China Customs to Require Declaration of Dutiable Royalties Within 30 Days

Chinese Customs is requiring traders to declare dutiable royalties on customs forms within 30 days of payment effective May 1, according to a notice from KPMG. The notice called the announcement “one of the important measures taken by China Customs to enhance trade facilitation promoted by [the] World Customs Organization.”

The change, issued in a March 27 announcement from China’s General Administration of Customs, requires filers to notify Customs if the buyer is paying dutiable royalties on the imported goods “no matter whether the dutiable royalties are included in the price actually paid,” according to the notice. The filer must also specify the time of declaration, the notice said, or indicate whether the buyer is not required to pay dutiable royalties.

Filers are also required to inform Customs if any dutiable royalties were paid before the goods were imported, and will pay duties based on the rates and “customs assessed exchange rate of the date when import declaration is accepted by Customs,” the notice said. If royalties are paid after the goods have been imported, filers must declare the royalties to Customs and pay taxes within 30 days of the import date.

The announcement is significant, KPMG said, because it transfers the responsibility of dutiable royalty declarations to the traders. Companies should treat royalties as “a special type” of good that needs to be declared to Customs, the notice said.

The announcement is also part of a general uptick in enforcement since customs declarations for dutiable royalties were first required in 2016, an alert from Sandler Travis said. That trend should continue, the law firm said. "[W]e believe China Customs will step up its review of royalty declarations and/or post-importation reporting in the future. Affected companies are therefore encouraged to run a full legal analysis from a customs valuation perspective and ascertain whether their royalties are dutiable prior to determining the best way to declare and report all dutiable royalties on import transactions for customs declaration purposes," it said.