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China Manufacture Local Sales Strategy #2

By Cyrus, on March 17th, 2010
Number of View: 5301

Second strategy is local manufacturer on domestic sales, this apply only to wholly (外商独资) or partnership (中外合资) foreign-owned enterprise in which entitled to tax free on imports and exports, but qualify on domestics sales after 5 years of operation.

Below is the summary on tax charges for your reference:

Descriptions Tax rate Remarks
Import tax (IT) 5%-30% Tax vary in different item
Value Added Tax (VAT) 17% Standardise on all item
Corporate Tax 12.5% Preferential tax policy within 3 years
Overseas raw material (ORM)   Imported raw materials price
Unit price (UP)   Retail selling price without tax
Formula
(ORM X IT) X VAT = equation 1 (E1)
{(UP + E1 + (ORM x IT)} X VAT = equation 2 (E2)
(ORM X IT) + E1 + E2 = equation 3 (E3)
Selling price = UP + E3

Pros

  • Only difference advantages compare to trading company is exemption on business tax and tax relief on corporate tax.
  • Entitled to issue VAT special invoice (增值税发票) to buyer, ease in financial affairs.
  • Better communication and control between manufacturing team and local sales team, save time and unwanted overheads because immediate response and rectification on customer feedbacks.
  • Better quality control and corrections in production base on customer feedbacks, hence providing better after sales service on long-term business.

Cons

  • Tighter supervision and control (监管) on tax-dodging, regular on-site inspection by custom to differentiate factory on tax free imports and tax imports warehousing.
  • Increase additional internal workload and overheads in accounting, shipping, production and warehousing on documentation in exports and domestic sales.
  • Require professionals, experience and good connections local trustworthy personnel to monitor internal progress to prevent blacklist or penalise by government sectors, especially by Tax and Custom Authority.
  • More bribery attacks by government officer against company because more internal loopholes expose to public attacks.
  • All company licenses like business registration must renewed hence will indirectly attract more awareness to government officers’ on-site evaluation and corruptions.

 

This strategy best use on expensive items like electronic, home appliance in which require mass imports on raw materials from overseas and could protect product trademark and technology. Using this methodology although could save on business tax and corporate tax but is it worthwhile to bear the risk on public attacks and complicates internal management? No risk no gain, hence eventough if your costings is more justify in this strategy my advise is “don’ try”. You can consider my next strategy on grey area, free tax domestic sales!


 

 

 

 

 

 

Copyright secured by Digiprove © 2010 Cyrus Chang

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22 comments to China Manufacture Local Sales Strategy #2

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    May 28, 2011 at 12:43 pm

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    May 28, 2011 at 4:09 pm

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    May 28, 2011 at 10:44 pm

    So not really on the same topic as your post, but I found this today and I just can’t resist sharing. Mrs. Agathe’s dishwasher quit working so she called a repairman. Since she had to go to work the next day, she told him, “I’ll leave the key under the mat. Fix the dishwasher, leave the bill on the counter, and I’ll mail you the check. Oh, and by the way…don’t worry about my Doberman. He won’t bother you. But, whatever you do, do NOT under ANY circumstances talk to my parrot!” When the repairman arrived at Mrs. Agathe’s apartment the next day, he discovered the biggest and meanest looking Doberman he had ever seen. But just as she had said, the dog simply laid there on the carpet, watching the repairman go about his business. However, the whole time the parrot drove him nuts with his incessant cursing, yelling and name-calling. Finally the repairman couldn’t contain himself any longer and yelled, “Shut up, you stupid ugly bird!” To which the parrot replied, “Get him, Spike!”

  • wedding in a budget
    May 29, 2011 at 1:21 am

    Well, I don’t know if that’s going to work for me, but definitely worked for you! :) Excellent post!

  • Dwain Benyamin
    May 29, 2011 at 2:17 pm

    Grande alberino! Ringraziamenti per richiedere tempo scrivere qualcosa che sia realmente degno lettura. Trovo troppo spesso l’Info inutile e non qualcosa che sia realmente relativo. Ringraziamenti per i vostri duri lavori.

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