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This activity has received funding from Austrade as part of the
Free Trade Agreement Training Provider Grant Program.
The views expressed within the activities are not necessarily the
views of the Commonwealth of Australia, and the
Commonwealth does not accept responsibility for any
information or advice contained herein.
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China-Australia Free Trade Agreement (ChAFTA)
Crowe Horwath Australia 25 September 2017
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Agenda
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Overview of Free Trade Agreements (FTAs)
Overview of China-Australia Free Trade Agreement (ChAFTA)
Steps to Utilizing ChAFTA
Tariff Classification Identification
Treatment of Goods
Rules of Origin
Preparation of Origin Documentation
Government Schemes
Tax Structuring
Tax Matters
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Overview of Free Trade Agreements (FTAs)
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FTAs can cover:
Entire regions with multiple participants
Just two economies
FTAs are international treaties that remove
barriers to trade
Increased economic integration between
participating countries
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How businesses can use FTAs
Increase goods exports to a market;
Commence new goods exports to a market;
Demonstrate that goods are eligible for FTA benefits;
Deepen engagement in global value chains;
Achieve efficiencies through cheaper imported inputs;
Harness new or more secure access to services markets;
Better the mobility of business travel;
Invest with enhanced protections and certainty;
Access government procurement markets; and
Address 'behind the border' barriers to trade.
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China-Australia FTA (ChAFTA)
China is Australia's largest agriculture, forestry and fisheries export market
Worth circa $10B in 2015-16, up from $5 billion in 2010-11
China predicted to account for 43% of global growth in agricultural demand by 2050.
Prior to ChAFTA Australian producers and exporters faced significant tariffs on agricultural
products, placing them at a competitive disadvantage to countries with established FTA ties to
China.
An example of how ChAFTA will benefit exporters:
All tariffs on agricultural products will be progressively eliminated
Elimination of the 11 to 30% tariff on oranges, mandarins, lemons and all other citrus fruits by
1 January 2023
Elimination of the 10 to 30% tariff on all other fruit by 1 January 2019
Elimination of the 10 to 13% tariff on all fresh vegetables by 1 January 2019.
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Steps to Utilizing ChAFTA
WHAT
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Nature of the goods are being
imported/exported
Identify the correct customs tariff code 1.
2.
3.
4.
Treatment of the goods under ChAFTA
Identify the lower (preferential) duty rate for the goods HOW
‘Origin’ of goods – are the goods
‘produced’ in Australia or China WHERE
Type of documentation required to certify origin of
goods
Certificate of Origin (COO)
Declaration of Origin (DOO)
DOCUMENT
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Tariff Classification Identification
Classification
Treatment of a particular good depends on the correct Harmonized System (HS)
tariff identification
Access to tariff schedules:
Importers into Australia – Schedule 3 of the Customs Tariff Act 1995
Exporters to China – tariff schedule of the Chinese Customs Service
Advance rulings
Importers
Exporters
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Treatment of Goods Under ChAFTA
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Both China and Australia have set out their commitments to reduce duty rates on goods in lists,
called tariff schedules.
Both countries’ tariff schedules can be found in ChAFTA Chapter Two, Trade in Goods: Annex I
– Schedule in Relation to Article 2.4 (Elimination of Customs Duties).
Exporters
There are also two special categories relating to tariffs which will be eliminated over 10 or 12
equal annual stages, but where a special agricultural safeguard may apply.
Category D
Quota of Australia wool exports
Importers
Vital to check Australia’s tariff schedule
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Rules of Origin Requirements
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Rules prevent goods from a
third party being transhipped
through either China or
Australia to take advantage of
the FTA.
Goods will be considered
as ‘originating’
if...
They meet Product Specific Rules
(PSRs)
They are Wholly
Produced Goods
They are Wholly
Obtained (WO) Goods
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Rules of Origin – Transit Through a Third Party
A good will be considered ‘originating’, despite being transported through a third
country, if the goods meet a range of conditions including:
Not having undergone any operation other than
Unloading, reloading, storing, repacking, re-labelling, splitting up for transport reasons
Or any operation necessary to preserve the goods in good condition to be transported on to
China or Australia.
The goods are not stored temporarily in a transport hub for longer than 12
months
The goods remain under Customs control
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Other Important Rules of Origin
Imports into Australia:
For goods transhipped through a third party into Australia, including Singapore
and Hong Kong, Australia will not require any specific additional documentation,
other than the commercial documentation ordinarily required.
Exports into China:
Articles 14 and 15 of China’s Customs Decree 228
Hong Kong Customs and Excise Department has established a China Free Trade
Agreement Transhipment Facilitation Scheme to assist implementation of China’s
transhipment arrangements under FTAs.
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Preparation of Origin Documentation – COO
Certificates of Origin (COO)
Applies to a single shipment
Must not exceed 20 items per shipment
Valid for one year
Must be issued by an authorized body
Exporters to China – Australian authorized bodies:
The Australian Chamber of Commerce and Industry (ACCI);
The Australian Industry Group (AIG); and,
The Australian Grape and Wine Authority (AGWA) (for wine and wine-related products).
Importers into Australia – Chinese authorized bodies:
General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ)
The China Council for the Promotion of International Trade
These authorized bodies have COO templates
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Preparation of Origin Documentation – DOO
Declarations of Origin (DOO):
May be accepted in place of a COO for goods covered by an advance ruling on ChAFTA
origin
Completed by the exporter of a good
No need for DOOs to be approved by an authorized body
Applies to a single shipment only
May cover up to 20 items per shipment
Valid for one year
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Other Documentation
Record Keeping:
Exporters or producers must maintain all records necessary to demonstrate a goods’ origin
for three years after signing a COO, or longer.
Exporters or importers into Australia should note that records must be retained for five years
and can be retained in hard copy or electronic format.
Waiver of Certification:
For certain goods, Australia and China have waived requirements for COOs and DOOs
where total customs value is below AUD 1,000 or RMB 6,000
Verification
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Government Schemes – Exporters
Government grants and trade initiative schemes
In order to overcome non-tariff barrier challenges of international trade, or to assist with
entrance into new markets, the government has a number of trade-related initiatives
which further complement FTAs and assist with companies competitiveness in existing
and new Export markets, such as:
The Australian Trusted Trader Program (ATTP)
Export Market Development Grants (EMDG)
Efic Small Business Export Loan
State based – eg Export Skills Development QLD
Research & Development incentives
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Tax structuring – the starting point
What do you want to do/achieve?
Commercial/business considerations must be the starting point
Where is your product/service is on the business life cycle
What is needed to make sales in China
How much is it going to cost to set up and operate
Legal requirements both for the business and in China
What is the medium-longer term goal – keep or exit
Other considerations
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Tax structuring – the starting point
What do you want to do/achieve? cont
But don’t forget about the tax issues
Expect any foreign tax paid to be a “cost”
Different structures have different tax implications
Must understand Chinese local tax laws and obligations
Double tax agreements – note Australia/China DTA does not extend to Hong Kong
Do you need a full blown presence from day one?
Different structures have different set up and operating costs
No “one size fits all” – so recommend specialist advice before proceeding
Caution – changing structures is likely to have tax implications
How the business is to be funded – eg equity and/or debt, local or foreign …
Exit strategies
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Tax structuring – options
Typical Australian outbound investment structures
Export directly from Australia
with no physical overseas presence
with Representative Office
use an independent agent/distributor
Branch/Permanent Establishment (Australian entity = legal entity)
Separate legal entity – eg set up a subsidiary company in foreign country
Other structures may be suitable – eg trusts, limited partnerships – but care needed!
China encourages wholly foreign owned enterprise (“WFOE”) and cooperative joint
ventures
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Tax structuring – options
1. Export directly from Australia – no physical presence overseas
Cost efficient – no/limited overseas costs, no foreign tax
Tax compliance generally limited to Australia and typically simple
Future development of cross-border tax rules may increase tax compliance complexity
Big question – is this possible? Answer generally “NO”
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Tax structuring – options
2. Export directly from Australia – with Representative Office
Aim – not to create a “Permanent Establishment”
Thus restricted from direct profit making activities
conduct marketing and other non-transactional operations - “preparatory or auxiliary”
cannot conclude contracts
Not a separate legal entity (Australian entity = legal entity)
Generally inexpensive option as limited activities and no foreign tax
but will have obligations for employees / dependent agents
China – from January 2010 new restrictions on the use of representative offices including:
the Australian company must have been in existence for at least 2 years (rules out
SPVs)
limited to four representatives
no longer exempt from China’s enterprise income tax (“EIT”) and an Increased risk of
business tax and VAT on certain taxable earnings
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Tax structuring – options
3. Export directly from Australia – use independent agent / distributor
Aim – not to create a “Permanent Establishment”
Cost efficient – don’t need own foreign entities/registrations, no foreign tax
Distribution agreements with independent agent / distributor
Pay commissions/fees to independent agent / distributor
Care to ensure not “dependent agent” (if so, will create Permanent Establishment)
Tax compliance generally limited to Australia and typically simple
Future development of cross-border tax rules may increase tax compliance complexity
Independent agent / distributor – carries on business of providing such services,
provided such activities are not devoted wholly or almost wholly to one client/enterprise
Dependent agent – a person, other than an independent agent, who often has the
authority to conclude contracts on behalf of the enterprise (includes employees)
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Tax structuring – options
4. Branch / Permanent Establishment
Not a separate legal entity (Australian entity = legal entity)
Requires registration as a foreign entity
Subject to tax in foreign country tax costs and compliance obligations
If active business generally not assessable in Australia and therefore no franking credits
on such profits
Requires allocation of income and expenses to branch – broadly mirroring transfer pricing
methodology of arm’s length principles
Caution – exposure of Australian entity’s profits to tax in foreign country
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Tax structuring – options
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5. Local company / entity incorporated in foreign country
Requires set-up of new entity and registrations – recommend specialist advice
Often invest direct – eg Japan and Korea
Could consider an interposed entity – eg via Hong Kong for China
Subject to tax in foreign country tax costs and compliance obligations
Ring-fences foreign subsidiary’s operations from Australian holding company
Generally commercially better accepted in local country
Increased flexibility raising equity or local financing
Care needed to keep “residency” in foreign country – “effective management”
Care needed if Australian employees in foreign country
Sale of shares potentially tax-free
NOTE: the after-tax return to shareholders will often broadly be the same as under a
branch/permanent establishment if foreign company dividends profits to shareholders –
however, always best to get professional advice up-front!
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Tax Matters for Exporters
Australian tax considerations
Thin capitalisation
Controlled foreign companies (CFC) rules
Could tax on accruals basis (as opposed to NANE)
No franking credits for foreign taxes = unfranked dividends for shareholders
Transfer pricing / Branch attribution
Exit strategies including availability of CGT relief for certain foreign subsidiary companies
FBT issues from foreign benefits to Australian tax resident employees
China tax considerations
Understand domestic tax laws and obligations including:
Registration requirements / obligations
Various taxes that may apply
Lodgement and payment dates
China/Aus Double Tax Agreement – how modify domestic tax laws
Repatriation of profits – procedures and withholding taxes
Exit issues – tax on disposal
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Tax Matters for Exporters – summary
Foreign taxes – expect to be a “cost”
Structure – no one size fits all
Design for commercial reasons, tweak for tax efficiencies
Different structures have different costs and tax obligations
Understand the structure implemented and limits/restrictions
Making changes to the structure will have tax implications
Tax registrations and on-going compliance obligations
Domestic law and DTA modifications
Understand the regulatory obligations for foreign investors
Overseas activities will have Australian tax implications
Be careful in sending Australian employees overseas for extended periods
Due to the complexities involved, get professional advice
– getting it wrong or not complying can be expensive and painful!
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Andrew Curdie – Associate Partner – Licensed Broker
Customs & International Trade – Sydney
Tel +61 2 9619 1608
Mobile +61 434 622 715
"I bring to Crowe Horwath a wealth of knowledge from working in all parts of Customs and International Trade with an extremely broad
range of clients.“
Andrew’s specialty is Customs and International Trade. He brings to this position over 35 years experience in the customs industry,
managing leading customs brokerages where he consulted with clients on all levels including Tariff, Quarantine and GST matters.
Andrew has extensive experience managing customs risk and obtaining substantial savings across a wide range of industries including:
electronics; textiles, clothing and footwear; food; manufacturing; raw materials; medical; cosmetics; and automotive; as well as experience
in 3PL warehouse and distribution.
Key Areas of Expertise
Minimising duty exposure through preparation and lodgement of Tariff Concession Orders, Tariff Advices, and Valuation Advices
Unbundling of Customs Value – delivering subsequent duty reduction
Transfer Pricing methodology of overseas pricing, in line with Customs Valuation legislation
Customs Compliance – utilising our Three-Staged “Global Trade Optimiser” approach
Trusted Trader – assisting clients to become accredited with the Australian Government initiative
Supporting Importers in all areas of logistics including purchasing, stock control, international freight options & monitoring supply chain
activities creating net value
Professional Background
Licensed Customs Broker
Department of Agriculture (Quarantine) accredited Broker
Member of the Customs Brokers and Forwarders Council of Australia (CBFCA)
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Richard Nutt – Associate Partner
Customs & International Trade – Sydney
Tel +61 2 9619 1607
Mobile +61 409 906 302
“The Tax Advisory group’s Customs and International Trade experts aim to reduce the incidence of customs duty in a client’s business, producing instant
cash savings and real margin improvement for the future of the business.”
Richard brings to his clients his extensive prior experience working as an Industrial Engineer and Customs Broker for FedEx in organising supply chain &
logistics industry in various countries including Australia, New Zealand, Ireland and United Kingdom, and more recently at Crowe Horwath as a consultant
specialising in Customs & International Trade.
Clients and Expertise
Richard has experience of working with Australian and New Zealand regulatory bodies (Customs and Quarantine) as well as working with clients within
automotive, perfume & cosmetics, electronics and retail industry. Using his experience as an Industrial Engineer and Customs Broker, he is able to add
significant value to Department of Immigration and Border Protection (DIBP) industry advisory groups relating to trade facilitation initiatives. His industry
experience and commercial skills has also enabled him to achieve outstanding outcomes for his clients, most significantly helping reduce costs and risk
within the supply chain operations via operational improvements or reducing amount of customs duty paid on imported goods.
Key Areas of Expertise
Customs Duty Reduction via:
Unbundling of Customs Value
Recall and Warranty parts re-engineering to ensure compliance with bylaws that enables Duty Free Imports
Tariff Concession Order Scheme
Transfer Pricing in relation to Customs Valuation
Customs Compliance – via our Global Trade Optimiser (GTO) service offering
Trusted Trader Program – Government backed initiative aimed to improve trade facilitation
Operational Planning and Labour Resource Management
Process Improvements within Customs Clearance or Warehouse and Supply Chain Operation
Design, Development, Implementation including EDI interfacing of software with Customs in Australia, New Zealand and Asia
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Trevor Pascall – Senior Partner
Tax Advisory – Brisbane
Tel +61 7 3233 3507
Mobile +61 409 124 105
Trevor is a Senior Partner, Tax Advisory, Crowe Horwath Brisbane with lead tax responsibilities for Queensland, Northern Territory and
northern NSW and a member of the Crowe Horwath National Tax Leadership Team. He is a senior tax professional with over 30 years
taxation experience.
Trevor brings a complete range of tax advisory services to all clients, large and small. As a highly respected tax advisory specialist, Trevor
has significant, extensive knowledge in cross-border and international tax issues for both outbound and inbound clients.
Professional Affiliations
Fellow – CPA Australia
Chartered Tax Adviser – The Tax Institute
Registered Tax Agent
Education
Bachelor of Commerce (University of New South Wales)
Masters of Tax (ATAX, University of New South Wales)
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