Introduction #
The 1039 Market Procurement Trade Model offers a flexible and efficient channel for small and medium-sized enterprises (SMEs) and individual merchants to participate in cross-border trade. However, when export agency companies act on behalf of exporters under this model, the operational procedures and tax compliance requirements differ significantly from those applicable to traditional export models. This article provides a comprehensive legal guide for exports under the 1039 model, addressing taxation, foreign exchange compliance, and operational considerations.
I. Key Features of the 1039 Market Procurement Trade Model #
The 1039 Market Procurement Trade Model (Customs Supervision Code 1039) allows businesses to purchase small commodities within designated domestic markets and export them in consolidated shipments.
Key features include:
- VAT Exemption:
Goods exported under the 1039 model are exempt from Value-Added Tax (VAT), significantly reducing the exporter’s tax burden. - Simplified Foreign Exchange Procedures:
The 1039 model simplifies foreign exchange verification, allowing multiple enterprises to consolidate proceeds from international buyers. - Flexible Currency Settlement:
Transactions can be settled in either CNY(RMB) or foreign currencies through authorized agents or third-party platforms. - Lower Entry Barriers:
SMEs and sole proprietorships can easily access international markets without the high thresholds typically associated with traditional exports.
II. Taxation Issues under the 1039 Model #
While the 1039 Market Procurement Trade Model offers substantial advantages, export agency companies and exporting enterprises must carefully address the following taxation issues:
1. Value-Added Tax (VAT) #
Exemption from VAT:
Exports conducted under the 1039 model are eligible for VAT exemption. Neither the export agency company nor the exporting enterprise is required to pay VAT on goods exported through this channel.
2. Export Tax Refund #
No Eligibility for Export Tax Refunds:
Unlike general trade exports, exports under the 1039 model are not eligible for VAT refunds.
As the goods have already benefited from VAT exemption, there is no basis for claiming any export tax rebates.
3. Corporate Income Tax #
Income from Agency Services:
Service fees or commissions earned by export agency companies are treated as ordinary business income and are subject to corporate income tax according to Chinese tax laws.
Profits from Exports:
Enterprises exporting goods under the 1039 model must pay corporate income tax on their export profits. However, since the exports are VAT-exempt, no VAT liabilities arise from the transactions.
4. Foreign Exchange Compliance #
Export agency companies must ensure that all foreign exchange transactions are conducted through authorized channels in compliance with the Foreign Exchange Administration Regulations of the People’s Republic of China.
All foreign currency receipts must be duly reported and filed with the competent tax authorities to ensure full regulatory compliance.
III. Key Compliance Requirements for Export Agencies #
1. Registration and Filing #
Export agency companies must register with the local commerce authority as a Comprehensive Foreign Trade Service Provider or a Market Procurement Trade Platform Agent.
Only registered entities are authorized to conduct exports under the 1039 model.
2. Standardized Agency Agreements #
A detailed agency agreement must be executed between the export agency company and the exporting enterprise, clearly defining:
- Agency service fees,
- Customs declaration responsibilities,
- Tax reporting obligations, and
- Foreign exchange collection arrangements.
3. Tax Filing and Reporting Obligations #
Despite the VAT exemption, export agency companies must file regular reports with the tax authorities.
Special attention must be given to declaring corporate income tax liabilities and ensuring the proper recording of foreign exchange transactions.
Conclusion #
The 1039 Market Procurement Trade Model provides an innovative and simplified export channel for SMEs and small traders in China. Export agency companies play a vital role in facilitating these transactions. However, to fully benefit from the preferential tax policies while avoiding regulatory risks, strict adherence to taxation rules, foreign exchange compliance, and proper contractual arrangements is essential.
By maintaining rigorous compliance and robust internal controls, export agency companies can support the international expansion of Chinese enterprises while minimizing legal and financial risks.
This article is for informational purposes only and does not constitute legal advice. For case-specific consultation, please contact us. Read our full Legal Disclaimer, which also includes information on translation accuracy.
