Bonded Warehouse: the Efficient Option when Selling to China
The internationalisation of trade has brought many benefits for companies, but also presents new challenges to overcome.
Chief among these challenges is the management of supply-chains, where goods sourced in one region are ‘re-imported’ to the same location, incurring twice the costs for the manufacturer.
Luckily, we at Fiducia are specialists in mitigating these issues, having recently helped a client with this exact challenge. The company, a European provider of hi-tech products and services, regularly purchases goods from suppliers in China and ships them to their warehouse in Germany. These goods are sold and distributed to customers, including a small proportion based in China. The freight and import/export costs (and logistical challenges) for these China-based customers were significant, but the company knew that the alternative – setting up a company in China to serve only a few local customers – could be even more expensive. Restricting sales to China based on cost would mean missing the growing opportunities of that market. So, they asked us how to mediate this issue.
The answer is a bonded warehouse – a customs-controlled building or secured area where imported dutiable goods can be stored, manipulated, or undergo manufacturing operations without payment of duty for a given period. Duties only become payable when goods are delivered to their destination.
There are four types of bonded warehouse:
- A public bonded warehouse, operated by a third party, where companies can deposit their goods.
- A private bonded warehouse, used exclusively for the storage of goods belonging to or consigned to the proprietor.
- A special bonded warehouse, used to store hazardous goods, goods containing liquids, raw materials, spare parts (known as a Technical Service Station), and other goods with a special purpose.
- Bonded logistics parks, also known as special economic zones. These are a more expensive option than a public bonded warehouse as they cover a greater geographical area, but feature tax reimbursement upon goods entry.
By using a bonded warehouse, our client could fulfil its commitments to its customers in China with a shorter lead time and lower cost, without the need to disclose suppliers’ information. It also allowed the company to defer duty payments and taxes associated with global trade, creating inventory and cash flow efficiencies.
In this case, some Chinese customers requested a shorter lead time. We managed this by using a special U-turn operation approach, whereby the exported goods from the Chinese vendor to bonded warehouse are subsequently re-imported to a domestic customer within a 48-hour window.
The operation of such an action, however, requires us to pay attention to some issues in advance to mitigate additional taxes, disruptions, and logistical issues.
Bonded warehouses are not just about convenience and storage – they are a crucial strategy for companies that want to sell to China without setting up a Chinese entity. Bonded warehouses offer a cost-effective way to access the Chinese market without heavy investment, help to optimise supply chain management, and present the opportunity for a Value Added Tax (VAT) rebate.
There are, however, several practical issues that need to be reviewed when considering a bonded warehouse approach:
- Geography – should the bonded warehouse be closer to customers, or to a manufacturing site? The location and partner should be carefully chosen to match business strategy.
- Customs requirements – the Customs’ requirements and procedures vary across China. For example, it is easier to import and export electronic devices in Shenzhen than elsewhere, but Beijing is the best option for medical devices. A deep understanding of the Customs system across China is needed to make the right decision.
- Culture and language differences – clear communication and consistent local support are vital to make the process smooth and efficient.
At Fiducia we have decades of experience in helping companies manage their business operations in Greater China and the APAC region. We offer a one-stop, hassle-free service from advising on regulation to supporting you in choosing a bonded warehouse location and partner. We will also handle the U-turn process and Customs procedures for you. If you are aiming to sell to China without an entity, or if you are looking for a solution to your cross-border business, contact us to discuss how Fiducia can help your business prosper.