Cross-border e-commerce sellers enjoying Temu's semi-managed model should beware: behind Japan's booming market and the apparent success of "cheap and quality" strategies lurk significant tax compliance risks that could potentially wipe out profits overnight.
I. Temu's Semi-Managed Model: Simplicity on Surface, Complexity Underneath
Let's examine Temu Japan's payment flow: Japanese consumers pay in yen, Temu settles through offshore payment companies, and ultimately pays domestic semi-managed sellers in RMB or foreign currency. Sellers must stock goods in Japanese warehouses in advance, shipping directly to consumers upon order generation.
While seemingly straightforward, several critical issues could become tax compliance "time bombs":
- Personal Accounts Receiving Business Funds: Strictly prohibited in regulated business environments, this practice may lead to fines or legal consequences.
- Corporate Account Receipts Without Invoices: While cross-border payments resemble third-party settlements, the lack of invoices creates unverifiable income with inflated tax burdens.
- Uncertain Tax Rates for Unverified Income: Varying regional rates may result in overpayment if not carefully managed.
- 9610/9810 Model Applicability: Temu's centralized payment structure creates uncertainty about tax authority recognition of this model's compliance.
II. Ownership Controversy: The Core Dispute in Temu's Model
Temu's semi-managed model differs fundamentally from Amazon's third-party marketplace in its approach to goods ownership. Temu appears to position itself as an agent rather than owner, managing sales while sellers retain ownership.
This creates two distinct operational frameworks:
- Fully Managed = VC Model: Temu assumes responsibility for selection, pricing, and operations while sellers simply supply goods.
- Semi-Managed = SC Model: Sellers maintain greater autonomy over selection and pricing while Temu provides platform services.
III. The Critical Flaw: Who Serves as Japan's Import Entity?
Chinese goods entering Japan typically clear customs through three methods:
- General Trade Clearance: The most compliant method requiring a Japanese corporate importer.
- ACP+JCT Compliance Clearance: Simplified clearance still requiring tariff and consumption tax payments.
- Non-compliant Clearance: High-risk approach potentially leading to penalties or criminal liability.
In semi-managed models, the fundamental question becomes: which entity receives payment from Japanese sales? Without proper Hong Kong corporate structures, most Chinese sellers currently operate with inherent tax compliance vulnerabilities.
IV. Compliance Strategies by Business Scale
Different sellers require distinct approaches:
- Small Sellers: Prioritize business growth while monitoring regulatory changes.
- Public Companies/Large Sellers: Maintain strict compliance through professional financial teams.
- Mid-Sized Sellers: Face difficult cost-compliance tradeoffs requiring customized solutions.
V. The Optimal Solution: Hong Kong Corporate Structures
Key compliance recommendations for Temu's semi-managed model include:
- Matching goods flows with financial flows throughout the transaction chain.
- Utilizing Hong Kong entities for contracts and payments.
- Addressing potential tax gaps in general trade exports to Japan.
- Properly accounting for JCT clearance in profit calculations and annual declarations.
As cross-border e-commerce evolves, tax compliance remains an ongoing challenge requiring careful navigation to ensure sustainable profitability.