Things about royalty fees

2、 Why pay taxes on "royalties"?

 

According to Article 19 (5) of the Regulations of the People's Republic of China on Import and Export Duties, the fees that should be included in the customs value of imported goods include: "As a condition for the sale of the goods within the territory of the People's Republic of China, the buyer must pay the royalties related to the goods.

 

 

 

3、 Which "franchise fees" need to be voluntarily declared to customs and paid taxes?

 

The royalty is related to imported goods, and the payment of the royalty constitutes a condition for the sale of the goods within the territory of the People's Republic of China. The royalty is not included in the actual paid or payable price of the goods. Royalties that meet the above conditions need to be voluntarily declared to customs and paid taxes.

 

 

 

4、 How to determine whether the "royalty" is related to imported goods?

 

According to Article 13 of the Measures of the Customs of the People's Republic of China for the Examination and Approval of Duty-paid Prices of Import and Export Goods:

 

（1） Royalties are used to pay for patent rights or proprietary technology usage rights. If the imported goods fall under one of the following circumstances, they are considered related to the imported goods:

 

1. Containing patents or proprietary technology;

 

2. Produced using patented methods or proprietary technology;

 

3. Specially designed or manufactured for the purpose of implementing patents or proprietary technologies.

 

 

 

（2） The royalty is used to pay for trademark rights, and if the imported goods fall under one of the following circumstances, it is considered related to the imported goods:

 

1. Attached with a trademark;

 

2. Directly available for sale with a trademark attached after importation;

 

3. When imported, it already contains trademark rights and can be sold with the trademark attached after mild processing.

 

 

 

（3） Royalties are used to pay for copyright, and if the imported goods fall under one of the following circumstances, they are considered related to the imported goods:

 

1. Imported goods containing software, text, music, pictures, images, or other similar content, including magnetic tapes, disks, optical discs, or other similar carriers;

 

2. Imported goods containing other copyrighted content.

 

 

 

（4） Royalties are used to pay for distribution rights, sales rights, or other similar rights. If the imported goods fall under one of the following circumstances, they are considered related to the imported goods:

 

1. Products that can be directly sold after importation;

 

2. It can be sold after mild processing.

 

 

 

5、 How to determine whether the payment of the "royalty" constitutes a condition for the sale of the goods within the territory of the People's Republic of China?

 

According to Article 14 of the Measures of the Customs of the People's Republic of China for the Examination and Approval of Duty Paid Prices of Import and Export Goods, if the buyer fails to pay the royalty, the imported goods cannot be purchased, or if the buyer fails to pay the royalty, the goods cannot be sold on the terms agreed in the contract, it shall be deemed that the payment of the royalty constitutes a condition for the sale of the imported goods within the territory of the People's Republic of China.

6、 If it is necessary to pay external royalties, how should imported goods and related fees be declared?

 

According to the Announcement of the General Administration of Customs on Issues Related to the Declaration and Taxation Procedures for Royalties (Announcement No. 58 of 2019), for those who need to directly or indirectly pay taxable royalties related to imported goods to the seller or relevant parties, regardless of whether they have been included in the actual payment or payable price of imported goods, they should fill in "Yes" in the "Confirmation of Payment of Royalties" column. If the taxpayer has already paid the taxable royalty when declaring the import of the goods, the amount paid should be filled in the "Miscellaneous Fees" column of the customs declaration, and there is no need to fill in the "Total Price" column. If the taxpayer fails to pay the taxable royalty when declaring the import of goods, they shall complete the declaration and tax payment procedures with the customs within 30 days after each payment and fill out the "Taxable Royalty Declaration Form".

 

 

 

7、 What should be done if there is a payment of "royalty" for imported goods and no customs declaration is made at the time of importation?

 

（1） If the taxable franchise fee is not declared to the customs voluntarily, it violates customs laws and regulations, and is an illegal act of not declaring truthfully. The customs will impose administrative penalties;

 

（2） Before the customs discovers any illegal behavior, if it can be voluntarily disclosed to the customs, the customs may not impose administrative penalties, but only pursue the collection of taxes and impose additional late fees. Taxpayers can also apply to the customs for the reduction or exemption of late fees.