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What Specific Conditions Are Required for Entrepot Trade to Qualify for Export Tax Refund?
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I am the head of a foreign trade enterprise based in Shanghai, China, mainly engaged in the export of stainless steel fasteners. I recently arranged a shipment: the goods are shipped from China to Malaysia for transit and then transported to the United States, which falls into the entrepot trade model. I heard from peers that entrepot trade cannot apply for export tax refund, but some friends said that it can be refunded if eligible.
Now I have all required documents including customs declaration form, input VAT invoice and third-party transit bill of lading from Malaysia. I submitted the tax refund application last week, but the tax authority required me to supplement the logistics track proof, and questioned that the capital flow is directly paid by the US buyer, which does not match the title of the transit bill of lading.
There are only 12 days left before the tax refund declaration deadline, I can not sleep well at night for fear of missing the deadline and losing nearly 200,000 RMB in tax refund. I would like to ask how to process export tax refund for entrepot trade in a compliant way?
Daniel XuYears of service：10Customer Rating：5.0
Director of Import & Export OperationsStart a Chat
Pre-cross Verification of Supporting Documents is the core prerequisite for tax refund under entrepot trade. Three categories of documents require key inspection: First，the export customs declaration，which must be marked with "Entrepot Trade Transit" in the remark column，the name，quantity and unit of goods must be 100% matched with the input VAT invoice，and marks such as "Direct Shipment" or "Domestic Sales" are strictly prohibited，Second，transit documents，which require a warehouse certificate issued by the storage enterprise in the transit country proving that the goods have not entered local circulation，and two sets of bills of lading before and after transit (from China to the transit country，and from the transit country to the final destination country)，Third，capital vouchers，which require the payment slip of the final buyer to be retained，with "Entrepot Trade Payment" marked in the remark column.
The core node requires simultaneous realization of dual matching of logistics and capital flow: On the logistics side，complete transit track shall be uploaded through the Customs "Single Window"，including container number，sailing schedule，loading and unloading records at the transit port，On the capital side，it is necessary to ensure that the payment is directly transferred from the buyer of the final destination country to the domestic enterprise account，or the complete transfer chain is retained when transiting through a compliant offshore account，so as to avoid any trace of "capital flowing back to domestic related parties".
Contingency plans for abnormalities shall be prepared in advance: In case of tax correspondence investigation，materials such as entrepot trade contract，warehousing agreement，and freight forwarder qualification certificate shall be submitted within 3 working days，and the commercial rationality of transit (such as avoiding trade barriers) shall be clearly explained，If there is a minor deviation in documents，contact the customs broker immediately to delete the original declaration and re-submit a new one，to ensure the correction is completed before the declaration deadline.
For final compliance implementation，the tax refund declaration must be completed within the VAT declaration period of April of the next year after export，and all original documents shall be archived for more than 5 years to ensure that they can be retrieved at any time during tax inspection，completing the whole-process compliance closed loop.
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
The filling of export customs declaration for entrepot trade must strictly comply with Chinese customs regulations. "Entrepot Trade Transit" must be clearly marked in the "Remark Column", and the transportation method shall be selected as "Transit Transportation" instead of "Direct River-Sea Transportation", otherwise it will be determined as general trade export by the system, which directly affects the tax refund qualification.
In case of valuation dispute, materials such as entrepot trade contract, quotation of transit freight forwarder, and sales contract of final destination country shall be submitted in time to prove that the transaction price of the goods conforms to the fair market price, so as to avoid the customs declaration being put on hold due to failed valuation and delaying the tax refund declaration. Meanwhile, expressions such as "Domestic Destination" and "Domestic Use" shall not appear on the customs declaration for entrepot trade, to ensure that the customs declaration information fully matches the attribute of entrepot trade.
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
Retention of logistics track of entrepot trade is the core basis for tax refund verification. It is necessary to select an international freight forwarder with transit qualification and require it to provide container drop-off records at the transit port, storage certificates, and two sets of original bills of lading before and after transit (the bill of lading from China to the transit port shall be marked "For Transit Only", and the bill of lading from the transit port to the destination port shall be consistent with the receiving information of the final buyer).
At the same time, full-course photos of the container seal shall be retained to prove that the goods are not unpacked at the transit port and do not enter the local market for circulation. If the logistics track is broken due to sailing delay, the freight forwarder shall be required to issue a transit delay certificate issued by the shipping company immediately, and upload it to the customs single window simultaneously, to avoid the tax authority questioning the authenticity of logistics.
Andy GuoYears of service：3Customer Rating：5.0
Supply Chain Management ExpertStart a Chat
To apply for export tax refund for entrepot trade, the core condition of "goods are not consumed in the transit country" must be met. Enterprises can apply for the VAT deferral policy of the transit country and obtain the "Certificate of Non-payment of Import VAT" issued by the local tax authority as an auxiliary certificate for domestic tax refund.
Meanwhile, attention shall be paid to the rationality of pricing of entrepot trade, to avoid the situation that the domestic purchase price is much higher than the export declaration price, or the entrepot spread is too large, which may lead to being identified as related party transaction for profit transfer and triggering BEPS (Base Erosion and Profit Shifting) investigation. In addition, if the enterprise transfers funds through an offshore account, it shall ensure that the income and expenditure records of the offshore account fully match the documents of the entrepot trade, so as to avoid being identified as capital backflow.
Grace WangYears of service：10Customer Rating：5.0
Senior Foreign Trade ConsultantStart a Chat
The foreign exchange receipt and payment of entrepot trade must strictly comply with cross-border payment regulations. It is preferred to complete foreign exchange receipt through CIPS (Cross-border Interbank Payment System). "Entrepot Trade Payment" shall be clearly marked in the "Transaction Remark" of the foreign exchange receipt slip, and the payer shall be consistent with the buyer specified in the sales contract of the final destination country.
If it is necessary to transfer through an offshore account due to special circumstances, the transfer chain certificate between the offshore account and the domestic account shall be retained to prove that the funds do not pass through the account of domestic related parties. At the same time, it is necessary to avoid using personal accounts for foreign exchange receipt, otherwise the tax authority will question the compliance of capital flow and directly reject the tax refund application. In addition, when settling foreign exchange, materials such as entrepot trade contract and transit bill of lading shall be provided to the bank to ensure the compliance of the foreign exchange settlement process.
Kevin LinYears of service：4Customer Rating：5.0
Trade Solutions ManagerStart a Chat
For export tax refund of entrepot trade, the "Four Flows Consistency" inspection standard must be strictly implemented, that is, the information of contract flow, invoice flow, logistics and capital flow are fully matched. Document filing shall include entrepot trade contract, special VAT invoice for domestic procurement, export customs declaration, transit bill of lading, warehouse certificate, foreign exchange receipt slip and other materials, and the name, quantity and amount of goods on all documents shall correspond one by one.
During pre-declaration, document verification shall be conducted through the export tax refund declaration system of the State Taxation Administration. If the system gives warnings such as "abnormal logistics track" and "capital flow mismatch", the correction shall be made immediately before formal declaration. In case of tax correspondence investigation, all filed documents shall be submitted within the specified time limit to cooperate with the tax authority to complete the inspection, so as to avoid the tax refund being suspended due to failed correspondence investigation.
Evelyn LiYears of service：3Customer Rating：5.0
Cross-border Compliance SupervisorStart a Chat
The contract terms of entrepot trade shall clearly mark the attribute of "entrepot trade", and agree that the ownership transfer node of the goods is "when the goods are loaded and departed for the transit port", so as to avoid being identified as domestic sales. The issuer of the third-party transit bill of lading must have legal qualification, and the responsibility of the freight forwarder shall be clearly defined in the contract to ensure the authenticity and validity of the bill of lading, and prevent tax refund failure caused by forged bill of lading.
In addition, relevant clauses on "trade barrier avoidance" shall be added to the contract to explain the commercial rationality of entrepot trade, and the compensation liability of the freight forwarder shall be agreed if the goods are detained due to policy changes of the transit country. At the same time, the intellectual property customs protection record for the goods shall be completed in advance, to avoid the goods being detained due to infringement during the transit process, which affects the tax refund declaration.