The year 2026 marked a turning point for financial and tax compliance in China’s cross-border e-commerce industry. With the full implementation of the Golden Tax Phase IV system, the strict enforcement of the Value-Added Tax Law, and mainstream platforms such as Amazon now providing real-time sales data to tax authorities, the “gray areas” that once relied on information asymmetry have been completely eliminated.

A series of massive fines have recently been imposed in Shenzhen, Xiamen, Hangzhou, and other cities—for example, a company in Xiamen with annual revenue of 228 million yuan was fined over 10 million yuan for reporting only 2,000 yuan in income, while a major retailer in Shenzhen was ordered to pay over 28 million in back taxes and fines for concealing 120 million in revenue through a Hong Kong account—signaling that the four-dimensional regulatory network—comprising “platform data, bank transaction records, logistics information, and customs data”—has now been fully established.

The State Taxation Administration has made it clear: Starting in 2026, cross-border e-commerce will be subject to full audit-based taxation. Although existing business conducted in 2025 and earlier may still be subject to assessed taxation based on the 2%-4% formula, there is no way to avoid accountability for past transactions. Faced with this “major test,” sellers need more than just anxiety—they need a legal, secure, and actionable financial and tax strategy to navigate these challenges.

01 The Era of Four-Dimensional Supervision: “Integration of the Four Flows” Has Become the Lifeline of Compliance

Under the intelligent monitoring system of the Golden Tax Phase IV initiative, tax audits no longer rely on tips or random spot checks, but instead utilize the system to automatically cross-check order flows, fund flows, logistics, and invoice flows.

● Why is the “four-stream disruption” the primary target of audits?

The audit system can easily detect the following: Company A’s Amazon store shows annual sales of 100 million yuan (order flow), but only 20 million yuan has been received into its official account (cash flow); the remaining 80 million yuan has flowed into private accounts via Hong Kong accounts or third-party payment platforms. At the same time, logistics data shows that the goods have been exported, but the customs declaration value is far lower than the actual value of the goods (fictitious export declarations), and there are no corresponding input invoices (missing invoice flow). Every “discrepancy” is a ticking time bomb.

● Compliance Transformation Plan: Integrating the Four Flows at the Foundation Level

▪ Order Flow: Ensure that platform orders, sales contracts, and transaction records are fully retained and strictly consistent with reported revenue.

▪ Cash Flow: All sales revenue must be deposited into the company’s account. Whether through PayPal, LianLian, or PingPong, the final flow of funds must be clear and traceable to prevent any diversion to personal accounts.

▪ Logistics Process: Abandon the “pay-and-export” approach. Customs declarations must be filed using specialized cross-border e-commerce regulatory methods such as 9610, 9710, and 9810 to obtain official customs declarations, bills of lading, and warehouse receipts.

▪ Invoice Flow: Input invoices must match the item description, quantity, and amount on the customs declaration. For purchases without invoices, compliance must be ensured through Market Procurement Trade (1039) or transshipment via a Hong Kong company.

Customer Success Story: A Shenzhen-based 3C seller with annual revenue of 50 million previously relied on export transactions through third-party invoices and personal bank accounts for a long time. After receiving a system alert at the end of 2025, the company contacted us to help restructure its operations. By registering a Hong Kong company as an intermediary trading entity and converting the mainland company into a service provider—in conjunction with the 9610 tax-exempt policy for invoice-free transactions—we not only completed the compliance overhaul within three months, thereby avoiding fines in the tens of millions, but also kept the overall tax burden within 3.81 TP3T.

02 9810 “Tax Refund Upon Departure”: A Cash Flow Lifeline or a New Minefield for Audits?

The new policy for 2025 specifies that under the 9810 scheme (cross-border e-commerce exports to overseas warehouses), a “pre-tax refund upon departure, with sales settled later” approach will be implemented. Tax refunds can be applied for as soon as goods clear customs and leave the country, without having to wait for the items to be sold at Amazon FBA warehouses. This is a huge boon for medium- and large-scale sellers facing cash flow constraints.

● Three Critical Details in Practical Application

▪ Registration First: You must complete the overseas warehouse registration with customs. FBA warehouses also require registration; you must provide proof of your store from the e-commerce platform’s backend and the overseas warehouse lease agreement.

▪ Completing the customs declaration form: The “Country of Trade” and “Country of Destination” fields on the 9810 customs declaration form must be accurate; be sure to include the overseas warehouse address in the “Remarks” section. Even slight discrepancies in the description, quantity, or unit will cause the tax refund system to automatically reject the declaration.

▪ Sales Accounting: The advance tax refund is not the end of the process. After the goods are actually sold, the accounting must be completed by April 30 of the following year. If the actual sales amount is lower than the customs declaration amount, a “refund for overpayment or payment for underpayment” must be made, and any outstanding taxes and late payment penalties must be paid.

Failure to retain supporting documents (such as screenshots of sales orders from the Amazon dashboard or inventory listing records from overseas fulfillment centers) means that if the tax authorities issue a notice of investigation, the company will be unable to prove its case, resulting in the revocation of its tax refund eligibility and potential fines.

03 Choosing the Customs Declaration Code: 9610 vs. 9710—Selecting the Wrong One Could Result in Overpayment of Taxes

Many sellers cannot distinguish between 9610 and 9710, which results in them either being unable to take advantage of the “tax-free without an invoice” policy or facing obstacles in obtaining tax refunds.

▪ 9610 (B2C Direct Mail): Applicable to packages shipped directly from domestic warehouses to overseas consumers. The key advantage is “tax-free without invoices” (within the Comprehensive Pilot Zone), meaning exports are permitted even without input VAT invoices, and corporate income tax can be assessed based on the 4% method. This is suitable for sellers operating independent websites, small-package direct mail, and those with multiple SKUs.

▪ 9710 (B2B Bulk Export): Suitable for Amazon VC, traditional wholesale trade, or bulk shipments to overseas fulfillment centers. Tax refunds are available only with valid input invoices; without them, the goods are treated as domestic sales and subject to additional taxes. Suitable for factories, large sellers, and sellers with high volumes of a single SKU.

Policy Basis: The “Notice of the Ministry of Finance and the State Taxation Administration on Tax Policies for Retail Export Goods in Cross-Border E-Commerce Comprehensive Pilot Zones” (Cai Shui [2018] No. 103) clarifies the tax-exemption policy for 9610 declarations without invoices. In 2026, if a seller has a purchase invoice but mistakenly selects the 9610 declaration code, resulting in an inability to claim a tax refund, or if the seller should have used the 9710 code but instead used the 0110 general trade code, thereby failing to benefit from the assessed tax collection method, this will result in a tangible loss of profit.

04 Say Goodbye to “Zero Reporting”: The Correct Bookkeeping Method in the Era of Platform Data Transparency

Starting in the fourth quarter of 2025, Amazon began filing Form 1099-K with the U.S. Internal Revenue Service, and China’s Phase IV Golden Tax System also began accepting data from multiple platforms.

● The reported data must comply with the “Three Unifications”

Platform data = accounting data = tax filing data. This equation forms the foundation of fiscal and tax security in 2026.

▪ Revenue Recognition: The “gross revenue” received from the platform (including platform commissions, advertising fees, and shipping fees) should be recognized as operating revenue. Overseas expenses such as commissions and advertising fees must be supported by valid documentation (e.g., a platform service invoice) to be deductible for tax purposes; otherwise, additional corporate income tax will be due.

▪ Expense Compliance: Overseas shipping costs paid through a freight forwarder must be supported by pro forma invoices and foreign exchange payment vouchers; purchases made without invoices must be accounted for through compliant channels and cannot be directly offset against revenue.

● Remedial Measures

For sellers who have historically filed “underreported” or “zero” tax returns, the 2025 annual tax return is the final opportunity to make corrections. By taking advantage of the assessed taxation policy under 2%-4%, sellers can proactively report their back-logged income. Paying a small amount of back taxes will exempt them from liability, thereby avoiding the risk of having to pay back taxes plus fines ranging from 0.5 to 5 times the tax amount during the comprehensive audit scheduled for 2026.

05 Multi-Entity Structure: Legitimate Tax Reduction and Related-Party Transaction Risks

Major retailers generally adopt a structure consisting of “a mainland company, a Hong Kong company, and an overseas subsidiary,” but most of them face issues such as commingling of legal entities and irregular cash flows.

● The Proper Use of Hong Kong Companies

Hong Kong companies, acting as purchasing entities or trade transshipment hubs, can legally reduce their overall tax burden by leveraging their offshore profit exemption status (provided they do not conduct business within Hong Kong). However, this is contingent on having genuine commercial substance and a complete chain of documentation to avoid the use of shell companies.

● Risks Associated with Controlled Foreign Corporations

If an overseas company controlled by a mainland resident (such as one incorporated in the BVI or the Cayman Islands) retains profits overseas for an extended period without distributing them, and there is no reasonable business need for doing so, the mainland tax authorities have the right to treat such profits as having been distributed and to impose corporate income tax at a rate of 25% through tax piercing.

Recommendations for a Compliance Framework:

▪ Mainland China Company: Acts as the operational hub, applies for general taxpayer status, receives tax refunds, and bears a portion of the operating profit.

▪ Hong Kong company: Acts as a trade intermediary, signs tripartite agreements, and earns profits from compliant trade spreads.

▪ Sole proprietorships/small-scale businesses: Handle purchases without invoices or domestic service revenue, and take advantage of preferential policies for small and micro enterprises.

06 Three Strategies for Legally Reducing Your Tax Burden: Avoid Pitfalls and Make the Most of Tax Benefits

Compliance does not necessarily mean a sharp increase in the tax burden; the key is to apply the policies correctly.

Strategy 1: A combination of policy measures. Simultaneously utilize the “9610 tax exemption without invoices + 5% income tax for small and micro enterprises with annual revenue under 3 million + local fiscal rebates.” Projections show that for small and medium-sized sellers with annual revenue of 10 million, the combined tax burden can be reduced to 2.5%–3%.

Strategy 2: Supply Chain Optimization. Require upstream suppliers to issue invoices with “tax-inclusive prices,” even if it means a price increase of a few percentage points. Compared to the VAT losses and audit risks associated with the 13% method, the cost of compliance is lower. For suppliers who are truly unable to issue such invoices, use the 1039 market procurement method or source through a Hong Kong-based company.

Tip #3: Document all expenses. Download annual tax invoices for Amazon advertising fees, warehousing fees, and legal fees. If you have 10 million in advertising expenses but no invoices, that means you’ll end up paying an additional 2.5 million in corporate income tax.

07 2025 Annual Report Revision: The Last Chance to Get In at a Low Cost

The State Taxation Administration has clarified that existing business conducted in 2025 and earlier may be subject to assessed taxation at a rate of 2%–4%, which is effectively an amnesty for “historical non-compliance.”

▪ Self-inspection: Compile statistics on the actual revenue from all store backends for 2019–2025 and compare them with the reported data.

▪ Correction: File an amended return for the 2025 corporate income tax annual return by May 31, 2026. For any unreported income from previous years, back taxes will be assessed based on the fixed tax rate.

Consequences: If you miss the window period, the system will flag your case for comparison in 2026, and you will be subject to audit-based taxation, which could result in a tax liability more than 10 times higher.

Frequently Asked Questions (FAQ)

Q1: I’m a small seller on Amazon with annual sales of 2 million. I haven’t registered a company and have always received payments as an individual. Will I be able to continue doing this in 2026?

A: No. According to the E-Commerce Law and the requirements of the Golden Tax Phase IV initiative, cross-border e-commerce businesses engaged in ongoing operations must register as market entities. If the transaction volume in an individual’s payment account exceeds 500,000 or the number of transactions is too high, the banking system will automatically report this to the tax authorities. By 2026, the system will be able to easily cross-check discrepancies: for example, if Amazon’s backend shows 2 million in revenue, but the individual’s tax return only reports a few ten thousand as salary. Solution: Immediately register as a sole proprietorship or a limited liability company. Take advantage of the preferential policies for small and micro enterprises—such as “VAT exemption for monthly sales under 10万” and “an effective tax rate of 2.5% for annual profits under 100万”—with compliance costs amounting to only a few thousand yuan. If you continue to operate “off the books,” once audited, you will not only have to pay back 13% in VAT and 25% in corporate income tax but also face a fine of 0.5 times the amount owed—making it a losing proposition.

Q2: We use a Hong Kong company to receive payments and file taxes in Hong Kong. Can the mainland tax authorities still track this?

A: Yes. Although Hong Kong and the Mainland have not yet fully exchanged financial account information under the Common Reporting Standard (CRS), Mainland tax authorities can conduct a look-through investigation under anti-tax avoidance provisions. According to Article 45 of the Enterprise Income Tax Law, if a Hong Kong company lacks a physical office address, employees, and business decision-making capabilities (“shell company”), and its primary source of income is proceeds from Mainland sellers“ sales through Amazon, tax authorities may deem it a ”controlled foreign enterprise” and treat the profits as if they were distributed to the Mainland parent company for taxation purposes. A more direct approach is for Mainland tax authorities to request that Amazon provide information on the business entities associated with the payment account in question. There is already a precedent in Shenzhen: a major seller received payments through three Hong Kong companies but, unable to explain the commercial substance of these entities, was ultimately required to pay 21 million yuan in back taxes and late payment penalties. Recommendation: Ensure that the Hong Kong company demonstrates evidence of actual operations (such as leasing office space or hiring a corporate secretary), or establish a reasonable pricing structure for related-party transactions between mainland China and Hong Kong.

Q3: After the full implementation of audit-based taxation in 2026, will our past “invoice-less purchases” from previous years be reviewed?

A: Yes. The retroactive period for tax audits is generally three years, though it may be extended to five years under special circumstances. For tax evasion and tax fraud, however, the retroactive collection period is indefinite. Although the State Taxation Administration has clarified that existing business transactions prior to 2025 may be subject to assessed taxation, this does not exempt acts that constitute “tax evasion.” For example, a company in Xiamen was found during an audit to have concealed income for four consecutive years by using straw-name export transactions. Since the case involved suspected fraud to obtain export tax rebates, the statute of limitations does not apply. Recommendation: Conduct an immediate self-inspection. If serious violations are found—such as purchasing customs declaration forms through illegal means or issuing fraudulent VAT invoices—seek professional assistance as soon as possible to conduct a tax health check. By proactively paying back taxes and late payment penalties during the 2025 annual report amendment window, administrative penalties can typically be avoided. If the issue involves merely unreported revenue from purchases made without invoices, the tax adjustment under the 2%-4% assessed taxation method applies, which is the most cost-effective solution.

summarize

By 2026, tax and financial compliance for cross-border e-commerce has shifted from an “optional requirement” to a “mandatory requirement.” The “intelligent monitoring” features of the Golden Tax Phase IV system ensure that every penny flows in the open.

For sellers, there are currently three most urgent tasks: First, resolve historical issues at low cost before the 2025 annual report amendment window closes; second, restructure the business architecture to achieve the “integration of the four flows” and completely eliminate potential audit risks; Third, to make effective use of legitimate tools such as the 9610 and 9810 systems and Hong Kong company structures to generate profits through compliance.

At this critical juncture of industry consolidation, compliance is not only a risk mitigation strategy but also a moat for building long-term competitiveness. As a large number of sellers are forced to exit the market due to non-compliance, companies that are the first to complete their transition to transparent operations will enjoy healthier cash flow, lower financing costs, and greater access to global markets.

Previous Recommendations

▪ A Comprehensive Analysis of the Seven Customs Clearance Models for Cross-Border E-Commerce in 2025: From 9610 to 1039—Customized Compliance Solutions

▪ Announcements No. 15 and No. 17 Take Effect: Cross-border E-commerce Enters the Era of “See-Through” Compliance

▪ 2026 Xi'an Top 5 Business, Commerce, and Tax Services List: A Guide to Selecting Enterprise Service Providers Under the Strict Regulatory Oversight of the Golden Tax Phase IV Initiative

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