Importers based in the European Union must pay Value Added Tax (VAT) on top of the Customs value. In this article, we help you navigate the complexities of ‘Import VAT’ when buying from China.
Keep reading, and learn more about VAT calculations, and whether or not Import VAT is deductible.
We also explain how and when you declare and pay VAT, and much more.
What is Value Added Tax (VAT)?
VAT is a consumption tax in the European Union. In B2C transactions, VAT is always included in the price. If you, for example, buy a product online from an EU based online store, the price you pay includes VAT.
The seller can then offset the VAT it ads on its sales, to the VAT it paid to other other EU businesses, when buying products or services.
Below follows an example:
Sales: $10,000 (Including VAT, 20%)
Expenses: $5,000 (Including VAT 20%)
This allows us to make the following calculation.
Sales VAT: $2,000
Paid VAT: $1,000
Total: $2,000 – $1,000 = $1,000
Thus, I would need to pay $1,000 of VAT. If I’d spent more on VAT than I added on top of my sales, I would instead get money back from the state.
Made-in-China.com is a Nanjing based supplier directory, that some may see as an Alibaba.com clone. That is not accurate, as Made-in-China.com launched in 1998, one year before Alibaba.
That said, Alibaba is by far the largest supplier directory today, both in terms of suppliers and services. Still, Made-in-China.com remains a top 5 supplier directory, and certain buyer’s prefer to source suppliers on this platform.
In this article, you will learn more about their product categories, supplier verification, payment options and other services.
Made-in-China.com Product List
Made-in-China.com cover the same categories as most other directories, but with more of a focus on industrial and construction products, rather than consumer goods:
In other words, you will not be able to buy small volumes from listed wholesalers – which for most buyer’s is the whole point of even considering a wholesaler, rather than a factory. Continue Reading →
Importers rely on third party quality inspection agents to accurately report defects on every order.
Receiving a batch with a high defect rate can put you out of business. Especially if you’re an Amazon seller, as you must maintain a very low return rate.
Send a shipment to a fulfillment center with a 10% defect rate and it’s game over.
In other words, your business stand and falls based on the accurate reporting of quality issues and defects, from your QC partner.
Now, what if QC partner accepts payments from your supplier – in order to not report quality issues that can potentially shut you down?
That’s a nightmare scenario for everyone importing from China.
But there are things you can do to save your business, before it’s too late.
Renaud, why is bribes a problem in the QC industry?
Many buyers are quite afraid of this, because the inspector does not report all of his findings. As a consequence, a batch of products that presents a serious and widespread quality problem is accepted.
It means the buyer pays entirely for an order, and (in the worst case) might be unable to use or sell the products. A lot of money is lost, and credibility is lost on the market. Materials have been processed and shipped across the ocean but have to be thrown away. It is a huge waste!
To make matters worse, as the buyer, you likely have no leverage over the supplier. Typically, the order has been paid in full at that point. Not many buyers have a strong enough contract and accompanying documentation that allows them to sue the supplier for the loss.
More than 95% of Chinese suppliers actually use the fact that you did a quality inspection before shipment to their defense.
They will say ‘oh, but even your inspector hasn’t found about this issue, so how were we supposed to find it?’. That’s frustrating, to say the least. Continue Reading →
Wouldn’t be great if you could just skip wasting your time on Alibaba.com or trade shows, and go straight to a supplier making goods for Apple or Disney?
Clearly, quality products are manufactured in China. If you could only get hold of a ‘big brand supplier, you’d be set for life. No more quality issues or delays. Quality goods, on time, every time. Just like Apple does it.
At least that’s what many buyers imagine. Reality is actually quite different, as I explain in this week’s article.
But first I’ll show how you can actually identify suppliers of major brands, or spy on your competitors – using online tools and other methods.
1. Official supplier lists
Some brands publish their supplier lists on their websites, while others operate databases with supplier details. Apple, for example, maintain regularly updated supplier lists on their website.
However, they don’t provide contact details, or information about which components they subcontract to listed suppliers.
2. Importgenius.com
Importgenius.com helps Importers access US customs shipping records, which reveal the following information:
Importer (in the United States)
Supplier (for example, in China)
Product type
Volume
In theory, this means that you can identify which suppliers your competitor is buying from – and large companies like Disney and Adidas. However, shipping records only cover goods that are imported or exported.
Big companies often use trading companies, with names that don’t resemble that of the parent company. As such, you can’t find data on many large companies, as they use completely unrelated company names on the importer of record.
As shipping records don’t track domestic transactions, it’s relatively easy for companies to keep their supplier network secret.
Notice that Importgenius.com only provides US shipping records. Hence, you cannot access records in the EU, Australia or other places.
Importgenius.com plans start from US$99 per month.
3. Panjiva.com
Panjiva.com home page
Panjiva.com is similar to Importgenius.com, in the sense that they provide shipping data. However, they go further than that, as they also provide detailed information about suppliers.
Shipment Data
Bill of Lading
Cargo Weight
Container Info (Value, etc.)
Product Classifications (HS Codes, etc.)
Supplier Info
Company Info (Revenue, location, etc.)
Contact Details
Parent Company & Subsidiaries
Location Info
Country Data
Part Data (Port of Loading and Destination)
Panjiva is not only providing US trade data, but also from other countries, including:
China
India
Mexico
Brazil
Their basic plan starts from US$150 per month.
4. Look for big brand references on Alibaba and Globalsources
Some suppliers listed on Alibaba.com and Globalsources.com advertise that they make products for major brands, such as H&M, Zara and Nike. It’s relatively easy to find such suppliers when sourcing online.
You can also contact suppliers and ask for buyer references. However, manufacturers that are not already sharing customer references on their websites are often reluctant to share such information.
Questions & Answers
Are ‘brand name’ suppliers generally better than others?
In that sense, the average ‘big brand supplier’ is more sophisticated than smaller manufacturers.
That said, many of these manufacturers are part of large international conglomerates, that only work with other large businesses.
You can’t go to Foxconn and pitch an idea for a new electronic widget, if you’re looking to buy a few hundred units. Suppliers of that size will not consider anything but orders counted in the millions of dollars.
Finding a ‘brand supplier’ is rarely even an option for startups and small businesses.
Aren’t there exceptions?
Yes, there are many smaller factories that do get orders from Wal-Mart and other big buyers. But, you are not Walmart.
You don’t have the same quality assurance processes as they do, or the buying power to make the supplier treat your orders the same as theirs.
A common misconception among smaller importers is that everything will work out perfectly once they find that amazing supplier.
But, the outcome is only partly dependent on the sophistication of the supplier. What matters more is, as I just mentioned, the quality assurance processes of the buyer.
A qualified supplier and an organized buyer can achieve great things together. However, even the best supplier will fail to live up to the expectations of a disorganized buyer.
I’ve spent the last few years, covering every angle of manufacturing in China, from a buyer point of view. Today, I turn things upside down, by seeing things from the supplier’s perspective.
After all, China is a top 10 country in terms of readers here on Chinaimportal.com, so it was about time.
I’ve spent almost 8 years in Mainland China, and ever since my first factory visit, I’ve seen suppliers make the same mistakes over and over.
Truth be told, not much have changed since I first set foot in Shanghai back in 2009. Most suppliers are still highly secretive, and believe transparency to be a weakness.
Their mentality also highly focuses on price competition, resulting in very low profit margins.
This may have worked for a while, but something that has changed, is the fact that Chinese factories are no longer as cheap as 10 years ago.
What worked in the past will not work forever.
Luckily, most tips I am sharing in this article are ridiculously easy to implement for most suppliers.
Suppliers that implement these methods can not only acquire (and keep) more customers – but also raise the unit prices above those of the competition, without losing business.
Trust me, I’ve tried this myself.
1. Standardize your product specification sheets
When buyer’s contact a new supplier for the first time, it can take weeks to to understand what the supplier can and cannot do.
In other words, basic information about the suppliers’ capabilities.
Still, most sales reps have a standard answer to every question. ‘Yes, can make’.
A few weeks later, the buyer will eventually find out the hard way, that their samples are not even close to matching their requirements. Continue Reading →
You just received a new batch. You did everything right, including clear product spec sheets and a pre-shipment inspection. And still, the supplier manages to mess up your order.
Sometimes, quality issues slip through, and you need to know how to deal with situations that involve returning defective items to your supplier.
In this article, you will learn how the entire process works:
How to report defective products to your supplier
Why you should not even ask for a refund
How to write a ‘product remake action plan’
How to incentive your supplier to remake or repair the defective items
1. Check your products and report defects immediately
Defective or damaged products must be reported immediately. Preferably within 48 hours of receiving the shipment. The longer you delay, the harder it will be to support a claim that the supplier is responsible.
You don’t need to do a visual check on every single unit, but check at least 10% of the quantity.
If you find any quality issues, that are not in line with the pre-shipment inspection result, you must provide the following:
List of defects
List of defective units
Value of defective units
Images
Video
This must be sent by email to the supplier immediately.
The Procurement Agent is a freelancer, or part of a larger organisation, arranging various aspects of the trade between China and the buyers around the world. There is no set standard for what exactly a Procurement Agent shall do.
For the sake of clarification, I list a few examples below:
Supplier Identification & Price Research
Sample & Prototype Development
Quality Assurance & Quality Inspections
Social Compliance Audits
Product Compliance Consulting & Product Testing
Shipping & Logistics
Customs Procedures & VAT
This industry, which has grown very big in Asia in the last few decades, includes everything from rogue agents to major trading houses. The purpose of this article is to explain what a Procurement Agent can be expected to do for your business, and how they differ.
The Chinese New Year of 2018 starts on February 16th, and lasts until March 2nd. While many of us who work in Asia are painfully aware of the Chinese New Year, and the coming disruption to all production, many Importers are caught completely off guard.
As if the rush to get your shipments in time for Christmas is not enough, you now have to make sure that your goods are ready well before your supplier close the shop for CNY 2018. During this holiday, all factories are shut down. Without exception.
While the official holiday only lasts for around a week to ten days, most factories are closed for an entire month. With severe delays to be expected once they open up again in March.
This time is especially risky for products that are due for shipment in the spring and summer season. Think swimwear and outdoor furniture.
Now is the time to prepare, and in this article, I will explain how you can avoid delayed shipments and quality issues during the Chinese New Year of 2018.Continue Reading →
Once your products are paid for in full and shipped, you’re beyond the point of no return. If you were to find quality issues once the goods arrive in your country, it’s game over.
Forget about getting a refund or returning goods to your supplier.
Instead, you need to be sure that your products are matching all technical specifications and quality requirements before you pay the balance.
In this article, I answer the most common questions about the practical aspects of ordering a quality inspections in China.
Keep reading, and learn how much you should pay for an inspection, how to book one online – and why you should not let your supplier do the inspection by themselves.
Why do I need quality inspections when importing from China?
Manufacturing is not an exact science. The question is not if, but how severe the quality issues are.
I have inspected hundreds of orders in person, and this is what I often found:
Scratches
Dirt
Marks
Minor cosmetic issues
This is even to be expected. However, there are also more severe quality issues:
Loose parts
Incorrect labels
Incorrect design
Incorrect colors
Damages
Quality issues are, in a way, as certain as death and taxes. This is not unique to China, but the case when manufacturing in any country.
However, what is unique to China, and most other countries in Asia, is that you cannot return goods if you find quality issues in your own country.
For this reason, quality inspections are a crucial step of the process. You simply cannot skip this part of the process. Continue Reading →
A Sourcing Company can be an invaluable partner when importing products from China. Or, they can be a useless middleman that offers nothing but delays and higher unit prices.
This is not a regulated industry, so anyone can claim qualifications to manage product and supplier sourcing.
In this article, you will learn what a sourcing company can do for you – and how much you should expect to pay them.
In addition, we also list some of the leading sourcing companies in Mainland China and Hong Kong S.A.R.
Why should I work with a Sourcing Company?
The core function of a sourcing company is to identify qualified suppliers, based on the customer’s needs and technical requirements.
There are no industry standards for how the supplier sourcing process is managed. Some Sourcing Companies have a more relationship based approach, funneling customers to their existing supplier network.
Thus, they charge based on a per project or service basis, rather than a commission.
Of course, the final cost depends on what exactly you want the sourcing company to do for you. Continue Reading →
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