For foreign investors, getting familiar with the Chinese preferential policy with local industry zones is essential to minimize costs. There are different types of industry zones in China, such as free trade zones (FTZ), export processing zones (EPZ) and bonded logistics parks (BLP). The first 15 pilot EPZs were set up by the State Council to promote industrial and commercial exports in 2000. Most of them are located near the coastline of China.
EPZs are certain areas wherein “trade barriers such as tariffs and quotas are eliminated and bureaucratic requirements are lowered in hopes of attracting new business and foreign investments.” So, the national preferential policy toward EPZs includes 24-hour customs clearance, no quota and license requirements and favorable foreign exchange policy. When goods produced in the zone are to be sold to international destinations, there is no need to undergo the receipt of remittance and sale verification procedures for exports; and when making payments to international destinations, there is no need to undergo remittance payment and sale verification procedures to imports. In addition, bonded materials or parts inside the zones require no registration handbook or cash deposits.
Another unique advantage EPZs have is the tax refund. Basically, domestic goods entering the zones can be deemed as export and can enjoy export VAT refund without actually being transported out of the country. This is the major difference between FTZs and EPZs. Before, enterprises, especially those that export a majority of goods with substantial value- added production in China, needed to transfer their goods to Hong Kong to get a VAT refund and re-import again for processing. We called it “one day in Hong Kong.” But, now, EPZs have the same function as Hong Kong. In other words, domestic suppliers in China are entitled to a VAT refund if they sell goods to a domestic customer inside an EPZ and the ultimate products by the customer using the goods bought are for export. Such policy may lead to substantial cost savings for enterprises purchasing a large amount of domestic raw materials/parts and enterprises that have significant discrepancies between their VAT rate and refund rate as well. Moreover, imported machine, equipment and maintenance accessory parts required for production and construction of infrastructures are exempted from taxation, so does a reasonable amount of imported office supplies and re-exported goods. And, imported raw materials, spare parts, components, wrapping materials, and consumables required for processing export products are all considered to be fully bonded goods.
In order to integrate these special customs- supervised areas, in April 2007, China Customs issued a notice on adding bonded logistics, research, resting and maintenance function to seven experimental EPZs. There are Beijing Tianzhu, Shanghai Songjiang, Shandong Yantai, Zhejiang Ningbo, Jiangsu Kunshan, Shaanxi Xi’an and Chongqing. Because of the success of those experimental zones, Customs announced in Feb. 19, 2009 that all EPZs in China will have bonded logistics, research, testing, and maintenance functions by the end of 2009. So, not only processing and manufacturing companies can enter EPZs, but also logistics companies, R&D centers or companies that rely on testing or maintenance can also enjoy such benefits.