Foreign investors can set up wholly owned distribution centres in any one of the FTZs, selling imported or locally sourced goods to customers inside and outside the FTZ. Sales to customers outside the FTZ who do not have import rights can be conducted through a bonded exchange in Shanghai Waigaoqiao or Shenzhen Futian FTZ, which provide customs clearance services and issuance of VAT invoices in yuan for a handling commission. In Guangzhou FTZ, a distribution centre needs to engage an import/export agent to handle customs clearance for imported goods and to seek the State Taxation Bureau’s approval for issuing VAT invoices for selling domestically sourced goods to Chinese customers outside the FTZ.
The typical permitted business scope of a distribution centre would include æ…½nternational trade, entrepéŒ trade, trade among enterprises established in the FTZ, acting as trade agency within the FTZ, simple processing and packaging, product exhibition, technical consulting services and after-sale services? Like all other wholly foreignowned enterprises, a distribution centre does not have æ…¸omestic trade?included in its permitted business scope. Sales to Chinese customers outside the FTZ are rationalised by the customers?clearance and VAT invoicing mechanism. Nevertheless, there is a technical risk that the domestic trading activities may be challenged by the State Administration of Industry and Commerce.
Following recently introduced legislation, FTZ distribution centres are now allowed to set up liaison offices outside FTZs. This would give them more access to wholesalers, retailers and key accounts for sales and aftersales functions.
FTZ distribution centres would enjoy the following customs preferential treatment: the import duty and VAT on goods physically imported into the FTZ would be deferred until the goods enter a non-FTZ area of China. In this regard, the cashflow position and stock holding cost could be improved quite significantly; sales of goods by the distribution centre to other companies within the FTZ are exempt from import duty and VAT; and the machinery and equipment for the distribution centre抯 own use could be exempt from import duty and VAT.
In Guangzhou FTZ, multinational companies, large-scale distribution centres and companies with good customs compliance records would enjoy fast and simple procedures in customs clearance and settlement. Distribution centres here can also apply to clear customs and settle the import duty and VAT on a periodical basis. This means that customs clearance does not have to be performed each time goods are delivered to customers outside the FTZ; instead, customs clearance for a number of transactions could be applied for collectively during a prescribed time interval, say monthly. This arrangement could streamline the distribution and aftersales services by minimising the delivery lead-time to customers and again improve the cashflow position of the distribution centre.
The standard income tax rate for foreigninvested joint venture trading companies in China is 33 per cent. In FTZs, a preferential income tax rate of 15 per cent is generally applied to all foreign-invested distribution centres. Moreover, in Guangzhou FTZ, distribution centres could be entitled to a special income tax refund, which is equivalent to a certain percentage (60 per cent for the first year, 50 per cent for the second year and 30 per cent for the third year) of the income tax payment that is retained by the zone.