Introduction to Settlement in Foreign Trade
Author:XTransfer2025-02-08
In international trade, “settlement” refers to the settlement of transactions and the resulting translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates. According to Mainland China's Foreign Exchange Management Regulations and Administrative Provisions on Settlement, Sale and Payment of Foreign Exchange, enterprises can convert RMB into other currencies through banks authorized to conduct foreign currency business.
Ⅰ Common international trade settlement methods
- Remittance: the importing party takes the initiative to remit the money to the exporting party through the bank, the common ones are telegraphic transfer (T/T), letter transfer (M/T) and ticket transfer (D/D). This way is more favorable to the importer, but the exporter bears a certain risk of collection.
- Collections: the exporting party entrusts the bank to collect money from the importing party, divided into the bill of lading collections and documentary collections. Documentary collection is divided into payment (D / P) and acceptance (D / A). D/P is relatively safe, while D/A is a little more risky.
- Letter of credit: by the importing bank according to the application of the importing party, to the exporting party to issue a written document guaranteeing payment of goods. Letter of credit settlement in international trade is widely used, it is through the bank credit instead of commercial credit, for both buyers and sellers to provide a more reliable protection.
Ⅱ Do you have to pay taxes on a settlement?
Whether or not you have to pay taxes on a settlement amount in international trade depends on a number of factors, including the nature of the transaction, the amount, the method of payment, and the tax policy involved. The following are some of the main factors to consider:
1. Export and Import Taxes
For an exporting enterprise, if the export tax refund policy is met, the enterprise may apply for an export tax refund upon receipt of the payment. For example, if an enterprise purchases goods domestically and obtains VAT input invoices, it can apply for a tax refund in accordance with the regulations when exporting.
When importing goods, enterprises need to pay import tariffs and import VAT, etc., which are usually levied by the customs on behalf of enterprises, but are less directly related to the settlement process.
2. Trade in services and cross-border payments
If a domestic organization or individual makes a payment of more than US$50,000 equivalent to a foreign country, a tax filing is usually required. This applies to cases such as income from cross-border trade in services and remuneration for labor services. However, there are some cases, such as travel expenses and conference fees, where filing may not be required.
3. Cross-border tax agreements
In cross-border transactions, tax treaties may have an impact on taxes, especially when the offshore organization or individual receives income from within the country, and may enjoy tax treaty treatment, which reduces or exempts taxes.
4. Foreign currency settlements
If settlements are made in foreign currencies, enterprises are required to convert into RMB at the exchange rate of the day or month, which may affect the calculation of tax.
Therefore, in international trade, whether and exactly how the settlement amount is subject to tax depends on the nature of the transaction, the amount, the mode of payment and the tax policies of the relevant countries and regions. Tax professionals or financial services platforms, such as XTransfer, can be consulted for more accurate guidance.
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