Is entrepot trade actually a legal tax avoidance tool?

Mr. Zhang recently discovered a strange phenomenon: The clothing produced by his own factory has a higher profit when directly exported, but the customer insists on first transporting it to Singapore and then re-exporting it to Africa. Behind this is the entrepot trade world with an annual transaction value exceeding trillions of yuan. Today we will uncover the mystery of this "curve-saving" type of trade.

Simply put, entrepot trade is when goods take a "detour" in a third country during their journey from the producing country to the consuming country. Just as when Ms. Li chooses bonded warehouse delivery when shopping online, a large number of goods in international trade will be repackaged and relabeled at transshipment ports such as Hong Kong and Singapore.

• Typical scenario 1: Avoid trade barriers (such as when the US imposes tariffs on Chinese goods, through re-export via Vietnam)
• Typical scenario 2: Utilize the policies of the transshipment place (such as the zero-tariff advantage of the free port of Hong Kong)
• Typical scenario 3: Handling of special goods (such as precision instruments that need to change the origin certification)

The case of Zhongshitong Logistics shows that the rational application of entrepot trade can reduce the comprehensive cost by 18%-25%:

• Tax optimization: Enjoy tax treaty preferences through the transfer station
• Risk isolation: Politically sensitive goods can blur the origin
• Logistics flexibility: Flexibly respond to sudden trade policy changes

The case of a cross-border e-commerce company being fined 230 million yuan for false entrepot trade in 2023 warns us that:

Legitimate entrepot trade needs to meet the principle of substantial processing. If it is just a simple change of packaging or false declaration, it may constitute trade fraud. It is recommended that enterprises retain complete logistics documents, processing certificates and capital flow records.

The blockchain technology is changing the traditional entrepot model. Through smart contracts, the origin can be automatically verified and the tax rate can be automatically applied, which not only ensures compliance but also improves efficiency. Just like the trade traceability system that Mr. Zhang recently tried, you can track the entire transshipment track of the goods with just one click of the mouse.

When global trade barriers are increasingly high, the "circumvention tactic" of entrepot trade is worth every foreign trade person studying in depth. Have you ever missed an order due to not being familiar with entrepot rules? Welcome to share your practical experience in the comment section.