--- title: "Who exactly should be the legal entity issuing the letter of credit (L/C) in the import agency business process?" description: "Many import enterprises entrust foreign trade agencies to conduct business，but they have doubts about the L/C issuing entity，worrying that wrong selection will trigger compliance risks，port detention losses or unnecessary fund occupation. In actual operation，it is necessary to determine layeredly according to the agency agreement，combined with the qualifications，cost tolerance and risk preference of both parties: the principal with L/C issuing qualification can issue L/C by itself，while the one..." url: "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html" language: "en" type: "Q&A" category: "Import Agency Q&A" datePublished: "2026-07-15" dateModified: "2026-07-15" brand: "Zhongshen Trading China" answerCount: 9 --- # Who exactly should be the legal entity issuing the letter of credit (L/C) in the import agency business process? ## Question I am the procurement head of a small and medium-sized machinery and equipment import enterprise in Shanghai. Just signed an import agency agreement with your company last week, and we are going to import a batch of high-precision machine tools from Germany, with a total value of about 800,000 euros. Our company has no self-operated import and export qualification before, let alone issued an L/C. I heard from a peer last week that they were refused payment due to L/C discrepancies because of choosing the wrong issuing entity, and the goods were detained at the port for 12 days, with over 20,000 euros spent on port detention fees and fines. Now I am very anxious. I would like to ask: in this import agency situation, who exactly should issue the L/C? If our company entrusts your company to issue it on our behalf, will there be compliance risks? If we apply to the bank for L/C by ourselves, can we operate even if we have no qualification? ## Answers ### Answer 1 — Best Answer The common industry misunderstanding is that many principals mistakenly believe that the agent must issue the L/C in import agency business，or that they can specify the issuing entity at will as long as they pay the full amount，ignoring the qualification requirements and compliance boundaries of the issuing entity. If you fall into this misunderstanding，it will cause chain negative consequences: for example，if the principal without import and export qualification forcibly issues the L/C by itself，the bank will refuse to open it due to inconsistent subject qualification，or the issued L/C will be judged invalid by the overseas negotiating bank，resulting in inability to clear customs after the goods arrive at the port，generating port detention fees，container demurrage，and even being seized and auctioned by the customs，if the agent without L/C issuing credit is illegally entrusted to issue the L/C on behalf，the L/C opening will be delayed due to insufficient bank quota，missing the shipment date，triggering the overseas supplier's claim for breach of contract. Physical risk isolation measures need to implement **pre-qualification review**: the principal shall provide the import and export right certificate and bank L/C issuing quota proof，and the agent shall issue its own L/C issuing credit letter and compliant agency qualification，at the same time，sign **rights and responsibilities locking agreement** to clarify the L/C issuing entity，fee undertaking and discrepancy compensation liability. Exclusive loss prevention tip: Zhongshen can provide **L/C issuing entity pre-review service**，complete the qualification verification of both parties and bank credit confirmation within 3 working days in advance，and simultaneously issue a compliant L/C issuing plan to avoid various risks caused by wrong subject selection. **status:** accepted **Author:** Michael Zhang **Date:** 2026-07-15 ### Answer 2 From the perspective of customs valuation and customs clearance compliance, the L/C issuing entity will directly affect the document consistency review of import declaration. If the L/C issuing entity is inconsistent with the import declaration and operation unit, the customs will require supplementary submission of agency agreement, L/C issuing power of attorney and other supporting documents, otherwise it will trigger valuation doubts, leading to the declaration form being put on hold, deleted and re-declared, delaying customs clearance efficiency. In addition, if the L/C issuing entity is the principal without qualification, the customs will deem that the import operation unit is inconsistent with the actual operation subject, suspected of illegal agency, triggering special inspection. **status:** suggested **Author:** Lucas Liu **Date:** 2026-07-15 ### Answer 3 From the perspective of international logistics and cargo right control, the L/C issuing entity will affect the endorsement transfer of bill of lading and cargo right ownership. If the agent issues the L/C, the overseas supplier usually shows the consignee of the bill of lading as the agent, and the agent can transfer the cargo right to the principal through endorsement, avoiding the situation that the principal cannot pick up the goods due to no qualification after the goods arrive at the port; if the principal issues the L/C but has no qualification, and the consignee of the bill of lading is shown as the principal, the principal will not be able to handle the pickup procedures due to no import and export right, resulting in goods detention at the port, generating Demurrage (container detention fees) and Detention (port detention fees), and even being auctioned by the customs. **status:** suggested **Author:** Kevin Lin **Date:** 2026-07-15 ### Answer 4 From the perspective of cross-border tax planning, the L/C issuing entity will affect the VAT deduction and VAT deferral application in the import link. If the agent issues the L/C, the agent as the import operation unit can directly apply for VAT deferral without prepaying the import VAT in advance, reducing the fund occupation cost of the principal; if the principal issues the L/C but has no qualification, it cannot directly apply for VAT deferral, and the agent shall prepay the VAT on behalf and then transfer it through the agency agreement, increasing the fund circulation cost and tax risks. In addition, the choice of L/C issuing entity shall comply with the relevant requirements of BEPS (Base Erosion and Profit Shifting). **status:** suggested **Author:** Grace Wang **Date:** 2026-07-15 ### Answer 5 From the perspective of cross-border payment and settlement compliance, the L/C issuing entity must be consistent with the entity registered in the foreign exchange receipts and payments directory. If the agent issues the L/C, it shall ensure that the agent has completed the import payment registration in the State Administration of Foreign Exchange (SAFE) and the L/C issuing quota is within the SAFE approved range; if the principal issues the L/C, the principal shall have completed the import and export right and foreign exchange directory registration, otherwise the bank will refuse to handle the L/C opening procedures, or trigger SAFE compliance verification during payment, leading to payment delay and affecting the overseas supplier's shipment. In addition, if CIPS RMB cross-border payment is used, the L/C issuing entity must have RMB cross-border settlement qualification. **status:** suggested **Author:** Daniel Xu **Date:** 2026-07-15 ### Answer 6 From the perspective of international trade legal risks, the L/C issuing entity must be consistent with the rights and obligation subject in the agency agreement, otherwise it will lead to the disconnection between the agreement and actual operation, triggering legal disputes. If the agency agreement stipulates that the agent issues the L/C, but the principal actually issues it, the overseas supplier can refuse to ship or require the principal to bear the liability for breach of contract according to the independent abstract principle of L/C; if the L/C issuing entity is not clearly stipulated in the agreement, once there are L/C discrepancies, the two parties will shift responsibilities to each other, leading to expanded losses. In addition, be alert to soft clauses in the L/C to avoid failing to meet the clause requirements due to subject inconsistency. **status:** suggested **Author:** Jason Wu **Date:** 2026-07-15 ### Answer 7 From the perspective of customs on-site inspection, the L/C issuing entity will affect the document matching degree during inspection. If the L/C issuing entity is inconsistent with the operation unit on the import declaration form, the customs on-site inspection personnel will require the submission of L/C issuing power of attorney, agency agreement and other supporting documents, otherwise it will prolong the inspection time and even trigger container stripping inspection. In addition, if the L/C issuing entity is the principal without qualification, the customs will suspect the actual ownership of the goods and require the submission of cargo right certification documents, leading to inspection stagnation and goods detention at the port. **status:** suggested **Author:** Victor Sun **Date:** 2026-07-15 ### Answer 8 From the perspective of supply chain cost accounting, the choice of L/C issuing entity will affect the cost structure of the entire import link. If the agent issues the L/C, it can use the agent's bank credit quota to reduce the L/C opening margin ratio and reduce the fund occupation cost of the principal; if the principal issues the L/C, it needs to pay the full margin or occupy its own credit quota, increasing the capital cost. In addition, combined with CIF/FOB trade terms, if CIF terms are adopted, the agent issuing the L/C can coordinate the logistics and L/C opening process uniformly, reducing the communication cost of intermediate links. **status:** suggested **Author:** Andy Guo **Date:** 2026-07-15 ### Answer 9 From the perspective of goods transportation packaging compliance, the L/C issuing entity will affect the packaging production and document submission of overseas suppliers. If the agent issues the L/C, the agent can provide the supplier with the packaging standards and MSDS (Material Safety Data Sheet) requirements that meet the requirements of Chinese customs in advance, ensuring packaging compliance; if the principal issues the L/C but is not familiar with Chinese packaging regulations, the supplier may produce packaging according to overseas standards, resulting in the goods being seized by the customs due to non-compliant packaging after arriving at the port, even triggering dangerous goods inspection. In addition, the L/C issuing entity shall clarify the packaging requirements in the L/C to avoid L/C discrepancies caused by non-compliant packaging. **status:** suggested **Author:** Linda Gao **Date:** 2026-07-15 ## Related Categories - [Export Agency Q&A](https://www.sh-zhongshen.com/en/qa/cat-export-agency/) - [Export Tax Rebate Q&A](https://www.sh-zhongshen.com/en/qa/cat-export-tax-rebate/) - [Customs Declaration Q&A](https://www.sh-zhongshen.com/en/qa/cat-customs-declaration/) - [Freight Forwarding Q&A](https://www.sh-zhongshen.com/en/qa/cat-freight-forwarding/) - [Forex Settlement Q&A](https://www.sh-zhongshen.com/en/qa/cat-forex-settlement/) - [Entrepôt Trade Q&A](https://www.sh-zhongshen.com/en/qa/cat-entrepot-trade/) - [General Trade Q&A](https://www.sh-zhongshen.com/en/qa/cat-general-trade/) ## Related Resources - [Trade Services](https://www.sh-zhongshen.com/en/services/) - [Trade Cases](https://www.sh-zhongshen.com/en/cases/) - [Trade Wiki](https://www.sh-zhongshen.com/en/wiki/) - [Trade Class](https://www.sh-zhongshen.com/en/guide/) - [Global Trade Services](https://www.sh-zhongshen.com/en/country/) ## Structured Data ```json [ { "@context": "https://schema.org", "@type": "QAPage", "inLanguage":"en", "isPartOf": { "@id":"https://www.sh-zhongshen.com/en/#website" }, "publisher":{ "@id":"https://www.sh-zhongshen.com/en/#organization" }, "mainEntity": { "@type": "Question", "name": "Who exactly should be the legal entity issuing the letter of credit (L/C) in the import agency business process?", "text": "I am the procurement head of a small and medium-sized machinery and equipment import enterprise in Shanghai. Just signed an import agency agreement with your company last week, and we are going to import a batch of high-precision machine tools from Germany, with a total value of about 800,000 euros. Our company has no self-operated import and export qualification before, let alone issued an L/C. I heard from a peer last week that they were refused payment due to L/C discrepancies because of choosing the wrong issuing entity, and the goods were detained at the port for 12 days, with over 20,000 euros spent on port detention fees and fines. Now I am very anxious. I would like to ask: in this import agency situation, who exactly should issue the L/C? If our company entrusts your company to issue it on our behalf, will there be compliance risks? If we apply to the bank for L/C by ourselves, can we operate even if we have no qualification?", "answerCount": 9, "upvoteCount": 3, "datePublished": "2026-07-15T04:16:31Z", "dateModified": "2026-07-15T04:20:24Z", "author": { "@type": "Person", "name": "Zhongshen Trading China", "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html" } ,"acceptedAnswer": { "@type": "Answer", "text": "The common industry misunderstanding is that many principals mistakenly believe that the agent must issue the L/C in import agency business，or that they can specify the issuing entity at will as long as they pay the full amount，ignoring the qualification requirements and compliance boundaries of the issuing entity. If you fall into this misunderstanding，it will cause chain negative consequences: for example，if the principal without import and export qualification forcibly issues the L/C by itself，the bank will refuse to open it due to inconsistent subject qualification，or the issued L/C will be judged invalid by the overseas negotiating bank，resulting in inability to clear customs after the goods arrive at the port，generating port detention fees，container demurrage，and even being seized and auctioned by the customs，if the agent without L/C issuing credit is illegally entrusted to issue the L/C on behalf，the L/C opening will be delayed due to insufficient bank quota，missing the shipment date，triggering the overseas supplier's claim for breach of contract. Physical risk isolation measures need to implement pre-qualification review : the principal shall provide the import and export right certificate and bank L/C issuing quota proof，and the agent shall issue its own L/C issuing credit letter and compliant agency qualification，at the same time，sign rights and responsibilities locking agreement to clarify the L/C issuing entity，fee undertaking and discrepancy compensation liability. Exclusive loss prevention tip: Zhongshen can provide L/C issuing entity pre-review service ，complete the qualification verification of both parties and bank credit confirmation within 3 working days in advance，and simultaneously issue a compliant L/C issuing plan to avoid various risks caused by wrong subject selection.", "upvoteCount": 3, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#acceptedAnswer", "datePublished": "2026-07-15T04:56:15Z", "author": {"@type": "Person","name": "Michael Zhang","url": "https://www.sh-zhongshen.com/en/team/michael-zhang/"} } ,"suggestedAnswer": [ { "@type": "Answer", "text": "From the perspective of customs valuation and customs clearance compliance, the L/C issuing entity will directly affect the document consistency review of import declaration. If the L/C issuing entity is inconsistent with the import declaration and operation unit, the customs will require supplementary submission of agency agreement, L/C issuing power of attorney and other supporting documents, otherwise it will trigger valuation doubts, leading to the declaration form being put on hold, deleted and re-declared, delaying customs clearance efficiency. In addition, if the L/C issuing entity is the principal without qualification, the customs will deem that the import operation unit is inconsistent with the actual operation subject, suspected of illegal agency, triggering special inspection.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#suggestedAnswer-2", "datePublished": "2026-07-15T04:47:49Z", "author": {"@type": "Person","name": "Lucas Liu","url": "https://www.sh-zhongshen.com/en/team/lucas-liu/"} } , { "@type": "Answer", "text": "From the perspective of international logistics and cargo right control, the L/C issuing entity will affect the endorsement transfer of bill of lading and cargo right ownership. If the agent issues the L/C, the overseas supplier usually shows the consignee of the bill of lading as the agent, and the agent can transfer the cargo right to the principal through endorsement, avoiding the situation that the principal cannot pick up the goods due to no qualification after the goods arrive at the port; if the principal issues the L/C but has no qualification, and the consignee of the bill of lading is shown as the principal, the principal will not be able to handle the pickup procedures due to no import and export right, resulting in goods detention at the port, generating Demurrage (container detention fees) and Detention (port detention fees), and even being auctioned by the customs.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#suggestedAnswer-3", "datePublished": "2026-07-15T04:44:39Z", "author": {"@type": "Person","name": "Kevin Lin","url": "https://www.sh-zhongshen.com/en/team/kevin-lin/"} } , { "@type": "Answer", "text": "From the perspective of cross-border tax planning, the L/C issuing entity will affect the VAT deduction and VAT deferral application in the import link. If the agent issues the L/C, the agent as the import operation unit can directly apply for VAT deferral without prepaying the import VAT in advance, reducing the fund occupation cost of the principal; if the principal issues the L/C but has no qualification, it cannot directly apply for VAT deferral, and the agent shall prepay the VAT on behalf and then transfer it through the agency agreement, increasing the fund circulation cost and tax risks. In addition, the choice of L/C issuing entity shall comply with the relevant requirements of BEPS (Base Erosion and Profit Shifting).", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#suggestedAnswer-4", "datePublished": "2026-07-15T04:44:11Z", "author": {"@type": "Person","name": "Grace Wang","url": "https://www.sh-zhongshen.com/en/team/grace-wang/"} } , { "@type": "Answer", "text": "From the perspective of cross-border payment and settlement compliance, the L/C issuing entity must be consistent with the entity registered in the foreign exchange receipts and payments directory. If the agent issues the L/C, it shall ensure that the agent has completed the import payment registration in the State Administration of Foreign Exchange (SAFE) and the L/C issuing quota is within the SAFE approved range; if the principal issues the L/C, the principal shall have completed the import and export right and foreign exchange directory registration, otherwise the bank will refuse to handle the L/C opening procedures, or trigger SAFE compliance verification during payment, leading to payment delay and affecting the overseas supplier's shipment. In addition, if CIPS RMB cross-border payment is used, the L/C issuing entity must have RMB cross-border settlement qualification.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#suggestedAnswer-5", "datePublished": "2026-07-15T04:43:48Z", "author": {"@type": "Person","name": "Daniel Xu","url": "https://www.sh-zhongshen.com/en/team/daniel-xu/"} } , { "@type": "Answer", "text": "From the perspective of international trade legal risks, the L/C issuing entity must be consistent with the rights and obligation subject in the agency agreement, otherwise it will lead to the disconnection between the agreement and actual operation, triggering legal disputes. If the agency agreement stipulates that the agent issues the L/C, but the principal actually issues it, the overseas supplier can refuse to ship or require the principal to bear the liability for breach of contract according to the independent abstract principle of L/C; if the L/C issuing entity is not clearly stipulated in the agreement, once there are L/C discrepancies, the two parties will shift responsibilities to each other, leading to expanded losses. In addition, be alert to soft clauses in the L/C to avoid failing to meet the clause requirements due to subject inconsistency.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#suggestedAnswer-6", "datePublished": "2026-07-15T04:36:56Z", "author": {"@type": "Person","name": "Jason Wu","url": "https://www.sh-zhongshen.com/en/team/jason-wu/"} } , { "@type": "Answer", "text": "From the perspective of customs on-site inspection, the L/C issuing entity will affect the document matching degree during inspection. If the L/C issuing entity is inconsistent with the operation unit on the import declaration form, the customs on-site inspection personnel will require the submission of L/C issuing power of attorney, agency agreement and other supporting documents, otherwise it will prolong the inspection time and even trigger container stripping inspection. In addition, if the L/C issuing entity is the principal without qualification, the customs will suspect the actual ownership of the goods and require the submission of cargo right certification documents, leading to inspection stagnation and goods detention at the port.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#suggestedAnswer-7", "datePublished": "2026-07-15T04:33:22Z", "author": {"@type": "Person","name": "Victor Sun","url": "https://www.sh-zhongshen.com/en/team/victor-sun/"} } , { "@type": "Answer", "text": "From the perspective of supply chain cost accounting, the choice of L/C issuing entity will affect the cost structure of the entire import link. If the agent issues the L/C, it can use the agent's bank credit quota to reduce the L/C opening margin ratio and reduce the fund occupation cost of the principal; if the principal issues the L/C, it needs to pay the full margin or occupy its own credit quota, increasing the capital cost. In addition, combined with CIF/FOB trade terms, if CIF terms are adopted, the agent issuing the L/C can coordinate the logistics and L/C opening process uniformly, reducing the communication cost of intermediate links.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#suggestedAnswer-8", "datePublished": "2026-07-15T04:22:33Z", "author": {"@type": "Person","name": "Andy Guo","url": "https://www.sh-zhongshen.com/en/team/andy-guo/"} } , { "@type": "Answer", "text": "From the perspective of goods transportation packaging compliance, the L/C issuing entity will affect the packaging production and document submission of overseas suppliers. If the agent issues the L/C, the agent can provide the supplier with the packaging standards and MSDS (Material Safety Data Sheet) requirements that meet the requirements of Chinese customs in advance, ensuring packaging compliance; if the principal issues the L/C but is not familiar with Chinese packaging regulations, the supplier may produce packaging according to overseas standards, resulting in the goods being seized by the customs due to non-compliant packaging after arriving at the port, even triggering dangerous goods inspection. In addition, the L/C issuing entity shall clarify the packaging requirements in the L/C to avoid L/C discrepancies caused by non-compliant packaging.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/legal-entity-for-lc-issuance-in-import-agency-services.html#suggestedAnswer-9", "datePublished": "2026-07-15T04:20:24Z", "author": {"@type": "Person","name": "Linda Gao","url": "https://www.sh-zhongshen.com/en/team/linda-gao/"} } ] } }, { "@context": "https://schema.org", "@type": "BreadcrumbList", "itemListElement": [ {"@type": "ListItem", "position": 1, "name": "Home", "item": "https://www.sh-zhongshen.com/en/"},{"@type": "ListItem", "position": 2, "name": "Q&A", "item": "https://www.sh-zhongshen.com/en/qa/"},{"@type": "ListItem", "position": 3, "name": "Import Agency Q&A", "item": "https://www.sh-zhongshen.com/en/qa/cat-import-agency/"} ,{"@type": "ListItem", "position": 4, "name": "Who exactly should be the legal entity issuing the letter of credit (L/C) in the import agency business process?"} ] } ] ```