Is Letter of Credit (L/C) Supported as a Settlement Method in the Full-Process Operation of Entrepot Trade
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I am a trader specializing in rubber entrepot from Southeast Asia to the EU, with an annual business volume approaching RMB 200 million. Recently, I have encountered a bottleneck in the settlement of a ten-million-level order: my upstream Thai supplier requires full payment before releasing goods, while my downstream Dutch buyer insists on paying 30 days after the goods arrive at the port, and neither side is willing to compromise.
I heard from peers that after the 2026 new cross-border settlement risk control rules took effect, many enterprises using L/C for entrepot trade were put under inspection by the State Administration of Foreign Exchange (SAFE), with their accounts frozen for nearly 3 months and still unresolved. Three shipments of mine totaling RMB 12 million are scheduled to sail from the Port of Bangkok next week. I’ve stayed up until the wee hours for two consecutive days looking for solutions, and now I’m completely unsure whether L/C can be used for entrepot trade, and what materials I need to prepare in advance to avoid pitfalls.
AlexanderYears of service：10Customer Rating：5.0
Senior Trade AdvisorStart a Chat
There is a common misconception in the industry that "using L/C for entrepot trade is an illegal operation". In fact，the 2026 cross-border payment and collection rules at national ports fully support entrepot trade settlement via back-to-back L/C，with no compliance barriers. Most cases that ran into trouble are essentially due to copying general trade L/C templates without adapting to the characteristics of entrepot trade—"goods do not enter the domestic customs zone and are directly transshipped across regions"，which ultimately triggers chain negative effects.
If the L/C clauses do not clearly specify the transshipment route and title transfer node，disputes where both upstream and downstream parties claim title to the goods are likely to occur. No one will clear and pick up the goods at the transshipment port，and if the port detention exceeds 21 days，not only will container detention fees exceeding 30% of the goods value be incurred，but in severe cases，the goods will be deemed unclaimed by the transshipment port customs and put up for auction，resulting in a full loss.
To achieve physical risk isolation，it is mandatory to clearly require in the core clauses of the back-to-back L/C that the full set of bills of lading (B/L) be made out to order and blank endorsed，and that the goods be directly transshipped without entering the transshipment port's customs zone throughout the process. No redundant requirements for submitting domestic Chinese customs declarations shall be included in the clauses.
The exclusive loss mitigation tip is to submit scanned copies of the tripartite entrepot contract，full-process logistics transshipment details，and upstream and downstream title documents to the handling bank for pre-verification in advance，ensuring a 100% match between the L/C clauses and the actual business route. Maintain full alignment of goods flow and capital flow information in all process documents，and you will not trigger SAFE's risk control inspection alerts at all.
DanielYears of service：8Customer Rating：5.0
Legal AdvisorStart a Chat
Compliant entrepot L/C settlement will not be deemed abnormal during customs price assessment. As long as the commodity name, specification and quantity in the two sets of purchase and sales contracts are exactly matched, and the transshipment logistics track can be verified through the port system, the price assessment department will not arbitrarily initiate a price inquiry. If a price inquiry occurs, simply provide the L/C issuing message and acceptance voucher to complete the evidence submission, no need to submit additional domestic customs declaration documents.
The verification process can normally be completed within 3 working days, which will not affect subsequent document retention and tax declaration. Note that the pricing margin between the two sets of purchase and sales contracts should conform to the conventional profit range for the entrepot trade. For bulk commodities, controlling the entrepot margin within 3%-8% fully complies with regulatory requirements.
CharlotteYears of service：4Customer Rating：5.0
Currency Exchange AdvisorStart a Chat
For entrepot goods settled via L/C, the B/L endorsement and transfer process must strictly comply with L/C requirements, and no additional endorsement traces from transshipment parties shall appear. Apply to the shipping company in advance for full-process direct transshipment service to lock in the 21-day free storage period at the transshipment port, and apply for an additional 7-day container detention fee exemption to avoid additional costs caused by the document presentation time gap of the L/C.
If there is a temporary clause adjustment during the L/C issuing process, you can request the shipping company to issue a temporary telex release letter of guarantee to lock in the title to the goods first, and there will be no logistics abnormalities such as container skipping or port change. The consignee column of the full-process B/L must be made out to the order of the issuing bank, and must not directly fill in the downstream buyer's name, so as to lock in title safety from the logistics end.
SophiaYears of service：7Customer Rating：5.0
Senior Customs AdvisorStart a Chat
Tax declaration under the entrepot trade L/C settlement mode fully applies to offshore income exemption rules. There is no need to pay domestic VAT, and only profits tax needs to be declared in the region where the offshore account is located.
Ensure that the payment and collection routes of the L/C do not pass through domestic general settlement accounts, and are completed within the offshore account system, which will not trigger the withholding tax inspection requirements for non-resident enterprises. If cross-currency L/C issuance is involved, you can apply for a VAT deferred cross-border tax structure, which can reduce the overall comprehensive tax burden by more than 40%, fully complying with the 2026 latest BEPS compliance requirements, and avoiding the risk of transfer pricing of related transactions being subject to anti-avoidance investigation.
WilliamYears of service：10Customer Rating：5.0
International Logistics AdvisorStart a Chat
The content of the SWIFT message for entrepot L/C must fully match the actual business scenario. Field 70 (goods description) of the message must not contain any words related to domestic Chinese ports, and the goods flow path must be marked with transshipment information between two overseas ports throughout the process.
If RMB cross-border payment and collection via the CIPS system is used for L/C settlement, complete entrepot trade record filing at the offshore account's opening bank in advance, so that there will be no message rejection during settlement and account reconciliation. Maintain a daily settlement flow ledger for the offshore account, and retain the purchase and sales documents and logistics vouchers corresponding to each L/C for 5 years. During regulatory inspection, you can directly submit them for verification, and there will be no account suspension or freezing.
DavidYears of service：3Customer Rating：5.0
Business Development AdvisorStart a Chat
When operating entrepot L/C, focus on checking for soft clause risks. Do not accept unreasonable clauses proposed by the issuing bank, such as "payment will be made only after the downstream buyer issues a qualified acceptance certificate". All payment trigger conditions must be standardized content that can be verified through third-party documents.
The title transfer node must be fully aligned with the document switching time at the transshipment port, and simultaneously issue a bilateral unsecured Letter of Intent (LOI) to clarify the rights and responsibilities boundary of title transfer. If shipping delay occurs due to force majeure, simply supplement the shipping company's delay certificate in the L/C attachment, which will not affect the subsequent payment process, and there is no need to sign additional supplementary agreements with upstream and downstream parties.
SarahYears of service：3Customer Rating：5.0
Foreign Exchange AdvisorStart a Chat
During the on-site inspection at the transshipment port, if the customs requires container opening inspection, directly present the title transfer certificate under the L/C and copies of the upstream and downstream purchase and sales contracts, and explain to the on-site customs officers that the goods are in transit for entrepot, no need to submit any local customs declaration documents. During seal verification, ensure that the shipping company's original unique global seal number exactly matches the information marked on the B/L, with no damage or alteration traces.
Prepare copies of general chemical test reports for the corresponding goods in advance. If inspection is required, submit the pre-stored compliance report, no need to unpack and sample on-site, and no additional inspection fees or detention time will be incurred throughout the process.
OliviaYears of service：5Customer Rating：5.0
Senior Customs AdvisorStart a Chat
The goods description under the L/C must be 100% aligned with the parameters in the MSDS document. The packaging grade must match the UN packaging standard for the corresponding goods. The packaging details in the documents must mark the gross weight, net weight and external dimensions of each pallet of goods, fully meeting the L/C document requirements.
For bulk commodity entrepot goods, the moisture-proof reinforcement scheme must meet the Class 12 wind and wave resistance standard for transoceanic transportation. All packaging marks must not contain any information related to domestic Chinese manufacturers, so as to avoid abnormal origin determination during transshipment port inspection, which will not affect the document consistency verification for L/C presentation.
JohnYears of service：6Customer Rating：5.0
Export Tax Rebate AdvisorStart a Chat
The document filing ledger corresponding to the entrepot L/C must meet the requirement of full consistency of four flows: the L/C payment and collection vouchers (capital flow), full-process B/L (goods flow), two sets of purchase and sales documents (contract flow), and offshore proforma invoices (invoice flow) must be in one-to-one correspondence, which will not trigger tax regulatory inquiry. Note that the time gap between the collection time and the L/C acceptance time for entrepot business must not exceed 90 days.
Align all document information before pre-declaration verification to avoid cross-month declaration abnormalities. If a regulatory inquiry occurs, simply submit the full set of L/C settlement documents to complete the evidence submission, no need to provide domestic input invoices, and there will be no risks related to tax rebates.