?
or complex compliance issues.
clearance and fund security.
I am the principal of a mechanical and electrical products export enterprise based in Shanghai. We have 12 years of self-operated export experience and have been supplying customers in the EU and US. Recently, the US imposed a 25% special tariff on our flagship mechanical and electrical products, which eroded 80% of our already modest profits.
We lose money on every order we take, but lose customers if we don’t. Last week, I heard that fellow enterprises have retained their market share by using transit trade to avoid tariffs. I only heard before that transit trade requires offshore companies to operate, so I am not sure if domestic companies with formal export qualifications like us can conduct transit trade.
I am also particularly worried that if we conduct transit trade, will it affect the tax refund application of our existing normal export business? Moreover, customs authorities at Shanghai Port have been conducting strict inspections recently. Will improper transit trade operations be deemed violations, leading to cargo detention and freezing of corporate accounts? I can’t sleep well out of anxiety and just want to clarify these key questions.
Eric ZhouYears of service：6Customer Rating：5.0
Senior Manager of Foreign Exchange & Tax RebatesStart a Chat
First，it is clear that domestic enterprises with formal export qualifications can fully legally conduct transit trade，but must strictly follow end-to-end compliance requirements and must not confuse it with general trade operations.
In the pre-document review stage，it is necessary to prepare goods ownership certificates，transit location warehouse agreements，and third-party inspection certificates，focusing on ensuring that the trade flow，capital flow and cargo flow of all documents are consistent. At the same time，it is required to truthfully declare the nature of transit trade to customs to avoid triggering risk control warnings due to false declarations.
For core node coordination，it is necessary to coordinate with compliant logistics service providers at the transit port to update cargo dynamics in real time，ensuring that the goods are always in "transit" status and shall not enter any area outside the domestic bonded zone. Payment and settlement shall be conducted through compliant cross-border payment channels，settling separately with upstream suppliers and downstream purchasers，and must not mix with the capital accounts of original export business.
For exception plans，it is necessary to sign an emergency port change agreement with the transit port agent in advance，so that if the policies of the transit country change suddenly，the goods can be transferred to alternative ports immediately. If customs questions the authenticity of the trade，submit all documents and full satellite transportation track proofs immediately.
After final compliant implementation，all transit trade documents shall be kept separately for more than 5 years，and separate accounting shall be conducted for the revenue and expenditure details of transit trade，so as not to affect the tax refund qualification of original export business.
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
For transit trade customs declaration, the Declaration Form for Transit Trade Goods shall be submitted to customs separately. The supervision mode code for "transit trade" shall be clearly marked: code 0130 for direct transit, code 1210 for transit in bonded logistics parks, and the general trade code 0110 shall not be used. When declaring, qualification certificates of logistics enterprises at the transit location and cargo transit manifest shall be submitted simultaneously. If the goods involve sensitive categories, additional access permission documents from the transit country shall be provided.
If the supervision mode is confused during declaration, customs valuation questioning will be triggered. At best, the declaration will be required to be cancelled and resubmitted; at worst, it will be deemed false trade, triggering a 3-month customs clearance risk control warning, and all inbound and outbound goods will be listed as key inspection targets. In addition, transit trade goods shall not be processed or modified in China, and only simple warehousing and sorting operations are allowed. Otherwise, it will be deemed as general trade import, and tariffs and VAT shall be paid back.
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
When export enterprises conduct transit trade, they should give priority to transit ports with mature transit supporting facilities, such as Port of Singapore, Port Klang in Malaysia, and Port of Hong Kong. These ports can realize "direct transit" operations, avoiding additional costs and risks caused by cargo landing.
In terms of cargo right control, "order bill of lading" shall be adopted, and "only for transfer of cargo rights in transit trade" shall be clearly marked when endorsing, to prevent downstream purchasers from picking up goods without permission. At the same time, an "extended demurrage free period clause" shall be agreed with the logistics service provider.
Generally, the demurrage free period at transit ports is 7-10 days, which can be extended to 14-21 days to avoid container detention fees caused by document delays. In case of abnormal situations such as container rejections or shipping space shortages, the alternative transit port plan shall be activated immediately to ensure that the goods are transited within 10 working days and avoid affecting the downstream delivery date.
Grace WangYears of service：10Customer Rating：5.0
Senior Foreign Trade ConsultantStart a Chat
Export enterprises do not need to pay domestic VAT and consumption tax when conducting transit trade, because the goods do not enter the domestic consumption link. However, the revenue and expenditure details of transit trade shall be separately accounted for, and shall not be mixed with the revenue and cost of general trade exports. If the transit trade involves offshore account receipts and payments, the offshore income shall be truthfully declared to the tax authorities to avoid being deemed as hidden income and triggering tax audits.
In addition, transit trade will not affect the tax refund rights of original general trade exports, as long as the original export business meets the "four flows consistent" requirements (trade flow, capital flow, cargo flow and document flow). If enterprises adopt the "VAT deferral" mode to operate transit trade, it is necessary to ensure that the VAT deferral qualification of the transit country is valid, and keep the deferral certificate issued by the tax authorities of the transit country, to avoid being required to pay back the transit country's VAT taxes in the future.
Andy GuoYears of service：3Customer Rating：5.0
Supply Chain Management ExpertStart a Chat
When export enterprises conduct transit trade, payment and settlement shall follow the principle of "receipt first, payment later" or "balance of receipts and payments", and no large amount of capital precipitation or gap shall be allowed. Payment and settlement shall be conducted through formal domestic cross-border payment channels, giving priority to the CIPS RMB cross-border payment system, which can avoid exchange rate fluctuation risks and sanction risks of the SWIFT system.
If offshore accounts are involved in receipts and payments, it shall be ensured that the account opening subject of the offshore account is an affiliated entity of the domestic export enterprise, and all documents of transit trade including contracts, bills of lading and invoices shall be submitted to the bank. The bank will review the authenticity of the documents, and if the documents do not match, the payment and settlement business will be refused. In addition, the difference between the receipts and payments of transit trade shall be controlled within a reasonable range, generally not exceeding 5% of the transaction amount, to avoid being deemed as abnormal capital flow.
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
When export enterprises conduct transit trade, three independent contracts shall be signed: the procurement contract with upstream suppliers, the warehousing and transit contract with transit logistics service providers, and the sales contract with downstream purchasers. The nature of "transit trade" shall be clearly marked in the contracts to avoid confusion with general trade contracts.
A "force majeure clause" shall be set in the contracts, clarifying the responsibility division for situations such as sudden policy changes in the transit country and port strikes, to avoid assuming liability for breach of contract due to transit delays. In addition, research shall be conducted on the intellectual property protection policies of the transit location.
If the goods involve patents, trademarks and other intellectual property rights, intellectual property registration shall be conducted in the transit country in advance to avoid the goods being detained by customs at the transit port. In case of downstream purchasers refusing to pay for goods, the order bill of lading and contract can be used to apply for arbitration with international arbitration institutions to protect their own cargo rights and capital rights and interests.
Daniel XuYears of service：10Customer Rating：5.0
Director of Import & Export OperationsStart a Chat
When transit trade goods are at domestic inbound and outbound ports, if they are listed as inspection objects by customs, they shall cooperate with customs to complete on-site inspection and shall not refuse or obstruct. During inspection, documents such as MSDS reports and third-party inspection certificates shall be provided.
If the goods are ordinary goods, customs will focus on inspecting the packaging, markings and quantity to confirm that they are consistent with the declaration content. If the goods are sensitive goods, customs will conduct container unpacking inspection to confirm that the goods meet the transit requirements.
If customs finds that the packaging of the goods is printed with domestic production addresses, it is necessary to immediately explain the nature of transit trade to customs and provide order certificates from downstream purchasers to avoid being deemed as general trade exports. In addition, it is necessary to ensure that the seals of the goods are the formal seals provided by the transit port logistics service provider, to avoid being deemed as abnormal cargo flow due to inconsistent seals.
Evelyn LiYears of service：3Customer Rating：5.0
Cross-border Compliance SupervisorStart a Chat
The packaging of transit trade goods shall meet the special requirements of the transit port. If the transit port is a high temperature and high humidity port (such as Port of Singapore), moisture-proof and waterproof packaging shall be adopted, such as covering the goods completely with polyethylene film and placing sufficient desiccants in the packaging to avoid moisture damage to the goods.
If the goods are fragile items, multi-layer reinforced packaging shall be adopted with high-density cushioning materials (such as foam plastic, air cushion film) to ensure that the goods are not damaged by collision during transit. If the goods are dangerous goods, an MSDS report complying with UN standards shall be prepared, and UN-certified dangerous goods packaging shall be adopted.
Clear dangerous goods markings and UN numbers shall be printed on the packaging to avoid the goods being detained by customs at the transit port. In addition, the shipping marks on the packaging shall clearly mark the words "transit trade" and the final destination port to avoid confusion with general trade goods.
Cindy ChenYears of service：3Customer Rating：5.0
Key Account ManagerStart a Chat
When export enterprises conduct transit trade, the documents of transit trade shall be stored and managed separately from the documents of general trade exports, and shall not be mixed and filed. Transit trade goods shall not be declared for export tax refund, because the goods are not actually exported to the final destination country and are only of transit nature.
If an enterprise mistakenly declares transit trade goods as general trade exports and applies for tax refunds, it will be deemed by the tax authorities as defrauding export tax refunds, and shall pay back the refunded taxes and late payment fines, and face fines. In serious cases, the export tax refund qualification will be suspended. In addition, when the tax authorities conduct export tax refund verification letters, they will require the enterprise to provide relevant documents of transit trade, and the enterprise shall provide them truthfully to avoid triggering tax audits due to incomplete documents.