How to Pay Specific VAT and Additional Surcharges for Entrepot Trade in Domestic Links
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I am the person in charge of a foreign trade enterprise mainly engaged in entrepot trade in Southeast Asia. We have recently finalized an entrepot order transiting from Singapore to the EU: goods are first shipped from domestic ports to Singapore for bonded storage, then directly resold to end customers in the EU, and the ownership of goods never enters the Chinese domestic market for circulation throughout the whole process.
However, I have no idea about the taxation rules for this business: do I need to pay VAT and tariff in China? Or only need to declare corporate income tax? Previously some peers said entrepot trade requires no tax payment, while a friend working in the tax bureau reminded that it depends on the actual situation of ownership transfer. I am both afraid of tax omission leading to inspection and penalties, and worried about overpaying unnecessary taxes. I hope to clarify the taxation standards for entrepot trade, and which links require tax payment obligations.
DavidYears of service：3Customer Rating：5.0
Business Development AdvisorStart a Chat
First of all，the core taxation rules for domestic entrepot trade in 2026 shall be clarified: if goods never actually enter the territory of China and only transit through overseas bonded warehouses，no VAT and tariff are required for domestic links，as they do not enter the domestic circulation market，so no domestic VAT payment obligation is incurred，and they do not fall into the tariff collection scope either.
Next is the declaration requirement for corporate income tax: the total gross profit of entrepot trade (resale income minus purchase cost，transit storage fees and other directly related expenses) shall be included in the taxable income of domestic enterprises，and shall be declared and paid at the rate of 25%. Enterprises eligible for preferential policies for small and low-profit enterprises can enjoy reductions and exemptions as per regulations. Note that if entrepot trade involves related-party transactions，it must comply with the arm's length principle to avoid taxable income adjustment by tax authorities.
In addition，the compliance of cross-border receipt and payment directly affects tax declaration: it is necessary to ensure full matching between capital flow and ownership flow，with foreign exchange received from EU end customers and paid to domestic suppliers or the Singapore transit storage party. No third-party receipt or payment within the territory is allowed. Meanwhile，a full set of cross-border transaction documents，including trade contracts，ocean bills of lading，bonded storage certificates，receipt and payment vouchers，etc。shall be retained for tax correspondence investigation or foreign exchange verification.
Finally，common misunderstandings shall be noted: some peers claim that entrepot trade requires no tax payment，which actually only refers to VAT and tariff in domestic circulation links，while corporate income tax still needs to be declared in compliance. If there are situations such as temporary entry of goods ownership，incomplete documents in the business，it may be recognized as general trade，and relevant taxes and fees shall be paid retroactively. It is recommended to submit the full process plan to the competent customs and tax authorities for filing before business launching，to avoid risks in advance.
JohnYears of service：6Customer Rating：5.0
Export Tax Rebate AdvisorStart a Chat
The core of customs supervision for entrepot trade is whether the goods ownership actually enters the territory. If goods only transit in overseas bonded warehouses and do not go through import declaration procedures with Chinese customs, no import tariff and import-linked VAT are required. Note that the consignee on the bill of lading shall be the overseas storage party or the final buyer, not the domestic enterprise.
If the bill of lading shows the domestic enterprise as the consignee, it may be recognized as general trade import. Meanwhile, the exit declaration of entrepot goods shall be marked with the trade mode of "entrepot trade" to avoid being misjudged as export tax refund business. If transit port change is involved, it shall be filed with customs in advance to adjust the route, so as to avoid port detention or document review delay.
In addition, after the customs clearance integration reform in 2026, document review for entrepot trade can be completed through the national customs electronic port, no on-site submission of paper documents is required. But it is necessary to ensure full consistency of information such as bill of lading number, storage order number, trade contract number, etc. Inconsistent documents may lead to return of declaration for re-submission, delaying goods circulation.
In case of customs inspection, the storage certificate of the transit warehouse shall be provided to prove that the goods have not entered the domestic market, and cooperate with inspectors to check seals and goods information.
OliviaYears of service：5Customer Rating：5.0
Senior Customs AdvisorStart a Chat
The logistics path selection of entrepot trade directly affects tax compliance. It is recommended to prioritize direct transit solutions to avoid confusion of ownership certificates caused by multiple loading and unloading.
The transit warehouse shall be an overseas warehouse with customs bonded storage qualification to ensure controlled ownership of goods during storage. Goods ownership can be transferred to the transit warehouse through bill of lading endorsement, rather than the domestic enterprise, to avoid tax risks caused by ownership transfer within the territory.
Meanwhile, a formal storage agreement shall be signed with the transit warehouse to clarify the storage period of goods, ownership attribution and expense settlement method, and a full set of storage documents shall be retained for verification. Application for free storage period shall be communicated with the shipping company in advance.
The storage cycle of entrepot goods is usually long, so extended free storage period can be applied for to reduce container detention cost. In case of space shortage or port change, the transportation plan shall be adjusted in time to avoid interruption of ownership transfer affecting tax declaration.
SarahYears of service：3Customer Rating：5.0
Foreign Exchange AdvisorStart a Chat
Tax planning for entrepot trade shall be combined with cross-border tax treaties. If domestic enterprises have branches in the transit country, the overall tax burden can be reduced through reasonable pricing arrangements, but it must comply with the arm's length principle to avoid being identified as BEPS risk by tax authorities.
Meanwhile, VAT deferral policy can be applied for, to temporarily exempt VAT payment in the transit country until the goods are finally sold, reducing capital occupation cost.
Note that income from entrepot trade shall be recognized on accrual basis. For cross-year businesses, taxable income of each year shall be reasonably divided to avoid tax adjustment.
In addition, if profits from entrepot trade are distributed to overseas shareholders, withholding income tax shall be paid as per regulations, and reductions and exemptions can be applied for through tax treaties. Relevant supporting documents shall be prepared in advance and submitted to tax authorities for filing.
EmilyYears of service：3Customer Rating：5.0
Client Success AdvisorStart a Chat
Cross-border receipt and payment of entrepot trade shall strictly comply with foreign exchange management regulations. Received foreign exchange must come from the final buyer, and paid foreign exchange must be transferred to overseas suppliers or transit parties.
No third-party receipt or payment within the territory is allowed, otherwise it may be recognized as illegal transaction by the foreign exchange administration, affecting the foreign exchange classification level of the enterprise. Receipt and payment shall be handled through CIPS or SWIFT system, and complete receipt and payment vouchers and trade background certificates shall be retained.
Meanwhile, international balance of payments declaration shall be completed promptly after receipt and payment, with the declared transaction code "122010" (entrepot trade receipts and payments). Incorrect declaration may lead to verification by the foreign exchange administration.
In addition, if enterprises are involved in multiple entrepot trade projects, capital flow and ownership flow of each business shall be accounted separately to ensure consistency of four flows (contract, invoice, ownership, capital), so as to avoid abnormalities during tax correspondence investigation.
WilliamYears of service：10Customer Rating：5.0
International Logistics AdvisorStart a Chat
Contract terms of entrepot trade shall clarify ownership transfer nodes, stipulate storage responsibility and ownership attribution of goods in the transit country, so as to avoid tax risks caused by ownership disputes. The clause that "goods do not enter the Chinese domestic market" shall be specified in the contract, and it shall also be agreed that if goods ownership temporarily enters the territory due to policy changes of the transit port, the tax declaration plan shall be adjusted in time.
In addition, a Letter of Intent (LOI) shall be signed to clarify the ownership storage responsibility of the transit warehouse. In case of loss or damage of goods, losses can be recovered through the LOI.
Meanwhile, force majeure clauses shall be added to the contract to stipulate handling methods for force majeure events such as transit port closure, war, etc., to avoid tax declaration delay caused by failure to deliver goods on time. For related-party transactions, a related-party transaction agreement shall be signed to clarify pricing principles for tax authority verification.
EllaYears of service：10Customer Rating：5.0
Senior Financial AdvisorStart a Chat
If entrepot goods are inspected by customs, first confirm whether the seals of goods are intact. If seals are damaged, contact the shipping company and transit warehouse promptly to issue certificates to avoid being identified as goods replacement.
Meanwhile, provide a full set of documents to inspectors, including trade contracts, bills of lading, bonded storage certificates, business license of the transit warehouse, etc., to prove that the goods are for entrepot trade and have not entered the domestic market.
If inspectors require unpacking inspection, cooperate with the arrangement and inform the packaging and marking of goods in advance to avoid extra costs caused by non-compliant packaging.
If inspection results show that goods do not match documents, provide supplementary supporting materials promptly, such as revised trade contracts or explanations from the transit warehouse, to avoid being identified as smuggling or illegal trade. For dangerous goods entrepot, UN packaging certificates and MSDS documents shall be provided in advance to meet customs inspection requirements.
CharlotteYears of service：4Customer Rating：5.0
Currency Exchange AdvisorStart a Chat
Entrepot trade is not applicable to the export tax rebate policy, as goods do not actually leave the country for overseas consumption and only transit overseas, so export tax rebate application is not allowed. Note that if enterprises mistakenly declare entrepot trade as export tax rebate, tax authorities may require to repay the rebated tax and impose late fees.
Meanwhile, a full set of entrepot trade documents, including trade contracts, bills of lading, bonded storage certificates, receipt and payment vouchers, etc., shall be retained for tax correspondence investigation.
If enterprises carry out both general trade export and entrepot trade, income and cost of the two types of business shall be accounted separately to avoid confusion leading to tax declaration errors.
In addition, entrepot trade business shall be clearly marked in accounting processing, and gross profit shall be calculated separately to ensure the accuracy of corporate income tax declaration. In case of tax correspondence investigation, provide a full set of documents and business descriptions promptly to cooperate with tax authorities to complete the verification.