All About Legal Risks in Import/Export Trade
With the acceleration of globalization, the international trade environment has become increasingly complex, and Chinese import/export enterprises face diversified legal risks in cross-border transactions. Due to insufficient awareness of potential legal risks at various stages of import/export operations, some enterprises fail to adopt effective preventive measures or handle risks professionally, leading to significant financial losses. This article outlines key legal risks for Enterprises engaged in import/export trade in China, aiming to help mitigate such risks.
1. Enterprise Qualification Risks
(1) Qualifications for Import/Export Trade
i. Customs Registration for Import/Export Entities
Enterprises must complete the Customs Registration for Consignors/Consignees of Import/Export Goods to obtain a Customs registration code before conducting import/export activities.
Note: Under the latest simplified procedures, enterprises no longer need to apply for the Foreign Trade Operator Registration Certificate.
ii. Electronic Port Card (a digital certificate for China’s customs clearance system)
Enterprises must apply for an Electronic Port Card to conduct online customs declarations.
iii. Trade Foreign Exchange Enterprise List Registration
Starting from June 1, 2024, the State Administration of Foreign Exchange (SAFE) has optimized trade foreign exchange management. The Trade Foreign Exchange Enterprise List Registration, previously approved by SAFE, will now be directly processed by commercial banks.
iv. Export Tax Refund Registration with Tax Authorities
Requirements and procedures for export tax refund registration will be covered in a separate article. Stay tuned for updates.
(2) Special Industry Licenses
–Food Import/Export: Enterprises must complete food-related business qualifications on the China International Trade Single Window platform. enterprises selling imported food domestically also require a Food Business License.
–Hazardous Chemicals: A Hazardous Chemicals Operation License is mandatory.
–Pharmaceuticals: Enterprises must obtain a Pharmaceutical Business License.
Note: We need to pay attention to the expiry date of the above qualification. Expired or non-compliant licenses may result in cargo detention or return.
(3) Destination Country Certification Requirements
–EU: CE certification
–Japan: PSE certification
–USA: UL certification
–Saudi Arabia: SASO certification
2. Import/Export Restriction Policies
(1) Prohibited Goods
China’s Ministry of Commerce and General Administration of Customs annually update the Prohibited Import/Export Goods Lists. For example, the Prohibited Export Goods List (8th Edition) bans exports of:
-Decabromodiphenyl ether
-Perfluorooctane sulfonic acid (PFOS) and its salts
-Short-chain chlorinated paraffins
-Dechlorane Plus isomers
Other countries also enforce similar prohibitions. Better pre-verify policies to avoid cargo seizures.
(2) Goods Subject to Quotas
China imposes export quotas on minerals, fertilizers, and other goods to limit export volumes.
(3) Goods Requiring Licenses
i. Export Licenses(e.g., under the Export License-Managed Goods Catalog (2025)):
-Wheat, corn, rice, beef, pork, chicken
-Rare earths, tungsten products
-Automobiles (including complete knock-down (CKD) kits), motorcycles
ii. Import Licenses(e.g., under the Import License-Managed Goods Catalog (2025)):
-Cranes, papermaking machinery, power equipment, agricultural machinery, ships, toner cartridges
(4) Goods Subject to Additional Tariffs
Some countries impose high import/export tariffs on specific goods to restrict their cross-border trade. For example:
–USA Trade War(April 2025): USA imposes 145% additional tariffs on most Chinese goods, and China imposes 125% additional tariffs on American goods.
3. Intellectual Property (IP) Risks
(1) Trademark Infringement
Unauthorized use of registered trademarks may lead to claims.
(2) Patent Infringement
Exporting goods with unlicensed patents exposes Enterprises to liability.
(3) Copyright Infringement
Unauthorized use of images, designs, or advertising materials violates copyright laws.
(4) Territoriality of IP Rights
IP protection varies by jurisdiction. Enterprises shall verify IP status in target markets to avoid disputes.
4. Settlement Risks
(1) Payment Risks
–Cash on Delivery (COD) / Deposit Sales: Risks include delayed payments, cargo rejection, or commercial fraud.
–Foreign Exchange Controls: Political or economic instability may block fund transfers.
–Quality Disputes: Buyers may withhold payment citing quality issues.
(2) Letter of Credit (L/C) Risks
–Document Fraud: Sellers may forge or alter documents to receive payments before cargo delivery under letters of credit fraudulently, which results in the bank paying the seller for the goods without the buyer actually receiving the goods.
–Bank Insolvency: Financial crises or bank liquidity problems may lead to default or bankruptcy of the issuing bank, affecting the settlement of payments.
(3) Exchange Rate Risks
Currency fluctuations between contract signing and settlement may reduce profits or cause losses.
5. Transportation Risks
(1) Cargo Damage/Loss
Risks arise from improper handling, equipment failure, or extreme weather.
(2) Freight Forwarder Risks
Unreliable agents may cause disputes due to informal operations.
(3) Abandoned Cargo at Destination Ports
When no one picks up the goods at the port of destination, if the export enterprise chooses to ship the goods back, it will face the costs of re-declaration of customs, return shipment and taxes, etc.; if selling them locally, it may face the discount of the price, which will lead to losses.
6. Tax Risks
(1) Customs Duty Risks
Enterprise shall do the customs declaration in accordance with the actual price and quantity, otherwise the tax evasion reaching a certain amount may constitute smuggling crimes.
(2) Export Tax Refund Fraud
Fabricating exports, falsifying invoices, overstating tax rates or prices (falsely declaring low tax rebate rate commodities as high tax rebate rate commodities or falsely declaring the prices of the goods) or recycling goods to claim refunds may lead to export tax refund fraud crimes.
7. Policy Change Risks
(1) Tariff Adjustments
Sudden tariff hikes or anti-dumping measures impact costs.
(2) Trade Agreement Revisions
New or terminated agreements alter market access rules.
(3) Non-Tariff Barriers
Technical standards, environmental rules, or quotas may restrict market entry.
(4) Political Instability
Conflicts or legal uncertainties may disrupt transactions.
Conclusion
Enterprises must comprehensively assess and scientifically manage these risks to ensure stable operations in international trade.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
How to Start Your Import and Export Business in China
With a population of 1.4 billion, China presents immense opportunities for foreign investors, particularly in the import and export industry. China is a global economic leader and a prime destination for investors.
Setting up a trading presence in China is strategic for foreign companies, though the process can be complex. This guide will walk you through each step, ensuring your business is established smoothly and in full compliance with Chinese regulations.
1. Choose the Right Business Structure
When setting up an import-export business in China, choosing the right business structure is essential. Below are the key options available for foreign investors.
（1）Wholly Foreign-Owned Enterprise (WFOE)
A Wholly Foreign-Owned Enterprise (WFOE) in China is a business entity fully owned by foreign investors, either foreign individuals or companies. It is usually set up as a limited liability company (LLC) and can have one or multiple shareholders.
While a single-shareholder LLC can maximize the control over the company, we still recommend a multi-shareholder setup. According to Article 23(3) of the Company Law, if a single-shareholder LLC cannot prove its assets are separate from its shareholder’s own assets, the shareholder shall be liable for the company’s debts. A multi-shareholder structure offers better protection of the shareholder’s own property against business risks of the company.
- Benefits of a WFOE
Operate independently and engage in trade activities without the need for a local partner. It provides complete managerial and operational autonomy, enabling you to run your business according to your strategies and objectives. No restrictions like representative office.
（2）Joint Venture (JV)
A joint venture (JV) is a type of limited liability company where a foreign investor partners with a Chinese company. This arrangement allows foreign businesses to leverage local expertise and resources while sharing management responsibilities.
- Benefits of Joint Venture (JV)
A joint venture facilitates quick market entry in China by leveraging a local partner’s expertise, distribution networks, and sales channels, helping to overcome typical entry challenges.However, this approach also requires giving up some control to your partner.
（3）Representative Office (RO)
A Representative Office (RO) is a cost-effective choice mainly utilized for market research, promotion, and liaison activities. It enables you to establish a presence in China and cultivate relationships, but it cannot engage in direct profit-generating activities or conduct business transactions. This structure is ideal for companies seeking to explore the market or promote their products without immediate plans for direct trade.
- Benefits of Representative Office (RO)
Exploring market opportunities, particularly for small companies with limited budgets.
Assessing the potential for expansion into China without making a full commitment.
Creating a foundational presence for activities such as quality assurance and supplier communication.
2. Choose Your Company Name for Approval
The first essential step in registering a company in China is choosing a distinctive business name that aligns with Chinese naming conventions and accurately represents your brand. It’s important to ensure that your chosen name is not already in use or registered by another entity.
Once you’ve finalized your business name, you must submit it for approval to the State Administration for Market Regulation (SAMR). This process confirms that the name meets regulatory standards and does not conflict with existing trademarks. The SAMR will review your submission to ensure compliance, making this step vital for your company’s registration.
By carefully selecting and obtaining approval for your business name, you lay the groundwork for a successful registration while adhering to Chinese regulations. Working with an experienced consultant can further streamline this process, helping your business thrive in China’s dynamic economy.
3. Determine the legal representative, directors, supervisor, financial person
When registering a company in China, you must provide details for the legal representative, director, supervisor, and financial officer, including their name, ID or passport copy, and contact information.
The director and supervisor must be different individuals. According to the latest company law, for the small-size LLC or the LLC with a small number of shareholders, the company may not have a supervisor.
Furthermore, Chinese law mandates the appointment of a Chinese Finance Officer for foreign-owned businesses. This officer, who must be a Chinese national, will handle accounting tasks and report financial performance to the relevant government bureau.
4. Determine the registered address
When registering a company in China, a physical office isn’t required—you can use a virtual address. We offer a free virtual registered address with our company registration services.
However, import-export businesses seeking an export tax rebate will need a physical office, as tax authorities must verify your business’s physical presence to approve the rebate.
5. Preparing Essential Documentation
Previously, registering a company in China involved thorough preparation and the submission of essential documents, such as the Articles of Association, Shareholder Resolutions, and Board Resolutions, appointment letter, etc.
Now, the online registration system streamlines this process by automatically creating these documents based on the information you enter.
Nonetheless, we still advise drafting a comprehensive Articles of Association, as it outlines your company’s purpose, structure, governance, and operational procedures. This document specifies management roles and responsibilities and acts as the cornerstone of your company’s operations.
6. Register Your Company with SAMR
Most State Administration for Market Regulation (SAMR) offices in China now allow online company registration. However, if the shareholders are foreign, you should consult the local industry and commerce bureau to check if online registration is permitted. In Shanghai, foreign individual shareholders can usually register online if he or she has a real-name certified cell phone number and a personal bank card in China.
If online registration isn’t possible, you must submit offline registration documents for SAMR review. The SAMR will assess these documents for regulatory compliance. Once approved, you will receive your business license, allowing your company to operate legally in China and comply with local regulations.
7. Apply For Company Stamp
During incorporation, you must apply for a company seal and file it with the Public Security Bureau (PSB) at the same time. In China, these chops serve as your company’s official seal, similar to a signature in Western countries. Without a company chop, you cannot validate or execute contracts, making this registration crucial for ensuring your business transactions and legal documents are legally binding.
8. Open Bank Accounts of Company
Establishing the appropriate bank accounts is vital for effectively managing your company’s finances in China. Here’s a brief overview of the key accounts you’ll require:
（1）RMB Bank Account
This account is necessary for receiving payments in Chinese Yuan (RMB) and can also accept foreign currency deposits from international clients, following the bank’s guidelines for settlement.
（2）USD Bank Account
Open a USD bank account to facilitate transactions in U.S. dollars. This account makes it easy to accept and make payments in USD, enhancing your cross-border trade.
（3）Capital Bank Account
A Capital Bank Account is essential for receiving contributed capital from the shareholders’ overseas bank accounts.
9. Online Tax Registration
Once your company is registered and your bank account is established, the next step is to register with the local tax bureau and obtain a tax identification number.
Corporate Income Tax: This tax is imposed on profits at a standard rate of 25%. However, the corporate income tax can be reduced to as low as 5% under certain conditions.
Value Added Tax (VAT): VAT rates vary by industry and range from 1% to 13%.
10. Customs Registration
To conduct import and export trade, you must register as the import and export consignee and consignor in the China International Trade Single Window, also known as the Customs filing.
After registering, you’ll need to apply for an electronic port card, allowing you to perform various online operations for your trade activities.
11. Apply for Additional Licenses and Permits
Depending on the type of goods you plan to trade, you may need extra licenses or permits. For instance, importing food products requires food safety certifications, while hazardous materials need specific environmental permits. Additionally, selling hazardous chemicals requires a hazardous chemicals license.
12. Apply for Work Permit
After successfully registering your company, you can apply for work permits for your foreign employees. In China, foreign work permits are divided into three categories:
- Class A: High-end talents, with permits valid for up to five years.
- Class B: Professionals, with permits valid for up to two years.
- Class C: Other talents, which are subject to strict quotas.
Depending on the specific circumstances of your foreign workers, your company can apply for the appropriate work permits. This will ensure that your foreign employees are legally authorized to work in China and will simplify their entry and exit from the country.
Conclusion
By meticulously following these steps, foreign investors can successfully establish a compliant and operational export-import company in China. With a strong foundation in place, your business will be poised to thrive in China’s vast and dynamic market. Our expertise offers comprehensive support to meet all your business needs.
Feel free to contact us if you would like to know more information about starting your import and export business in China.
Besides, if you need other information about import and export information in the world, you can visit Globy.com, we also published our article in this platform.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
