New Tax Treaty between China and Russia

New Tax Treaty between China and Russia

Recent reports have raised concerns about Russia increasing import tariffs on Chinese furniture to 55.65%.

The new tariff policy will take effect on December 1, 2024, and it includes a retrospective taxation clause, meaning importers may be required to pay backdated taxes for transactions dating back to 2021. Under this policy, Vladivostok Customs has introduced a new classification for furniture parts with circular or rotating components, such as sliding rails, reclassifying them as bearings. Previously, these items were exempt from tariffs, but with the new classification, they will now be subject to a 55.65% tariff.

However, it’s important to clarify the details:

1. The policy specifically targets furniture hardware and parts, not finished furniture.

2. It is not a nationwide policy. The tariff increase applies to imports processed through Vladivostok Customs, which has implemented this change based on its own classification practices.

Current Status of China-Russia Trade

According to data released by China Customs on November 7, 2024, China-Russia trade from January to October grew by 2.8% year-on-year, reaching $202.2 billion. China’s exports to Russia increased by 4.7%, totaling $94.14 billion.

This indicates that the trade relationship between China and Russia remains strong, with both countries seeing growth in their trade volume. China's exports to Russia have also experienced a notable increase. As of the data released in November 2024, the trade partnership between these two countries is continuing to thrive.

Key Export Categories:

China’s main exports to Russia in 2024 include:

• Vehicles and spare parts

• Electronic products

• Clothing and accessories

• Household goods

• Steel products

• Plastics and related products

• Agricultural products

• Machinery and equipment

Despite challenges such as global political tensions, the Russia-Ukraine conflict, and imbalanced trade structures, China-Russia trade has continued to grow. This steady increase demonstrates the stability and potential of economic cooperation between the two nations. The trade structure is also improving, with more diverse products being exchanged and opportunities for mutual investment expanding.

For Chinese exporters, the Russian market remains full of opportunities. Understanding Russia’s import tariff system and calculation methods can help exporters make the most of these trade opportunities.

Russia’s Import Tariff System

Russia’s import tariff policies are relatively complex, involving multiple tax rates and additional fees for certain goods. The amount of duties and taxes depends on the type of product, quantity, customs value, and specific trade agreements.

Types of Import Tariffs in Russia:

1. General Tariff Rates
   These are standard rates applied to most imported goods, including food, beverages, textiles, and other common products. For example:

   • Textile products: 10%-20%

   • Machinery: Up to 25%

2. Preferential Tariff Rates
   Lower tariff rates are applied to goods imported under trade agreements. For instance, thanks to trade agreements between China and Russia, certain Chinese products like agricultural goods and light industrial products enjoy preferential rates.

3. Zero Tariff Rates
   Some goods, such as medical supplies and educational materials, are exempt from import duties. These exemptions provide opportunities for Chinese exporters in specific industries.

4. Special Tariffs
   Additional tariffs imposed in special cases, often for political or economic reasons. For example, Russia applies a 35% tariff on certain goods from "unfriendly countries," such as personal care products, weapons, and ammunition.

   Tax Item No.	Item Description	Tax Rate (%)
   1	Books, newspapers, periodicals, educational audiovisual materials; IT products such as computers, video recorders, digital cameras; food, beverages; gold, silver; furniture; toys, games, festival or other entertainment items; pharmaceuticals (Note 1)	13
   2	Sporting goods (excluding golf balls and equipment), fishing gear; textiles and their products; TV cameras and other electrical appliances; bicycles; other goods not included in items 1 and 3	20
   3	Tobacco, alcohol (Note 2); precious jewelry and gemstones; golf balls and equipment; luxury watches; high-end cosmetics	50

   Notes:

   • Note 1: Includes items classified as medicines.

   • Note 2: Includes both cigarettes and alcoholic beverages.

Components of Import Fees in Russia

When importing goods into Russia, the total cost typically includes:

1. Import Duties:
   The main tax on all imported goods, usually ranging from 5%-20%, depending on the product type and purpose.

2. Value-Added Tax (VAT):

   • Standard VAT rate: 18%

   • Reduced VAT rate: 10% (applies to food, medicines, and child-related goods)

   • Some goods are exempt from VAT (e.g., certain encouraged imports).

3. Excise Tax:
   Applied to specific items like alcohol, tobacco, and luxury goods. The tax is calculated based on the type and quantity of goods.

4. Customs Processing Fees:
   Additional fees for customs clearance, which vary depending on the goods and the importing process.

How Import Tariffs Are Calculated

1. Import Duty Calculation:
   The formula is:
   Import Duty = Customs Value × Tariff Rate

2. VAT Calculation:
   VAT is calculated based on the customs value, import duty, and any excise tax:
   VAT = (Customs Value + Import Duty) ÷ (1 - Excise Tax Rate) × VAT Rate

For Chinese exporters, optimizing costs is essential when dealing with Russian tariffs.

Cost Optimization Tips for Chinese Exporters

1. Optimize Transportation Costs:
   Negotiate with Russian buyers to choose cost-effective and efficient transportation methods. This reduces freight and insurance expenses while minimizing risks during transit.

2. Negotiate Export Prices:
   Adjusting export prices can help maintain competitiveness, but exporters should ensure that price reductions still leave room for reasonable profit margins.

3. Understand Tariff Policies:
   Stay updated on Russia’s tariff policies, including preferential rates and exemptions, to take full advantage of cost-saving opportunities.

Benefits for Chinese Exporters

1. Tariff Reductions for Specific Products:
   Russia has implemented tariff reductions on certain Chinese imports, such as machinery and electronics, to support trade and small businesses. For instance, in 2024, Russia reduced import tariffs on 140,000 tons of frozen chicken, benefiting Chinese exporters.

2. China-Russia Trade Agreements:
   Several trade agreements between China and Russia offer tariff reductions on specific goods (e.g., energy products, agricultural machinery). These agreements create more market opportunities for Chinese exporters.

3. Border Trade Incentives:
   In border trade zones like the Suifenhe Mutual Trade Zone, imports below a certain value are exempt from duties and VAT. This promotes cross-border trade and benefits businesses in both countries.

4. Support from the Belt and Road Initiative:
   As a key partner in China’s Belt and Road Initiative, Russia offers various trade advantages, such as green channels and tariff exemptions for specific projects. These policies reduce costs and improve trade efficiency.

How Chinese Exporters Can Respond

1. Understand Tariff Classifications:

• Exporters should closely monitor changes in product classifications at Russian customs, especially for products processed through Vladivostok.

• Work with local customs agents to ensure accurate declarations and avoid unexpected tariff increases.

2. Optimize Trade Routes:

• Consider alternative Russian customs regions or ports to reduce exposure to Vladivostok’s stricter policies.

• Explore cost-effective shipping and logistics options to offset rising tariff expenses.

3. Strengthen Negotiations with Buyers:

• Collaborate with Russian buyers to share the burden of increased costs.

• Offer flexible pricing or payment terms to maintain competitiveness in the market.

4. Monitor Policy Developments:

• Stay updated on Russian federal customs policies to anticipate and prepare for potential nationwide changes.

• Engage with trade associations for insights and support in navigating new regulations.

Opportunities for Chinese Exporters

Despite the challenges, there are still opportunities for Chinese exporters to strengthen their position in the Russian market:

1. High Demand for Chinese Products:

   • Russia remains highly dependent on Chinese furniture parts and other industrial goods. This reliance creates a stable market for Chinese exporters, even with higher tariffs.

2. Trade Agreements and Negotiations:

   • Existing China-Russia trade agreements provide opportunities for tariff reductions on certain goods, such as machinery and electronics.

3. Belt and Road Initiative Support:

   • As a key partner in the Belt and Road Initiative, Russia offers trade facilitation measures such as green channels for certain projects.

4. Diversification of Products:

   • Exporters can explore opportunities to supply other high-demand goods, such as medical equipment, agricultural products, and construction materials, where tariffs may be lower or exempt.

By understanding Russia’s import tariff system and leveraging the benefits of trade agreements and border policies, Chinese exporters can maximize their opportunities in the Russian market while minimizing costs.