Customs Valuation and Duty/Tax Computation
Valuation questions test the six methods in strict order and the list of additions and deductions around transaction value. Chinese customs value is a CIF concept: the price actually paid or payable, adjusted, delivered to the place of import in China.
The six methods, in order
- Transaction value. 2. Identical goods. 3. Similar goods. 4. Deductive value. 5. Computed value. 6. Fallback. Methods 4 and 5 may be reversed at the importer's request; method 6 must stay within the framework.
Adjustments to transaction value
- Add: selling commission, assists (materials, tools, engineering provided free or at reduced cost), royalties and licence fees that relate to the goods and are a condition of sale, packing, and transport plus insurance to the import point.
- Exclude: buying commission, import duties and taxes, interest on deferred payment, and post-import construction or assembly.
- A related-party price is acceptable only if the relationship did not influence the price.
Worked example
FOB price USD 100,000; freight USD 3,000; insurance USD 500; a royalty of USD 5,000 paid as a condition of sale; a buying commission of USD 2,000. Dutiable value = 100,000 + 3,000 + 500 + 5,000 = USD 108,500. The buying commission is excluded. Duty is then computed on that value at the applicable rate, followed by import VAT on duty-paid value and, for taxable consumer goods, consumption tax.
Traps that cost marks
- Adding buying commission, or ignoring a royalty paid to a third party rather than the seller.
- Using the wrong exchange rate: customs publishes a monthly rate applied from the third Wednesday.
- Forgetting that consumption tax, where applicable, forms part of the VAT base.