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China Sourcing, Assembly and Packaging

Selling to China. Negotiations and VAT.

As more and more businesses are considering selling to China as well, we thought we would include the following Q&A on our sourcing blog.

We are selling Copper Concentrate from our company in Philippines to a company in China. The Chinese company is saying they want a 17% discount because of VAT. We don’t understand why we have to pay for their tax liability. Isn’t it their problem to pay taxes to their government?

The importer into China will need to pay VAT and applicable duties. I assume you are selling from the Philippines rather than selling via your own China based office.  If you sold via your own China office, then it would be logical for the buyer in China to ask for receipts with VAT paid. But generally when you ship from overseas and the buyer handles the importation, then VAT is their issue, especially if you are quoting FOB China port, rather than DDP China buyer warehouse.

The VAT system is often used like smoke and mirrors as a negotiation tactic. So focus on FOB price and let the buyer worry about VAT.  But, if your buyer is small and doesn’t have their own import license, then you may want to work with an agent who can deliver the product to the buyer while sorting out the VAT for you in a transparent process.

I have included Graham of www.SPimports.com, a US owned-China based, boutique import and distribution firm that could help you in two ways:

1.     They have an im-ex license if you needed that to supply your buyer.

2.     They could work w you to research the going price in China for your product  (that would help in your negotiation w the buyer) while finding new potential buyers in China.

Let me know how things work out for you!

About the blogger

Written by Mike Bellamy – author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com). Read about him in the Financial Times: “A Foot in Both Cultures”

 




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